Will The New (Green) Corporate Raiders Accelerate Progress?
Say you’re the CEO of a publicly-traded company in the Fortune 500. Chances are you’ve already made a net-zero commitment with a 2050 deadline. Thank you. Your company has also likely taken some real action. You’ve told your team to pursue all of the low-cost, obvious climate friendly moves. Good for you.
You’re not naive. You know your company has a very long way to go to zero out all of its carbon emissions. But you feel that you’re off to a good start.
“We’ve got time,” you think.
Your focus shifts back to today’s seemingly more pressing challenges like supply chain problems that threaten your top-line growth.
But how much time do you really have?
A Quick History Lesson: Barbarians at the Gate
I started out as a rookie investment banker back in 1984. At the same time, the world of corporate finance began to change dramatically. “Corporate raiders” like Carl Icahn, T. Boone Pickens, Sir James Goldsmith, Nelson Peltz et al emerged seemingly from nowhere.
The raiders bought big ownership positions in public companies. Seeking immediate stock price gains above all else, they insisted that boards throw out management teams, sell off under-valued divisions, slash staffing levels, buy back stock, and lever up (using a brand new and game-changing corporate finance instrument: junk bonds from investment banking upstart Drexel Burnham).
Plenty of traditional businesspeople decried this activity (and, indeed, there were many excesses). But to no avail. Their protests didn’t slow anything down.
Almost immediately, rather than leave the action — and all of the quick profits — to these so-called “activist” hedge funds, “leveraged buyout’’ shops emerged. (Over subsequent years, in a smart PR move, these firms managed to get their sector renamed as “private equity.”) These firms used the same tactics as the raiders but went even further, taking target companies private.
One thing quickly led to another. It was all very messy — and exciting for a young banker like me. Some folks went much too far. Some even went to jail. But, net/net, corporate finance was changed forever. Today most public companies are organized to be much leaner and to operate with more highly leveraged balance sheets. Management teams are awarded big stock option packages to incentivize a sharp focus on the bottom line. The private equity industry is now huge. No public company can afford to ignore the interests of aggressive institutional investors.
Why do I bring all of this up now? And what does it have to do with climate change?
I think history may be about to repeat itself.