Adam Torres and Michael Levin discuss activist investing.
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Show Notes:
What are the most significant activist investing situations in 2024? In this episode, Adam Torres and Michael Levin, Founder of The Activist Investor, explore activist investing and topics such as the recent Tesla corporate governance developments.
About Michael Levin
Michael Levin is a respected investor, corporate executive, and management consultant, with almost thirty years’ experience in investing, corporate finance, strategy, and risk management.
He currently serves on the Board of Directors of Comarco, Inc. (Board Chair and Audit Committee chair) and AG&E Holdings, Inc.
Michael is expert in all aspects of equity turnaround, and as an activist investor. This includes practical business strategy, financial structuring, and SEC matters. As a management consultant and finance executive he has worked on numerous turnaround cases in a range of industries. Throughout his business career his efforts increased the value of equity investments many times.
About The Activist Investor
The Activist Investor serves as a comprehensive resource for investors that seek to enhance returns of poorly-performing portfolio companies.
Full Unedited Transcript
Hey, I’d like to welcome you to another episode of Mission Matters. My name is Adam Torres. And if you’d like to apply to be a guest on the show, just head on over to missionmatters. com and click on be our guest to apply. All right. So today I have Michael Levine on the line. He’s founder of The Activist Investor.
Mike, welcome to the show. Thank you so very much. All right, Mike. So we got a lot to talk about today. So we’re going to talk about, of course activist investing today and tomorrow. We’re going to talk about the activist investor conference 2024. First thing, I guess, just to get us kicked off. I swear what I saw a founder of the activist investor.
I was like, wait a minute. Did he found the conference or like, where’s the play? I know Charlie and his team over there have been working on the activist investor conference 2024. I guess just to kick us off, like, how did you connect with Charlie and like, how, how’d all that take place? I’ve been in activist investing for well over 20 years and I also Have a newsletter And some some things I I send out to try to help elevate the level of knowledge and discourse in the in this community And they found me they said we’re thinking of Creating a conference that will address some of the really key issues that are being talked about, which I’m sure we’ll cover today.
Would you be willing to help us structure that? So I gave him some comments about that. And then they said, we have some room for on the panel. Would you like to be a speaker? I said, sure. So that’s later on this later on in March in New York City. So I’ll be there. Yeah, that’s a that’s a lot. Are you out of New York by any chance or?
No, I live and work in Chicago. Oh, okay, Midwesterner. I’m a Midwesterner too. Live and work out of LA, but I’m from Michigan. So love my Midwest.
I want to go further back. You’ve been activist investing in this, even this, this concept. I mean, as you know, it gets more and more play in the news now, but you said you’ve been in this game for, you know, 20 years plus, like, like, how’d you get attracted to this? Oh, well, I was, both as an investor and as a finance executive with a couple of places.
Then also I was a management consultant with some big firms. For many years, I grew frustrated with how companies change, how big public companies or even medium and small public companies, you know, sometimes there’s a notable lack of urgency. Or a complacency or willingness to focus only on what they want rather than what investors want And I I decided to try to do something about that.
So I started with some of my own personal investments where I was an activist and tried to urge companies to change in certain directions and then Also became an advisor to other investors, hedge funds, family offices and so forth that that have similar problems.
And so you know, between some of my own portfolio and then advising others, it’s been very busy and fulfilling. Now, in the beginning, I want to, I want to stay in the early days a little longer because you know, there’ll be some people listening to this that have ideas and they’re going, I would argue, and back then you were going against the grain.
Like, I don’t think any, or you correct me if I’m wrong, was everybody like, oh, wow, that’s a great niche for you to go in, Mike. No, no, no. Is that how it happened? No, you’re, you’re absolutely right. This, this is at a time when you know, Carl Icahn, who we read about these days a little bit, was just, going crazy trying to make change at companies and was really finding not only opposition from the boards of directors and the executive teams, but also from other shareholders. He couldn’t get a meeting with any major mutual fund or institutional investor at that point. Since then, you know, while there’s still some pushback From the companies, from the boards and the leadership teams, there’s a much wider acceptance of this, of this investing method, this investing approach among institutions, which is important, you know, the big 3, which is BlackRock, Vanguard, and State Street, you know, they have at least embraced this a lot more.
