Financial History Issue 117 (Spring 2016) | Page 22

Dear Chairman Boardroom Battles and the Rise of Shareholder Activism By Jeff Gramm Public companies are filled with contradiction and conflict of interest. The best place to study these peculiar institutions is at the fault line where shareholders and corporate managers and directors meet. I’ve always kept a collection of “Dear Chairman” letters on my desk. To me, each one is a fascinating example of capitalism at work; the critical point at which a shareholder decides to engage management, distilled into a letter. The business world can be a messy place, and there is perhaps no better way to understand it than to study its many conflicts. These letters teach us how American business really works, through the voices of its most interesting participants. Robert R. Young and the Proxyteers The proxy fight for the C&O Railway sent a warning shot through public company boardrooms across the country. Robert R. Young, whom the Saturday Evening Post would later call “The Daring Young Man of Wall Street,” bested Guaranty Trust and, allegedly, J.P. Morgan, not with ample supplies of capital, but merely by lobbying public shareholders. He also caught the attention of a handful of aggressive young men who were beginning to build their own business empires during the Great Depression. Young’s campaign for the C&O Railway taught them a winning strategy for seeking control of public companies by proxy vote. When the US economy began to 20    FINANCIAL HISTORY  |  Spring 2016  | www.MoAF.org expand after the end of World War II, they worked from Young’s playbook to target underperforming public companies, including major railroads and other household names such as Montgomery Ward, Decca Records, 20th Century–Fox and MGM-Loews. This group of feared raiders picked up a name in 1951, when the management of United Cigar–Whelan Stores Corporation labeled Charles Green a “Proxyteer.” The 1950s were bountiful for investors. The decade remains one of the Dow Jones Industrial Average’s best ever, with a 240% gain. The ’50s also saw significant changes in the ownership structures of public companies. Wall Street vigorously promoted broad share ownership with efforts such as the New York Stock Exchange’s