Barbarians in the Boardroom

Owen Walker

FT Publishing, £16.99

Review by Iain Macwhirter

THE top 1% of wealthy individuals got significantly richer during the financial crash that many of them were responsible for triggering. You were probably aware of that. You may also have heard that, according to Oxfam, the top 1% of the world’s rich own more than nearly the bottom 50% combined.

However, what you may not be aware of is the rise of the hyper-rich, the top 0.001%. Their wealth has increased faster than anyone's – indeed, the top 85 individuals own more than £1trillion. Some of them hide in plain sight like the Duke of Westminster, Britain’s richest man, who owns vast property and land holdings in London, Oxford and Scotland. He is worth a relatively modest £10bn.

But many of the super-rich are more visible in their pursuit of ever greater wealth. They are according to the Financial Times journalist, Own Walker, the “activist investors” who wreak havoc in company boardrooms, mainly in America. Based in the hedge fund universe on the fringes of the known galaxy, these super-nova rich occasionally explode into public view.

One of the most notorious is Carl Icahn, an 83-year-old activist worth more than $20bn. He is one of a Wall Street clan that used to be called “corporate raiders". They targeted poorly managed firms with highly leveraged buy-outs and then asset-stripped them to release their hidden wealth.

In 1985 Icahn targeted TWA, borrowing money to fund a hostile takeover. He then sold the company a few years later making a personal profit of $469 while leaving the company $540 million in debt. Icahn was described by the chairman of TWA as “one of the greediest men on earth” which is probably why many believe he was the model for Gordon “greed is good” Gekko in the 1987 film Wall Street. In fact, the character was inspired by two other high rollers, Ivan Boesky and Michael Milken, the “junk bond king”, who both ended up in prison.

Icahn has never done anything illegal. Indeed, since the crash financial buccaneers like him have in some cases been held up as the good guys who take on and shake down self-serving company boards. That's pretty much how they come across in Barbarians in the Boardroom, a collection of rather flattering portraits of the new age raiders, subtitled “activist investors and the battle for control of the world’s most powerful companies”.

Take, Dan Loeb, of Third Point – a darling of the financial press not least because of his personal life. He spends much of his down time on surfing, running marathons and Ashtanga Yoga. He has been publicly praised by the Japanese prime minister, Shinzo Abe, for his attempts to shake up sluggish companies like Sony, by trying to get them to float off their assets – in Sony's case its entertainment wing. The actor, George Clooney, wasn’t so impressed, however. He calls Loeb a “carpet bagger” and blames him for creating a climate in which film studios only make safe big budget movies.

What connects these shiny activists with their darker predecessors is the leveraged buy out. They borrow money from hedge funds to buy up a stack of shares, say five or 10%, which gives them access to the company board. They then canvass the rest of the share-holders and mobilise them against the incumbent directors, claiming they are not delivering “share-holder value”. Once they have enough, the board will either cave in and give them a lot of money, or extra shares. Sometimes this is called “greenmail”. Or they take over the company.

Often shareholders do benefit. Apple was attacked by Icahn and another activist, David Einhorn of Greenlight Capital, for sitting on a huge £200bn cash pile. It gave in and started distributing much of it in dividends, much of which went to the activists.

Microsoft was also targeted in 2013 by Jeffry Urban’s Value Act who bought $2bn of the computer giant’s shares and turned the company upside down, forcing it to merge with AOL and to write off attempts to rival Apple in the smart phone market. Microsoft share values increased significantly, but the restructuring would cost 25,000 jobs according to Walker.

The problem with this insider’s account of activist investing is that it lacks any real social context. Are they really the good guys? Or have they just got a lot better at selling themselves as the predators that help keep the capitalist herd healthy by devouring the weakest? These people live in a very rarefied world in which billions of assets are moved around at the click of a mouse. They are answerable to no one but the market itself. Welcome to the future.