Shareholder Activism Internet Style

[rukawa]

What is shareholder activism? Basically I consider it shareholders bothering management until they do what you want.

 

Normally shareholder activists are hedge funds or professionals and they buy a certain percentage of stock, have some demands and then bother management. Sometime they force management to do something by acquiring enough board seats that management has to do something..but often they don't even do that.

 

I propose a different model. What I am basically suggesting is that we organize on this board regular shareholder activist type sessions for candidate companies. We post their IR phone number, email etc and we all go and keep bothering them for a period of time. There are hundreds of us at least and if we encouraged each other, share information I think by shear numbers we could accomplish some things for small companies. Plus I think it would just be fun.

 

We could also synchronize with small investment blogs and reddit's Security Analysis blog.

[Seahug]

This interesting to me and I believe there is a need based on past experience. Examples are:

 

1) Colt buy out by majority shareholder Fidelity at a below market price vs selling to a consolidator.

2) LVLT management stock awards for the past several years while revenue growth and rev growth per share has been nil

3) Many, many examples in Asia & elsewhere

 

I guess my questions are:

 

1)Is it sustainable - how would the site earn money, is there enough interest and is the size of the market opportunity big enough, who would pay on an ongoing basis apart from the initial set up? Most of what I've seen is people rant on twitter or message boards like this or the bigger investors on Bloomberg

2)How would it work operationally in detail? Have you thought it through?

3) How can it gain traction

 

If there's serious interest, I would be willing to collaborate, help build and seed

 

thanks!

[rukawa]

1)Is it sustainable - how would the site earn money, is there enough interest and is the size of the market opportunity big enough, who would pay on an ongoing basis apart from the initial set up? Most of what I've seen is people rant on twitter or message boards like this or the bigger investors on Bloomberg

2)How would it work operationally in detail? Have you thought it through?

3) How can it gain traction

 

 

1) I don't really get this. We already have a site. Namely this one. This site is already sustainable. I am not talking about creating anything new. Nobody would pay anything. Now if this becomes really popular maybe we would need a separate site but right now we are very far from that.

 

2) I have thought it through a little. THe biggest problem is getting interest from people. But basically the way it would work is that we would have a thread or multiple threads with some name convention like Activist Situation 1 - Company Name. Then we would have a proposal from someone which would provide the company, the situation, the desired changes, and contact information. At that point people could buy shares, call the company up and ask for the change desired. You could then post anything you learned or even the fact that you called on the forum in order to encourage others to do the same.

 

The objective might be to have a certain number of separate contacts from different people over the course of a month. If you really wanted to get annoying you could also post customer support numbers etc, and people might accidentally call these and ask to speak to management.

 

We could then coordinate with blogs like otc adventures, no namestocks, oddballstocks etc. The more people find out and try calling the company the better. We could also call regulators and other concerned entities (e.g. to pressure dark companies to release annual reports).

 

3) Good question! I don't know. I created the thread to get traction. It starts with one campaign. If enough people participate we can start something. I already have a candidate in mind. But to be honest I expected more than one response on this thread. After than we need to get other sites in on this, like Greenbacked, R/security analysis/, blogs, Seeking Alpha articles etc. Then you get traction.

 

 

Look 4chan and 8chan organize these massive campaigns where they harass people or they cripple websites. Terence Tao and Tim Gowers have organized polymath where he has gotten hundreds of people together to solve math problems. I actually consider the polymath project a model for how this could work. This is what the internet is useful for. Good or bad it is capable of organizing hundreds of people together to accomplish something.

 

If all these other groups can do this, why, oh why, are investors so apathetic?!

[rukawa]

Maybe I need to relabel the thread...something like Trump is going to make America Great Again. Then I would get a few hundred replies.

[Guest Schwab711]

I'm not sure there's much evidence activist investors know how to run a business better than management.

 

I think it's a nice idea but I think there's a lot of details about investing that make this idea impractical. Also, I just tried to do your exact idea posted with ELDO just 3-4 months ago and no one on the board or anywhere else was interested. Good luck though!

