Warren Buffett made remarks at a 1985 conference on takeovers at Columbia Law School that provide wise counsel for thinking about takeovers and, by extrapolation, activist investors. In those remarks, he focused on the dilemma of who gets to decide a company's fate in an imperfect world:
“[T]he very best managed companies I know of have frequently sold in the market at substantial discounts from what they were worth that day on a negotiated basis. It isn't just the weak managements or the companies that are not meeting their potential that are vulnerable to takeovers because of market disparities from negotiated business value.”
In other words, stocks go up and down and, to some extent, make companies vulnerable to takeovers — and activists — regardless of what management does or doesn't do.
This is a problem, Buffett says, because it can lead to “revolving-door ownership of businesses,” as he puts it.
He also accepts that people may be far from perfect:
“[T]he people who end up buying businesses ... many times do so for very good reasons; [but sometimes] … purchases reflect the megalomania of people who, through natural selection based on political skills or hunger for power, move to the top of organizations.”
But after reciting these and other concerns, he posits that the basic problem is still that someone has to make big corporate decisions. According to Buffett, that someone has to be shareholders, management (which Buffet groups together with the board of directors), or the government, or some combination thereof.
In the end, he sides with shareholders, and by extension, activist shareholders. Even in an imperfect world, Buffet notes that management alone cannot have the ultimate say because “their personal equation is simply far different from that of the owners. If they can keep the keys to the store, they usually will.”
Oklahomans have every reason to want “to keep the keys to the store,” too, but maybe the best way to do that, following Buffet's pragmatic conclusion, is to be open to some shareholders' ideas and to prove to shareholders that keeping the keys in Oklahoma is in their best interests as well.
Ian Ogilvie works for a financial services company in Oklahoma City. His column appears here monthly.