Efficient Markets Need Guys Like Me
Activists and index funds are natural allies. There’s no conflict between short- and long-term value.
The largest proxy battle in U.S. history ended last week in a near tie, leaving Procter & Gamble without the clear support of its shareholders and activist shareholder Nelson Peltz without a board seat.
P&G’s three largest shareholders split their votes: Vanguard sided with P&G, while State Street and BlackRock voted almost all their shares for Mr. Peltz. The stakes held by these giant index funds were so large that had any of them voted differently it would have changed the outcome—either a clear victory for Mr. Peltz or a clear mandate for P&G management.
This power dynamic illustrates the enormous influence that the three largest index-fund firms (together with other passive institutional investors) have acquired over such contests—and helps explain an intensifying debate over where their allegiances should lie. On one side is a small class of legal, banking and public relations professionals who advise underperforming corporations. On the other are the activist investors who seek to hold those corporations accountable.
There is a fair debate to be had about the appropriate balance of power between public corporations and their shareholders. But the debate has been badly skewed by a false narrative. “Anti-activist” advisers have attempted to drive a wedge between activist investors and index funds by suggesting that activists are interested only in short-term gains at the expense of long-term value. This divisive framing is objectively false and has done harm to the goal of generating sustainable returns for all investors.
Mr. Singer is founder and co-CEO of Elliott Management Corporation and chairman of the Manhattan Institute.
This piece originally appeared in The Wall Street Journal