[rb]

I like your idea of sort-of an "activist alliance" where we pool our power to effect change. However I don't know whether your methods would do the trick. I don't think that many companies would change strategy or whatever just because we really annoy IR. I think to effect change we really would have to pool our resources and acquire a non-trivial voting block. Then we'd have real power. The reason why companies sometimes make changes without the activists getting board seats is because they wield a credible threat of getting board seats not that they're just annoying.

 

I like where your head is at though.

[NeverLoseMoney]

I think you need to be careful about how you frame something like this and the language you use to describe it. While it is true that some shareholder activism could be described as causing some inconvenience to management to get them to do something you want, you should never use the word "bothering" in a thread like this or on a blog if you want to achieve something. That immediately gives management an excuse to ignore you and others, because they can basically dismiss you as a bunch of spammers.

 

I believe you're mainly talking about dark companies that are reluctant to provide information to shareholders. Some of them simply ignore shareholders who ask for the financial statements of the company. Some of them keep promising to give you something, but don't keep that promise. A company that completely ignores its shareholders just looks bad and unreliable. Not only to shareholders, but to (potential) customers as well.

 

I think it could be a good idea to organize shareholders in a situation like this and use a blog or message board to do so. The main problem I see is that some of these companies might be extremely cheap. It could be a bad idea to share information about very small companies with illiquid stock, because you might destroy your own opportunity of buying a meaningful position by sharing the name publicly. So, I think most people who invest in small, dark companies regularly would prefer working informally with a few like minded investors that have a lot of knowledge and contacts in that space and to try to get some information that way.

[Icarus]

I think to effect change we really would have to pool our resources and acquire a non-trivial voting block. Then we'd have real power.

 

+1

 

It's not enough to reach out to IR to cause change and some companies outsource that function so the management team could care less.  Not a bad idea to work with other investors to buy a block of shares to influence change though.

 

A private group chat or something similar for people interested in doing this would be better than posting on a popular public forum. 

[LC]

Be careful legally too. I would do some research first...

[DooDiligence]

I like your idea of sort-of an "activist alliance" where we pool our power to effect change. However I don't know whether your methods would do the trick. I don't think that many companies would change strategy or whatever just because we really annoy IR. I think to effect change we really would have to pool our resources and acquire a non-trivial voting block. Then we'd have real power. The reason why companies sometimes make changes without the activists getting board seats is because they wield a credible threat of getting board seats not that they're just annoying.

 

I like where your head is at though.

 

My head is in exactly the same place (reading Jeff Gramm - Dear Chairman...)

 

What market cap would be appropriate?

[DTEJD1997]

Hey all:

 

I think there is INCREDIBLE opportunity doing this...

 

HOWEVER, you would have to have be very well capitalized.  Buying a few thousand dollars or even $10k or $20k worth of stock would not simply be adequate in most cases.

 

You would also need to be incredibly patient.  You would probably need a time frame of YEARS.  In order to get a position you would have to willing to buy ANY time shares became available.  You would also have to be willing to go above a 5% position.

 

You would also need to be closely working with an attorney.  You would need to be willing to take legal action to enforce your rights/plans.

 

I own stocks in companies that would/could be a target for activism.  I have not yet taken any action.  Perhaps later this year.

[oddballstocks]

This stuff works, it's a fairly tried and true model.  I've been the catalyst for two activism campaigns and played a hand in a third.

 

The reality is unless you have the deep pockets, time, and inclination to do this then writing on the Internet is no more than journalism.  Whenever I've uncovered a situation and pushed I viewed myself as a journalist encouraging others to action.

 

The playbook on these things are all the same.  Run for the Board, exert pressure, move for change.  If it doesn't happen you need to sue.  Sometimes (often?) you need to sue regardless.

 

The unfortunate truth here is you need to be hiring white shoe lawfirms, and the largest/bet proxy solicitors.  If you don't the company will shoot down any/all proposals and proxy contests.  The cost to hiring these guys isn't cheap.

