"An aristocracy has arisen in this country, and it is a corporate aristocracy." -- Corporate raider Carl Icahn
Corporate executives didn't know how good they had it being attacked from the outside by consumer advocate Ralph Nader.
The challenge they face today is from the inside. Day after day, deal after deal, they look nervously over their shoulders, hoping their companies aren't about to be boarded by a corporate raider.
These feared raiders -- especially Sir James Goldsmith, T. Boone Pickens Jr., Carl Icahn and Irwin Jacobs -- are reaping enormous financial rewards for themselves, and frequently for other stockholders as well, by attacking corporations under the banner of shareholder democracy.
By buying minority stakes in public companies and demanding that managements do something quickly to increase the value of their stock, these raiders have forced dozens of corporations into unplanned mergers or management buyouts at premium prices that have made the raiders popular among stockholders.
Corporate America also may be losing the public relations battle to raiders such as Pickens, Icahn and Jacobs, who are crisscrossing the country to explain why their activities are good for stockholders and good for the economy. Big business' defenders are having a tough time keeping up with them. When Pickens appeared recently on CBS's "Face the Nation," the network couldn't even find a chief executive of a corporate takeover target willing to appear on the program with him.
The persuasive and charismatic raiders offer clever, often amusing and sometimes exaggerated arguments to support hostile takeovers as a way of making corporate executives more accountable to stockholders.
Take, for example, Icahn's caricature of corporate management, delivered with a stand-up comic's flair for sarcasm and satire, at a Legal Times conference in New York on hostile takeovers.
"Once a man gets to be in the corporate suite, it is nirvana for him," Icahn said. "It doesn't mean the CEO is a bad guy, it means he is in the corporate culture. You get to the corporate suite and you suddenly are 'out of pocket.'
"If you try to meet with one of these guys, he will always be 'out of pocket for the next three days.' I don't know where they go when they are out of pocket, but this is part of the corporate culture. I've always said the only way you can get them off the golf course is by filing a 13-D," a Securities and Exchange Commission document that customarily announces a raider's presence at the company's door.
Icahn said the opportunity for hostile takeovers is created by weak corporate management, which has produced some cheap stocks that sell for much less than the value of their company's assets.
"Why is there this great divergence between the real value of a company and what its stock is selling for?" Icahn asked. "Ask yourself why someobody is willing to pay more for a corporation without management than . . . with management. What does that say about management? It is sort of simple."
Since the beginning of the year, Icahn's targets have included Phillips Petroleum Co., which he forced to adopt a recapitalization plan that increased the price of the stock -- and the debt on its books -- and Uniroyal Inc., which he forced to adopt a management buyout that also gave shareholders a premium.
On the same day that he dislcosed his purchase of 20 percent of Trans World Airlines Inc., his latest target, Icahn explained what he thinks is wrong with corporate executives and boards of directors.
"The chief executive officer is a political animal; generally speaking, he is a nice guy," Icahn said. "He got to the top because he never really bothered anybody; he doesn't make waves. Now the first thing a political guy knows is survival, so by definition, it would make no sense for him to hire a number two guy who is smarter than he is. What you have is the survival of the unfittest; it is the anti-Darwinian scheme here.
"I've been on a few boards -- I haven't been invited on them, but I've been on them -- and you go to board meetings. You get there early in the morning, and everybody is reading the newspaper. The first thing is that everybody looks at their check, puts it in their pocket, smiles big, and then goes back to reading the newspaper.
"The meeting starts, you get the room dark and a few guys go to sleep. Then they put a slide machine up with a lot of numbers that even Einstein wouldn't understand.
"The CEO doesn't even do it. He gets some financial guy to show all these numbers. And then everybody is reading the newspaper anyway, or when it is dark they are sleeping.
"I was on one board and this went on for a while. I had no inside information being on that board because I couldn't figure out what they were doing. And that is the truth if there ever was truth.
"One time after three months on this board, it gets to be around 11 or 11:30, everybody is getting hungry for lunch, and the CEO gets up and says he has a great company he wants us to buy. He says it is a garbage disposal company that is not doing too well, that lost $40 million last year. Nobody even stops reading their newspapers.
"So I'm looking at this thing, and I haven't said anything for three months because I'm trying to show that I'm a model board member, and I wasn't exactly invited on that board. Then he the CEO says this company the potential acqusition is competing with a General Electric garbage disposal unit. He says the company is having a lot of trouble with marketing, but he says that he can take care of it since he is a marketing genius. He says he would just like a vote of confidence to go ahead and buy this thing.
"There was this one guy on the board who had a little stock in the company, because they had just taken him over, and he says, 'Hold on, I'd like to ask one or two questions.' He says, 'I'd just like to know, why are we doing this?' The boss asks him, 'Are you doubting my ability to turn this thing around?' which I thought was an interesting question worth a little dialogue, since the CEO had not made any money running our company . But nobody said anything.
"Then the same stockholder says, 'Icahn has been on this board for three months and we haven't heard from him. What do you think Icahn?'
"I said 'I think this is the worst business deal I've ever seen in my whole life.' Well, one guy closes up his newspaper, looks up, gets a little interested and says, 'What is going on here?' Then I said 'I think if we buy this company, we all, individually, will be subject to personal liability.' When I said that, all the newspapers closed up immediately.
"The CEO was a survivor. He said he would table this to next time, and it never came up again."
First Boston Corp. Managing Director Bruce Wasserstein, who has negotiated some of the biggest mergers ever, thinks corporate executives should manage their assets aggressively and get their stock prices up before they become the target of an Icahn raid or any other takeover bid. He thinks corporate management is capable of redeploying assets on its own more effectively than with Icahn's help.
"What Carl can do -- and he does it well -- is come in and squeeze," Wasserstein said. "Basically, if you are a corporation that is squeezable and not using your assets effectively , you better do it yourself before someone else does it for you."
Minneapolis investor Jacobs has a warning for corporate executives who complain that the raiders are forcing them to make short-run decisions that discourage takeover bids by keeping their earnings and stock prices high:
"Everything is happening on a merry-go-round today, where events, laws, buyouts, mergers and government policies are changing almost on a daily basis. You as management must deal with that. And you must face up to the fact that what you think may be short-term objectives may be your long-term survival, or it may be short term for you as a manager."