Activist shareholder Bill Ackman defends his ilk

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For some boards of directors, hearing that an activist investor wants to shake up your team is about one of the worst things imaginable.

But Bill Ackman, the high profile activist from New York, says it shouldn't be viewed that way. When directors hear the news, they should "roll out the red carpet," he said, and then invite the activist in and hear what he or she has to say.

"It's hard to have perspective if you run the business every day," he said, whereas activists with good intentions see things from afar and can sometimes make better strategic decisions. "It's very helpful to have owners who call you up."

Mr. Ackman made his comments during a lunch hosted by Davies Ward Philllips & Vineberg LLP in Toronto Monday. For those who don't know him, he's a high profile hedge fund manager who gave a big presentation in 2007 that predicted the financial crisis. He also appeared in the Oscar-winning documentary Inside Job about the crisis (which, as an aside, is a must-see if you haven't sat down to watch it yet).

Mr. Ackman does concede that there are some activists out there who simply try to shake up companies to turn a profit (they'll buy shares and then try to shake up the board so that the stock pops and they earn a big return) but he said that people like him want what's best for shareholders.

"The problem with most big companies is they become professionalized," Mr. Ackman said, citing JC Penney as an example. Once the entrepreneur founder left the company, a bunch of suits ran it and they had problems. Mr. Ackman sought to shake things up and the company welcomed him in. Now he boasts that the company is turning around.

Mr. Ackman also points out that high profile activists have the money to pay for the things that the smaller investors can't. For instance, he went after Target and tried to get people on their board, which cost him about $10-million (U.S.) even though his attempt failed.

Mr. Ackman also has some Canadian experience. Although he had some success with Sears Canada, he ran into trouble with Canadian Tire. He bought into the company and tried to both shake up the board and get the directors to change their strategy. They did hear him out, he acknowledges, but they never acted on his plans, and he ultimately sold his shares for about the same price a few years later.

That adventure taught him a lesson: don't go after companies with multiple voting shares. Martha Billes controls Canadian Tire's and she simply wouldn't give up any control, he said. For that reason he now steers clear of company's with similar share structures.