 

I know of a fund that uses this activism model as their business model.  They are very successful with it.

 

There's a lot of this already happening, it's just floating around in emails (sometimes) or on the phone (most of the time).  Everyone is worried about creating a "group", but that's mostly armchair lawyering at work.  Talk to a lawyer about it, it's not much of an issue.  You don't put this stuff online for the same reason the military runs a closed network.  You don't want the enemy to gain access.

 

If you talk about this stuff you'll find very quickly that these target companies know who you are, what you do, and have read everything about you.  It would need to be a private message board where you had a way to physically verify membership, or it just stays how it is now...offline.  If you have some online secret forum it's a matter of time before the companies worm their way in.  You might think that isn't possible, but most of these execs have millions of dollars on the line if things change.  Is hacking a message board, or impersonating someone worth millions?  To management teams without ethics (which is 99% of these situations) it isn't a big deal.

 

I'm not trying to rain on your parade or anything here.  I'm just saying this isn't a new idea, it's happening already.  The internet has already changed how activism and microcaps work.  Your better bet is to say "email me or call me because I want to talk" and you'll probably end up with a flooded inbox.

 

But what the heck...if you start a forum I'd like a login as well.  Might as well see what companies people are interested in taking action on...

[Seahug]

I was thinking of a website where small investors can vote/give their proxy for certain actions in a seamless manner, allow the most important popular opinions to be chosen, present factual information which can be commented on or corrected in an easy way. You can aggregate votes maybe not enough to block but to raise an issue. Maybe has links w other websites, twitter etc so can gain critical mass.

 

Ideally all automated so minimal running expenses after it's built

 

 

[TBW]

I think its an interesting idea and something I think about a lot.  Hard to do as you though as Nate pointed out unless you can spend lots of money.  That said I am always interested in these situations.  I like to buy shares and cast my votes for the activists if there is value and I agree with them.

 

Might there be another approach here where the objective of your group (initially) targets the process? 

 

From what I understand the proxy process is horribly outdated, requiring lots of mailing, gathering addresses etc.  If the proxy process was more electronic this would be easier/cheaper.  Also if there was a way to electronically contact more shareholders it would be easier to gauge support and then management could be presented with "I already have support of x% of shareholders".  Pushing for legal change through calling elected officials as you suggest may be an interesting approach to this.  Alternatively, if there was a cheaper more standard means to do the legal process (like the way people that are trying to automate a lot of lawyer paperwork) that would also work.

 

For example, yesterday I was discussing the CLMS tender.  Management is getting the company on the cheap because the Appraisal process is too difficult for small investors to do.  If this was a process that could be automated/streamlined, that could tilt things back in investors favour.

 

Happy to work with anyone on such a project.

[DooDiligence]

I know most people here are aware of the Sitestar story & for those who aren't it's an interesting study.

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/syte-sitestar/

 

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2016 shareholders letter

 

http://sitestarcorp.com/wp-content/uploads/2016/09/2015ltr.pdf

 

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If a thing such as this gets done it should be for the right reasons (as Mr. Moore & Kiel have done) & not simply to do it...

[mbreject]

I have no experience in activism, but something like this would have to be really organized – everyone should agree on what they want from the management and on a head person to represent them in case the company is willing to talk. You might also need to agree on who you would put up for a board seat (if it gets the far.)

 

Also, someone should estimate the costs of doing all this - shareholder mailings, lawyer fees, etc. and everyone could chip in their share. Or since this involves a lot of unknowns, someone can agree to bear the costs (or a portion of it) and everyone sends him the money afterwards.

 

All this would all have to be done somewhere that's more private than these forums. Someone in IR could be regularly monitoring for these kinds of things or could have Google Alerts or something similar set up. This would also prevent freeloaders like me. (Since more shares could help in a vote, you could post it in the forum after everyone in the group has finished acquiring their shares or when you're doing shareholder mailings.)