Elliott Management and the art of telling bosses they’re wrong

Managers get up to all sorts when shareholders aren’t paying attention. Many hoard assets. Some even commit fraud. And very rarely one will hire Katy Perry to perform on a cruise ship. When they do, the job of reimposing capitalism’s Protestant ethic falls to Elliott Management, a hedge fund based in West Palm Beach, Florida. In February Elliott denounced the largesse of Norwegian Cruise Line, which had hired Ms Perry to christen a new vessel, and demanded the replacement of its board. It is pushing for a new boss at Lululemon, which makes leggings, and has just squeezed Toyota to pay more for a supplier in which the Japanese carmaker (and Elliott) hold minority stakes. Pepsi said recently that it would cut a fifth of its products. Naturally, the Coca-Cola of shareholder activism was again involved.

When a company slips, Elliott is rarely far behind. Paul Singer opened the shop in 1977 to trade convertible bonds but became famous in the 1990s as an obstinate lender to emerging markets. Back then Elliott bought distressed bonds owed by countries like Peru and Argentina before demanding to be paid in full. Now most of its efforts go into shareholder activism: buying small stakes in companies, lobbying for change and hoping the share prices rise. Often boards co-operate. Ones that don’t risk a public war of words—and charts which show what a terrible job they are doing. (The history of shareholder activism is also the history of media, the industry’s distant and less moneyed cousin. Campaigns nowadays often involve podcasts and videos.)

Elliott has industrialised what had been an artisanal business: telling bosses they are wrong. “There’s Elliott and then there’s everyone else. It’s two separate industries at this point,” says a banker who advises companies caught in the fund’s sights. Carl Icahn, who made his name as a corporate raider in the 1980s, is less busy than he used to be (though, at 90, he recently tried to buy Caesars Entertainment, a casino operator). Bill Ackman, Mr Icahn’s nemesis, is most focused on his dream of becoming Warren Buffett. According to regulatory disclosures ValueAct, Starboard Value, Third Point and Trian, four big activist funds, together own $24bn of American stocks and have pursued 37 public activism campaigns since the start of 2024—about the same as Elliott alone on both measures. Elliott, which also does private-equity deals, employs more than twice as many investment and research staff as the others combined.

A decade ago the reaction of boards when Elliott appeared on their shareholder register was pure terror. Today it is mere anxiety. One reason is the legions of financial and legal advisers companies employ to ponder their firms as an activist might. Another is that activists’ demands are rarely all that surprising. Returning capital to shareholders is a common ask. So are asset sales: simplification remains the idée fixe of the shareholder activist. Smiths, a British engineering group, sold two divisions last year after Elliott bought a stake. Honeywell, which will break up later this year, was considering doing so even before Elliott told it to.

There is a fundamental irony to the idea of a mainstream contrarian. Shareholder activists and private-equity investors often approach companies with similar demands for changes to costs and a firm’s capital structure. These ideas have been dominant in boardrooms for decades. So how can it still be profitable to impose them on corporate America? There is only a finite number of unwieldy industrial conglomerates to break up, after all.

One argument is that the dominance of public markets by giant, passive investment firms such as BlackRock and Vanguard necessitates a similarly massive activist to stand up for shareholders’ interests. A more cynical view is that it is impossible to ever fully align the interests of the shareholders, who own firms, and the managers, who control them. Of all the external checks on executive power—bank research analysts, proxy advisers, newspapers—hedge funds with money on the line have the strongest incentives to actually increase the value of a firm.

Activists say perpetual change in business is their surest guarantee of continued success. There is plenty of that. American capitalism is going through a corporate-governance revolution at least as radical as the one that began with junk bonds in the 1980s and birthed modern private equity and shareholder activism. Its two faces are the state capitalism of Donald Trump, who has liberally taken stakes in private companies and bossed them around as an activist might, and artificial intelligence, whose leading firms have created their own complex, and occasionally ridiculous, governance arrangements. Yet neither innovation has yet sparked a major activist campaign. Where were the guardians of shareholder rights when Intel handed over 10% of its stock to America’s government? Or now that big tech firms are spinning a complex web of AI-related cross-holdings?

The reinvention of American governance does not preclude its enthusiastic export abroad by activist investors. Britain, with its clubbable boards and tired stockmarket, is an obvious target. Two of Elliott’s recent investments are in BP, a chronically mismanaged energy firm, and the parent company of London’s stock exchange. But it is Japan where American activists spend more of their time, aided by regulatory reforms pressing companies to unwind their cross-holdings (which are even more complicated than the ones being assembled in Silicon Valley). According to Barclays, a bank, 56 campaigns were launched against Japanese companies last year, the most on record. Since 2023 ValueAct has launched more campaigns there than in America. Elliott announced three last year and on March 17th disclosed a stake in Mitsui OSK, a shipping company. It should check Ms Perry isn’t on the payroll. ■