Jeff Gramm, in Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, dates the birth of modern activist investing to 1926, when Benjamin Graham was poring over the accounts of Northern Pipeline in Washington. Graham, now lauded as the father of value investing, had an epiphany when he looked at the company’s $3.6bn (£2.9bn) in bond investments and compared this to its mere $300,000 in revenue. Northern Pipeline, he noted, traded at $65 and paid a $6 dividend but had $95 of surplus cash assets per share.
Unsurprisingly, Graham wanted the company to return capital to shareholders. He bought 2,000 shares in the company, which made him the most significant shareholder behind the Rockefeller Foundation. Meetings with the company were fruitless. Management, perturbed that a mere shareholder would claim to understand the inner workings of the business, came up with every excuse in the book to avoid budging on the matter. But Graham ultimately persuaded fellow investors to back his campaign and got his way.
Fast forward almost 100 years and activist investors, who nowadays tend to be hedge funds, are once again busy causing problems for boards after a relative lull during the pandemic. According to investment bank Lazard, the number of activist investor campaigns in Europe in the first three months of 2023 hit a record quarterly level, while global new activity in 2022 was the busiest in four years.