They’re much more willing to you know, push back in you know, based on stuff they’re seeing. So so, so, yeah, so early on, it was, it was hard to to get the message across, but it’s somewhat easier these days, I would say. Yeah. What kept you strong in the early days, like, to your, whether it’s your thesis or however you want to explain, your values, your core, like, what kept you strong and like, no, this is where I’m going, like, what did it for you?
I knew I was right. I knew my heart of hearts and intellectually, I had a very good point to make that, public companies have a responsibility to shareholders to big mutual funds and little little individual investors on Robin hood that own, you know, a few shares and they need to be pushed.
They need to be motivated. In the right way to represent all shareholder interests much more diligently than, than they might be doing. How do you define activist investor? Like, how do you define that? An activist investor is one who does not like passively just invest and then sort of sort of see how the investment goes.
They, they, they interact constructively. With the board of directors and the management team, they are not hesitant to share ideas about what a company should be doing. And the management team might not always agree that that’s the right direction for a company. But they, 1st have the. the creativity and the the ambition to want to make sure the company is on the right track, but they also, they also have the determination and the will to escalate, to try to put pressure on a company pressure from other shareholders, pressure from regulators, pressure, sometimes even sad to say from litigation to try to compel companies to do this.
, it’s a combination of being willing to. work with companies, but then I said also willing to escalate these situations when, when companies aren’t necessarily being as responsive as, as shareholders might like, can you give me an example of that? And I’ll tell you, and it could be from past.
It could be a famous thing. We all know it could be something. We don’t know something you worked on something you didn’t, but I just want to put a little bit of flesh around that for our audience. Absolutely. one I worked on. Okay. Where I was on the board of directors of a, of a consumer electronics company in Southern California for several years was a situation where the board was really just not, and it was called Kamar was the name of the company.
It’s no longer around. the board just refused to have any kind of serious goals or you know, pressure on the CEO and the management team to try to perform, to try to find new markets, to try to defend intellectual property and so forth. And so a bunch of investors in me were able to go in and we got ourselves elected to the board, changed management around and kept the company going for a lot longer than people thought was possible.
Another more current example is fascinating. It’s fascinating to everybody, you know, only aficionados at this point, but a fascinating situation if you’re following what’s going on at Disney and Disney. an investor, an investment company called Tryon Partners, whose head is a guy by the name of Nelson Peltz, have disagreed about the path that Disney should take.
And has decided that he and another distinguished, as it turns out, former Disney executive, Should be on the board that that’s the best way to try to guide, or even put some pressure on current CEO, Bob Iger. So everyone’s watching that situation very closely to kind of see how it works out. You know, Disney shares are are down lot over the past few years tell set some ideas.
As I said, ideas is the 1st ingredient here, some ideas for what the company needs to do. And he’s also willing to put some of his own effort and time and money behind trying to get proper board representation to to make sure that those ideas are taken seriously. Wow, that is interesting, because that could if I mean, let’s let’s just play, you know, play with this one for a moment.
If that does happen, like, what kind of precedent with a company as big as Disney and and someone’s able to make that kind of play, like, that’s that’s a whole new precedent for what that would be. That would be Pretty amazing, especially if you know Disney pretty well. You know, Iger has a very distinguished record of success there.
He acquired Marvel. He developed ESPN. He did a lot of really good things, but some of his most recent ideas and so forth, particularly the acquisition of Fox, haven’t necessarily worked out as well as investors would have liked. But nonetheless, he has a significant amount of support for Disney. From the board of directors, the board of directors has really mostly just refused to put any kind of pressure, put any kind of goals on him.
They just really, you know, the, the, the sentiment among investors shareholders is that the boards basically let either kind of do what he wants and you know, that worked out for a long time and then it didn’t. so investors like Peltz and there’s others, there’s a whole community of us that do this are willing to to try to, to try to shake things up in a way that, you know, maybe uncomfortable for boards, maybe uncomfortable for guys like Bob Iger, but in the end, you don’t have investor interests at heart.
So, yeah, yeah. Talk to me about Tesla. Talk to me about Tesla and corporate governance. Yeah, you know, you know, you know, we had to bring that one up. Oh, my God. Tesla is just a fascinating situation. You know, Tesla is a, you know, 1 of the 1 of the best examples of bad governance. Around and Tesla starting to pay for it.
