May 7, 2018

Activism: When “Santa Claus” Attacks

If shareholder activism ever had an “everybody into the pool” moment, it probably came last month when Berkshire-Hathaway announced that it would withhold support from USG’s slate of directors at its upcoming annual meeting.  Berkshire wasn’t happy about the USG board’s decision to stiff-arm a potential bid from Germany’s Knauf.  Last week, USG’s board apparently got the message, and agreed to talks with Knauf.

Many have expressed surprise about Warren Buffett’s willingness to openly oppose the board of a company in which he’s invested. But despite his carefully cultivated public image as the genial “Sage of Omaha,” nobody becomes a billionaire without an iron fist somewhere inside that velvet glove.  These 2010 comments from Buffett’s biographer, Alice Schroeder, probably ring true with USG’s board right about now:

“When he sees something he doesn’t like in a company whose shares he owns, the famously passive investor can swing into action to protect his investment—jawboning behind the scenes, scolding, cutting opportunistic deals, even hiring and firing CEOs. For some of those on the receiving end of his activism, it can feel a bit like being attacked by Santa Claus.”

Buffett’s actions are a reminder that at a time when longstanding passive investors are more frequently collaborating with activists to “shake things up” at the companies in which they invest, boards & management can take nothing for granted when it comes to investor support.  As USG found out, even Santa Claus sometimes puts coal in your stocking.

John Jenkins