Each day, BoDs and executives treat us activist investors worse than the prominent reporters in two major newspapers did last week. We expect it from CEOs and their minions.

We expect writers only to get the facts straight, reach conclusions based on logic and reason, and handle all sides fairly. Neither Dennis Berman in the Wall Street Journal nor Steven Davidoff Solomon in the New York Times did that in their recent hit pieces on activist investing.

Not surprisingly, corporate flunkies such as Stephen Bainbridge loved it. And, Solomon has an unfortunate habit when he chronicles activist investing of botching facts, reason, and fairness, so this latest episode doesn’t exactly surprise us.

Berman Should Learn Corporate Finance

The WSJ piece criticizes so-called short term thinking among activist investors. In accusing us of “intellectual sameness”, he

wonder why “can’t activists find targets ... that are playing it too safe, perhaps pushing too much into dividends or buybacks. Or missing a great opportunity in a new market.”

He says, correctly,“[i]t just doesn’t happen”, meaning activists don’t typically urge companies to reinvest spare cash. The short answer to his question is, we can’t find companies that he contemplates. He misses the reason why.

A portfolio company with excess cash can either invest it in the business (capex or M&A), or return it to investors. Activist investors (all investors, really) look to invest in opportunities with the greatest long-term return. Companies that shed cash, or activists that want a company to get rid of excess cash, conclude that it lacks business investments that return enough, on average, to risk leaving the cash in the company.

Berman notes many activists think “companies are misallocating their capital...toward bad long-term projects.” He admits, “Many times they are right.” Instead, he seems to want to find a few examples of companies that somehow voluntarily starve themselves of cash at the expense of worthwhile internal investment. We defy him to identify a single such company.

Davidoff Should Learn Journalism

He uses the Trian-DuPont situation to make some extreme comments about activist investing. We don’t dispute his main point, that Trian picked a large, profitable company for an activist project. So, making the case for change there becomes relatively more difficult.

He goes further, though, and asks if now “corporate America finally draws the line and tries to stem the activist tide.” He predicts “a more full-fledged public debate about shareholder activism and how far it should go” and “a clash of civilizations, a battle that could perhaps define shareholder activism, setting limits on who controls corporate America.” So, “[i]f DuPont goes down, then the rest of corporate America is fair game for hedge fund tinkering.” Just wow.

Every year or two one or another activist project leads to similar musing. Last year, Carl Icahn audaciously sought more cash from Apple. Every couple of years, Bill Ackman confronts a make-or-break situation. Hell, Bob Monks tried to win election to the Sears BoD decades ago, and corporate lackeys thought life as we knew it would end. Happens all the time.

Davidoff misses a more important point about DuPont performance. He notes the company has beat broader market benchmarks. But, it has underperformed its chemical industry peers, as Trian’s analysis and presentation amply shows. We wonder whether Davidoff read Trian’s work, or listened only to DuPont’s PR folks.

Davidoff notes the company did lower its forecast, giving Trian some “ammunition”. He parrots the company excuse of currency problems, though, and chalks it up to “macroeconomic issues that finance engineering cannot make disappear.” Currency problems, of course, are the typical refuge of clueless or evasive executives, and beg further investigation that Davidoff did not pursue. And, Trian has hardly proposed financial engineering at DuPont, instead seeking a strategic rethinking to focus its business and lower expenses.

He slams Trian for having the gumption to push for change as only the fifth-largest shareholder. He asks, “Why should DuPont adhere to the wishes of its fifth-largest shareholder...? Why not first reach out to the four shareholders larger than Trian?” We posit both DuPont and Trian have so reached out, with inconclusive signals. If Trian could not count on support from at least some of these and other shareholders, it most likely would not push its agenda. So, the company indeed should adhere to those wishes, if they reflect the desires of most shareholders, and we don’t yet know if they do.

Finally, we object to how Davidoff characterizes DuPont, Trian, and activist investors everywhere. DuPont is “a well-performing company that should be receiving credit for its actions”, “a solid company with good returns.”

As for activist investors:

1. ❖We have “no justice”
   

2. ❖We “strike” and “attack” companies in a “struggle..over who knows what is best for America”
   

3. ❖Companies need to “pacify” investors, instead of giving them “ammunition”
   

4. ❖We look for a “quick payoff” over the “objection of competent boards that perform well”.
   

We’ve heard worse, but not in the pages of the New York Times.

At least Berman talked to some investors. He didn’t let what he heard get in the way of his botching corporate finance.

We doubt Solomon even went that far. He shows no sign of even trying to talk to Trian, who no doubt would have answered every question.

All we want is a fair and well-reasoned analysis of the relevant facts. Alas, we saw none of that last week.

*Lifted from economist Brad DeLong, who recites this plaintive cry when he slams a careless or biased writer on his terrific blog.