I actually was involved in in 1 of these a shareholder, a pension fund litigated against the board of directors to try to get some of their compensation back, you know, boards of directors get paid for what they do. And the Tesla board got paid very, very well for a number of years. And shareholder.
Decided to push back on that through litigation in Delaware, which is their their corporate domicile And I contributed that a little bit with trying to make sure that the settlement represented You know shareholder interests. Well at the same time a different shareholder in another situation sued the company because of ceo elon musk’s compensation And that was the one we read about in the past few weeks where the the judge In Delaware decided that the shareholder was in fact, correct that Elon Musk had to give essentially give back about 55 billion with a B worth of shares of Tesla back to the company, and there’s going to be all sorts of appeals and so forth.
But where it stands right now. Is that the you know, a significant amount of CEO Musk’s compensation is going to have to be given back to the company. Now, what ties these two together and a number of other things that people have seen with Tesla is the board of directors. The board of directors at Tesla is essentially handpicked by.
Elon Musk you know, we could kind of look at some of the legality, some of the regulation and so forth and some of the disclosures, but, you know, once you get past some of the formality, every director on the board of directors at Tesla has a very close relationship. with the CEO, you know, starting of course, with his brother Kimball, but you know, going on a bunch of other directors that’s really not healthy for a company.
You need some distance. You need some sort of independence, not just on paper, but kind of intellectually and spiritually from, from, CEO such as, as Musk, who is such a strong. Such a strong character with so many resources and so many ideas. So, you know, Tesla’s kind of, you know, getting to an inflection point here, you know, competitions ramping up and it’s, it’s core businesses.
Some of its other ventures are starting to try to pan out. And so, so the board’s going to have to really, you know, provide some direction and boundaries and guardrails for a guy like Musk. And that’s hard. You know, I don’t envy those directors. I don’t either. I don’t either. I don’t either, Mike. It’s something that, you know, there’s a lot of tests to show.
You know, Tesla’s one of the most widely held shares among individual investors. And everybody’s counting on that board to make, to hold, you know, Musk’s feet to the fire and make sure he’s focusing on what’s best for Tesla, not what’s best for Elon and some of his other ventures. that’s a summary of what’s going on at Tesla.
It’s a much, much larger story than that too, but it’s that, that’s kind of the highlights. Any other significant activist investing situations you’re following in 2024? There’s a biggie that’s going on out there that’s, that, that could be very groundbreaking. And it’s the one at Starbucks. And of course, Starbucks is in the news because of its labor relations and so forth.
You know, lots of stores trying to unionize. And so on, and just this week, there was some announcement that maybe Starbucks is willing to negotiate a little more with some of the, some of the union, the union. What’s less known is took another path toward trying to. Put pressure on Starbucks SEIU nominated 3 candidates to the Starbucks board of directors and it’s 3 distinguished labor relations people in the US you know, more shall we say a little liberal leaning, you know, more supportive of, you know union rights and so forth.
Anyway, but the SEIU, yeah. Nominated these 3 people are trying to place basically union appoint your union supported directors on the Starbucks board. It’s not clear how it’s going to work out. There’s a little bit of thinking that maybe these, effort to put. These candidates on the board of directors representing labor in fact, help Starbucks want to restart negotiations this week.
Now, it’s not quite clear. No, one’s really saying, but that’s going to be 1 of the 1st examples of these, you know, cause related or investors really going as far as trying to put directors on a company board in order to help make their case. So that’s that’s another 1 that. Yeah. At least you know, activist investors are filing really close to the story.
See how that works out. And that’s we’ll, we’ll know what happens there in the next 2, 3 weeks. The Starbucks annual shareholder meeting is going to be, I think, March 13th. So, so a Starbucks shareholder should be should be voting on that right now. Man, Mike, so, so going back to, you know, where it started a few 20 years ago today, did you foresee things, not with, obviously not with Tesla or a specific company, but did you foresee things like this happening in the future?
Like, is this part of your original thesis of this could happen in your wildest dreams? Not, not, not, not, not quite. You know, a lot of good things have happened for investors, for shareholders in that time period. You know, there’s been some regulatory change that have made life easier to just sort of attitudinal changes where the idea of of interacting with companies in this way is just much more accepted.
