Wes Hall’s advice to the CEO was direct: “I think you should resign.” The chief executive’s company was facing a showdown with an activist investor at a shareholders’ meeting in just a few days. The activist wanted to replace several company directors; the new board would then certainly fire its top managers. Hall, 44, the polished but blunt CEO of Toronto-based Kingsdale Shareholder Services Inc., had estimated the shareholder votes for and against management’s current slate of directors. Management was going to lose.
“If the shareholders vote for the new slate,” Hall told the CEO (who, for obvious reasons, wants to remain anonymous), “you will most likely lose your severance, and you could be in a personal legal fight for the vesting of your stock options.” Hall’s closer: “Negotiate with friends now, or enemies later.” The CEO tendered his resignation the next morning.
Welcome to the full-combat world of activist investing. Wall Street agitators such as Bill Ackman, Barry Rosenstein and Carl Icahn, and a small but growing number of Canadians, such as Greg Boland of West Face Capital, want underperforming executives to raise shareholder returns fast, or get out of the way. And they come armed with detailed business makeover plans, lawyers, investment bankers, PR reps and what, over the past decade, has become one of the most powerful weapons in their arsenal: the proxy solicitation and advisory specialist.
In Canada, if you’re an activist investor leading a shareholder uprising, or you’re the CEO (or board) under siege, you usually either hire Hall or end up staring at him on the other side of the table. Over the past five years, Hall has become one of the most influential power brokers on Bay Street. He’s also one of the most unlikely–raised by his maternal grandmother in a tin shack in Golden Grove, Jamaica, one of 15 half-brothers and sisters.
What does a proxy specialist do? A generation ago, the job was little more than an administrative position–arranging annual meetings and monitoring the collection of proxy forms from docile shareholders who didn’t have the inclination to attend, and whose shares would then be voted in favour of existing directors and management. Hall began his career in that routine end of the business in the 1990s. He founded Kingsdale in 2003 because he saw a growing and profitable niche: Activists and target regimes needed high-level advice and coaching in shareholder disputes.
Now Hall and a handful of other top Canadian specialists are like the superstar managers who hatch U.S. presidential campaigns. They plot strategy, control written communications to investors, stage cross-country tours, corral shareholder votes and whip their candidates–be it the activist or the target company–into shape, keeping them focused and on-message.
Indeed, although Hall’s most stunning victory was the Ackman-led revolt at Canadian Pacific Railway in 2012, he says about nine-tenths of his business is defending companies. His client list includes such domestic and foreign giants as Goldcorp, Scotiabank, Xstrata and CVRD (now Vale). Whether Hall is playing offence or defence, however, he often has to be the bad cop. Target companies are in play because they’re seen as laggards, and it’s his job to point out their deficiencies–in detail. “People don’t like being told they’re a bad parent,” he says. “But a proxy fight is not a pillow fight.”
It used to be that if major shareholders were dissatisfied with a Canadian corporate giant’s performance, the matter was resolved by some behind-the-scenes griping among old-boy CEOs and directors at, say, the Toronto Club or its Calgary counterpart, the Petroleum Club. But Canada’s remaining public companies now need to attract foreign capital to bolster their share prices, and that has put them in the crosshairs of activists like Ackman.
Stylish and supremely confident, the 47-year-old Ackman is CEO of Pershing Square Capital Management, an $11-billion (U.S.) New York-based hedge fund that has taken aim at more than two dozen high-profile targets since Ackman founded it in 2004. His results have been spectacularly hit and miss. He bought large positions in Procter & Gamble, Kraft and U.S. mall owner General Growth, agitated for changes, and later sold shares for fat profits. He was lionized in the Academy Award-winning 2010 documentary Inside Job for his early bets against subprime mortgages. Last month, he made an estimated $688-million profit on his 20.8 million shares in whisky maker Beam Inc. when the company agreed to be acquired by Japan’s Suntory.