Activist Investors Ally to Form Lobby Group
Circa will make case in Washington that activism is good for companies, economy
The activists are taking on Washington.
Billionaire investors Paul Singer, Carl Icahn, Barry Rosenstein, William Ackman and Daniel Loeb are setting aside their political differences to launch a Washington-based lobbying group to fight mounting attacks on shareholder activism.
Dubbed the Council for Investor Rights and Corporate Accountability, or Circa, it is the first coordinated effort by activists to make their case to lawmakers and the American public that their investment strategy helps, rather than harms, companies and the U.S. economy.
The lobbying push comes as debate over the merits of activist investing spills over into the presidential campaign. Hillary Clinton last year proposed changing the tax code to crack down on “hit and run” activists. In March, Bernie Sanders, Mrs. Clinton’s rival for the Democratic presidential nomination, co-signed legislation aimed at their ability to buy stakes and influence companies.
Activist investors have targeted some of the biggest companies in the U.S., from Apple Inc. to Procter & Gamble Co. to Dow Chemical Co. , agitating for an array of changes designed to boost shareholder value.
Circa’s five backers together manage about $90 billion. The group’s message to lawmakers: Activist investors, as owners of the companies they target, are spurring a debate about corporate decision making that has the potential to benefit all shareholders and, by extension, the broader economy.
“We’re telling a story about an ecosystem and how they help America and make it a competitive system,” said Rob Collins, a political strategist who is advising Circa.
Mr. Icahn, a veteran activist who has targeted a wide swath of companies including Apple, Xerox Corp. and eBay Inc., said poor corporate performance is dragging down the U.S. economy. Activists that keep a watchful eye on management serve as a counterbalance, he said.
“It’s the opposite of short term. You need to nurture,” Mr. Icahn said in an interview. “This is what the country needs right now.”
Activist investors’ stature has risen in recent years as they have racked up wins at major U.S. companies and won the support of some big institutional shareholders. But concerns about their aggressive tactics have grown along with their influence.
Poor performance, meanwhile, has hampered some activists this year. Mr. Ackman was brought before Congress last month to answer for his investment in Valeant Pharmaceuticals International Inc., which has weighed heavily on his Pershing Square Capital Management LP.
Circa’s backers say the spark for their effort came in 2011, when one of activism’s most strident critics, Wachtell, Lipton, Rosen & Katz, proposed changing the rules on when activists must publicly disclose their stakes. The law firm and its co-founder, Martin Lipton, led an effort to shorten the 10-day period during which activists can keep secret a more than 5% stake before they must disclose it to the Securities and Exchange Commission.
The SEC hasn’t taken action on the disclosure period, but activists and their detractors are still fighting over the rule. The Brokaw Act, the March legislation co-sponsored by Mr. Sanders and other Senate Democrats, would cut the disclosure period to two days and toughen rules to prevent activist “wolf packs” from evading securities laws.
“Hollowing out longstanding companies so that a small group of the wealthy and well-connected can reap a short-term profit is not the path to a strong and sustainable economy for our nation,” Sen. Jeff Merkley (D., Ore.), one of the bill’s sponsors, said at the time.
While Circa wasn’t formed in response to the legislation, the proposed law underscored the activists’ need for a Washington presence. Until now, the activists backing the group have mostly concentrated their efforts on increasing their influence by winning campaigns at the companies they target.
Circa’s backers have been meeting in recent years to determine the appetite for a more organized response but were slow to reach an agreement, in part because of their differing political views, according to people familiar with the group. Mr. Singer leans right, for example, while Mr. Rosenstein leans left.
Members of the group also have sparred over the years. Messrs. Icahn and Ackman, most notably, publicly warred over nutritional-products company Herbalife Ltd. They later patched up their differences.
Mr. Singer runs Elliott Management Corp., which has called for change at companies from EMC Corp. to Cabela’s Inc. Mr. Loeb’s Third Point LLC has pushed for changes at Yahoo Inc. and Dow Chemical, among others, while Mr. Rosenstein’s Jana Partners LLC has targeted PetSmart Inc. and Safeway Inc., to name a few.
Circa doesn’t plan to wade into the presidential election or other political contests; nor does it plan to form a political action committee to fund individual candidates or issue campaigns, the people said.
Instead, the group will seek to educate policy makers and the American public. Activists point to data that show stocks targeted by activists outperform, on average, in three- and five-year periods. They say their proposals create value for pensioners and other investors and reduce corporate waste.
A Wall Street Journal study last year of the biggest 71 campaigns from 2009 through 2014 found that it is difficult to quantify the broader impact of activist investors on companies. Activist-targeted companies outperformed peers in total shareholder return about 50% of the time.