Or even ESG, like, even just ESG is even the fact that we use that term, right? And that there’s No one had even put those letters together. Exactly. But yeah, so it’s really come a long way. So where do you think it goes from here? Well, there’s, gonna be a couple trends. This ESG trend, we’ll see what happens with Starbucks.
But this ESG trend could, get some traction. Where lots of other people who are interested in climate. In civil rights and so forth may be may, may find it attractive to try to interact with companies in the way that the is now trying to do that with Starbucks. The other another interesting trend is going to be the, increasing power.
Over these situations that individual retail investors have you know, right now for a while, it was you know, the, the big three that we call them, BlackRock, Vanguard, and State Street, they, you know, they, cast a lot of the votes. They’re starting to turn a lot of that voting responsibly over to their individual investors.
So people with even, you know, small accounts with just a few number of shares. Are you going to find they’re increasingly empowered to to matter in these situations. And there’s a lot of attention that people are starting to pay to. How can we get the attention of these retail retail investors in ways that, you know, help, you know, all whole investor community.
I’m just thinking of the logistics of that. That’d be interesting. Like just to see on the back end or like, and by the way, I don’t, I don’t think you know this about me, but so, I mean, I worked for Vanguard for many years and I was almost 14 years. So I’m just thinking about the logistics on the back end.
But with technology now, I mean, you’re not mailing out. Per se, necessarily. I’m not, I’m not going to say that that actually, cause I don’t know, maybe you still have to mail, but I’m just fantasizing about the day when, you know, if they can shift some of that responsibility over to the investors and they get an email or they get something else or whatever their secure portal is and then you get to read yourself and then be a part of that.
It becomes almost. Like an extension of civic engagement. I think it’s, I think it’s wonderful. Trying to, there’s, there’s a lot of, there’s a lot of financial technology that’s starting to grow up around this. That’s trying to make it easier for all investors, including retail investors to, to do this.
You’re right. It used to be, you’d get this big volume of mail, sometime in April. Which proxy card, which color used to be a mess. It’s a lot more streamlined now, and it’s getting even better. As, as these different financial FinTech apps start to start to matter start to, start to take hold. So, yeah, so it’s, it’s, it’s not where we’d like it to be, but it’s certainly a lot better than it was even a few years ago.
Amazing. are you, what are you going to be? I don’t know if I covered this yet. What are you, what are some of the topics and some of the things you’ll be, you’ll be expecting to cover at the conference coming up? we’ve covered some of it. You know, again, conferences like this are For pros who spend their life in this kind of world.
So there’s, there’s some technical subjects about how company bylaws are changing. There’s a bunch of lawyers that’ll be talking about developments in the state of Delaware, which is where a lot of these companies do their work. You know, again, the, the retail investor situation, I’m talking, I’m being interviewed by a prominent reporter.
Just about what’s happened in the past, you know, 5, 10 years in activism, what can you expect in the next 5 or 10 years? So I’m taking good notes on our conversation here too. I’ll just say some of that stuff again. but, yeah, a full day conference with some, some really interesting subjects. So it should be, it should be pretty fun.
Fantastic. Well, Mike, really appreciate you coming on the show today and sharing some of your insights and also history. And I love, I love the fact that you said, I’m telling you that you know, 20 years ago, you’re like, well, how, what kept me strong? I knew I was right. I knew there was a better way. I knew and so to stick with an idea thesis and to you know, work the way that you have over that.
I think it’s, I think it’s a great model. So thank you again for coming on the show. If people want to follow up and they want to follow it, continue to follow your work. Mike, how do they do that? Couple things you can sign up for the email newsletters and so forth at. the activist investor website, which is the activist investor dot com, the activist investor, one word, no punctuation.
And I also have a pretty active Twitter feed at the activist investor. You can find me either place. That’s a good way to follow follow what I’m up to. Fantastic. And to the audience, if this is your first time with Mission Matters the links to that will be in the show notes, but also hit that subscribe button.
If you need a special invitation that was yours hit, hit the subscribe button. And if you’re a long term listener and long time listener and you haven’t left a review yet, definitely leave that review. We, we sure do appreciate it. And Mike, thanks so much for coming on. My pleasure. hope I answered everyone’s questions today.
