Lessons from Shareholders

A new book by Jeff Gramm ’03 includes original letters by the likes of Warren Buffett ’51, Benjamin Graham, Carl Icahn, and Ross Perot.

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In the investing course he teaches at Columbia Business School, Jeff Gramm ’03 doesn’t rely on a textbook. Instead, Gramm provides students with various original documents like letters and speeches from famous shareholders. “The way that I learned about investing, and the way that lots of other fund managers have learned, is from reviewing these original materials,” Gramm says. “At some point I figured, ‘There’s got to be a book about this out there.’” But there wasn’t, so Gramm wrote Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, which HarperCollins published in February. The book contains original letters by the likes of Warren Buffett ’51, Benjamin Graham, Carl Icahn, and Ross Perot.

What are the biggest sources of tension between shareholders and management?

The most common complaint is still about capital allocation — shareholders would like to see companies use their cash flows differently. This kind of activism makes a lot of sense. For example, I’m a fund manager: if I go into a company and say, “Your stock is undervalued — you should buy back shares,” or “You should pay a dividend,” at least that’s in the realm of my expertise. In recent years, there’s been more shareholder activism focused on operating efficiency. Shareholders will have specific recommendations on how to improve operating margins; they might say something like, “You need to spend slightly less on marketing and more on product placement,” which might not actually be their expertise. It’s an interesting dynamic.

Do you have a favorite letter in the collection?

The Ross Perot one. He was a board member of GM, and the letter is about GM’s proposed acquisition of Hughes Aircraft [in 1985]. It’s pretty remarkable. It’s basically all in bullet points — he was insanely direct and harsh! But he was right. It ended with him explaining to [then chairman and CEO] Roger Smith that GM was failing because it was trying to fix its operations with technology and money. Meanwhile the Japanese were succeeding with ingenuity — using the same workers on older, cheaper equipment to make better cars. It spelled all that out.

Is there a prevailing takeaway you learned from writing this book?

I learned that the same tensions and conflicts between shareholders and management that occurred in the 1920s persist today. There’s this idea that shareholder activism is a new movement, but it’s been around a long time — and it will be here a long time in the future.

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