May 29, 2019

Activism: “You’re Ugly & Your Mother Dresses You Funny”

Activists getting personal with corporate CEOs is as American as uh, maybe not apple pie – but how about Campbell’s Soup? Over the years, many of the nation’s CEOs have exited altercations with activists like Carl Icahn, Dan Loeb & Paul Singer with at least one more orifice than they entered them with – and many activists seem certain that cultivating a Darth Vader image is good for business.

This Activist Insight newsletter reports that activists have toned things down in recent years, but says that Voce Management’s ongoing battle with Argo International is a notable exception. It also suggests that Voce’s hardball strategy may have backfired on it:

Voce opened with a 10-page letter cataloging CEO Mark Watson’s perks, including sponsorships for sailing races he liked to patronize, a family trip to India at Christmas in 2017 on a jet the activist said was owned by the company – Argo later said the aircraft “was neither owned by Argo, nor exclusively used by Argo,” and that personal trips were at executives’ expense – and luxurious accommodation in New York. The point was not only that the executive had been benefiting egregiously from his position, but that Argo had a cost management problem. Expensive office space hung with fancy artwork also featured heavily.

That strategy was thrown into doubt with the publication of Institutional Shareholder Services’ (ISS) recommendation, which was a vote on the management card for all incumbent directors. “Of note, the dissident’s decision to kick off its campaign with a flashy diatribe against the Argo CEO may have been a strategic misstep,” ISS wrote, “as the materiality of the dissident critique did not ultimately substantiate the degree of impropriety implied by its opening salvo.”

The article notes that ISS’s recommendation for management’s slate came despite its general agreement with Voce’s substantive criticism of the company’s business strategy & incentive comp arrangements. That being said, Agro outperformed both the S&P 500 and its peers, so this was a fight that was going to be difficult to win in any event – but Voce’s decision to get personal from the get-go doesn’t appear to have helped.

John Jenkins