Inside Shareholder Activism With Wachtell Liton's Lina Tetelbaum

Jonathan Boyar (00:00):

The following is provided by Boyar's Intrinsic Value Research and is for general informational purposes only and should not be construed as investment advice. Any opinions expressed herein represent current opinions of Boyer Research only. Boyar Research assumes no obligation to update or revise such information. Investing in securities involves risk, including the possible loss of principle. Past performance does not guarantee future results. Employees of Boyar Research or clients of an affiliate may own shares in any company discussed.

Lina Tetelbaum (00:26):

Now, where I would add an extra layer, which maybe is a little more provocative is I think that it's a small universe of ideas that the activists are pushing at companies that fall into really a small handful of ideas like capital return, sell a company, break the company, run it better. Those are the four. I think that sometimes the pressure that they put on companies is with the goal of having a company do something more short-term oriented because there's decisions you can make that would lead for a stock price increase in the short-term and there's decisions for the long-term. I know activists don't like this characterization, but the chief is they have shorter investment horizons than the index funds of the world. I do think there is an element of time horizons that comes into play, but I think everyone can agree that activists try and pick good stocks and then catalyze event-driven outcomes to make the stock price go up.

Jonathan Boyar (01:28):

Welcome to The World According to Boyar, where we bring top investors, bestselling authors, and business leaders to show you the smartest ways to uncover value in the stock market. I'm your host, Jonathan Boyer. Today, I'm thrilled to be joined by Lena Tetelbaum, a corporate partner at Wachtell, Lipton, Rosen & Katz where she heads the firm's shareholder engagement and activism, defense practice. Lena is one of the leading lawyers in the country on shareholder activism, proxy fights, takeover defense, crisis management, and mergers and acquisitions. She has advised companies in some of the most closely watched activists in M&A situations in recent years, including Philips 66 in response to Elliot Management, US Steel and its defense against Ancora, Match Group in its response to Elliot and many others. Shareholder activism is a topic I have a keen interest in because at Boyer, we spent decades looking for companies trading below what we believe they're worth, often because of hidden assets, complicated structures, poor capital allocation, or a gap between public market value and private market value.

(02:34):

Many of these same issues are at the heart of shareholder activism. So today we are going to talk about how activism really works, how Lena helps counsel companies who are the target of activists and why some companies become vulnerable and whether activism ultimately helps unlock value for shareholders or not. Lena, welcome to The World According to Boyar.

Lina Tetelbaum (02:54):

Thanks for having me.

Jonathan Boyar (02:56):

I'm really looking forward to this. And before we go into activism, proxy fights and boardrooms, I just want to start with your story because it's fascinating. You were born in the Soviet Union, immigrated to the US, grew up in Queens, went to Stuyvesant High School, and for those outside the New York area, Stuyvesant High School is harder to get into than pretty much any college. Then you went to Harvard, Yale Law, and now you're a Partner at Wachtell Lipton, which is one of the world's most prestigious law firms. That's a remarkable New York success story as you can script. And so when you look back at your path, are you amazed at where you are or any reflections, et cetera?

Lina Tetelbaum (03:32):

Well, when you put it that way, it's always a little emotional to hear your life story and it's still going, thankfully. Being more in the Soviet Union, I do think helps me in my job. There's a lot of Soviet adages that I rely upon when I think about activists investing and activist defense. I say, "Well, just because you're paranoid doesn't mean they're not coming to get you. " That's a classic that I would say applies. Another one I use is you say you don't have to outrun the bear, you just have to outrun your peers TSR. There's a lot of healthy paranoia that I think you need to have both as a lawyer in general and as well as in this particular practice area. But I'm incredibly blessed. I really consider myself one of the luckiest people in the world and I'm really a product of all these amazing institutions.

(04:21):

I'm the president of the Stuyvesant High School Alumni Association. I could not be more proud because Stuyvesant is still to this day serving the young, scrappy and hungry people in New York City, really hardworking families and it is really the way out of many people's circumstances as it was for me.

Jonathan Boyar (04:39):

That's awesome. And you're talking about paranoia. Would it be helpful for corporations to have a little bit? And what’s a healthy dose of paranoia and skepticism?

Lina Tetelbaum (04:48):

I think that some amount is healthy. In some ways I focus more about what's the unhealthy amount. I think that there's a lot in my line of work of articles. Think like an activist. Look at yourself as an activist would. Don't get caught off guard because you can just think about yourself the way an activist would. And I think that is an exercise worth doing and I do that exercise with boards. But I think there is a difference between understanding what an activist might think about you versus making business decisions to try and not have activism happen to you. Sometimes it's fine if activism happens if there's a good reason that you are sticking to your guns on your business decisions, on your board composition, on your views on capital return, all that stuff. These are just business judgments that reasonable minds can differ on.

(05:39):

I think it's absolutely healthy to think about how different investors with different time horizons can think about you, but I do think it can get unhealthy if boards start to substitute their own judgment for what they think would pacify a hypothetical activist, which is not necessarily what makes for long-term value.

Jonathan Boyar (06:00):

Taking a step back, people hear shareholder activism and they think of Carl Icahn, hostile takeovers, corporate raters and all of that kind of thing. It's very different today. How would you define shareholder activism? I’m recording this in May of 2026?

Lina Tetelbaum (06:16):

I think shareholder activism is really misunderstood. One of my jobs both when I educate clients and also when I teach at law schools is to just try and explain what it is and what it isn't. Maybe in some ways it's easier to start with what it isn't. It isn't the case that every company that is underperforming is a good activist target. There are many reasons that companies underperform that have no good activist thesis that would unlock value and lead to money for the activist fund. If the reason your stock has crashed is because you have some contingent overhang from a litigation or you're just a biotech company and you got a terrible weed out, that's not an activist play. There might be a cheap entry point. You could probably explain this better than I can, but that's not necessarily an activist play. So what is an activist play?

(07:09):

An activist playing, I think more than anything activists, if they succeed, they are excellent stock pickers. So they actually want to pick companies that are high value companies. The best activists, I sometimes say activism is almost like a compliment. It means an activist, if they invest in you, they believe that you have a lot of value that has not been unlocked. Unfortunately, they will allege that it has not been unlocked because of decisions you as management or you as the board has made, but it is an entry point at a time that the shares are undervalued. And then the idea of activism is to use the tools of being a shareholder, primarily the threat of an election contest to try and convince a board to make different decisions. That would be, I think, a neutral explanation. I think everyone would agree with that. Would you agree with that?

Jonathan Boyar (07:59):

Sounds fair.

Lina Tetelbaum (08:00):

Sounds fair. Now, where I would add an extra layer, which maybe is a little more provocative, is I think that it's a small universe of ideas that the activists are pushing at companies that fall into really a small handful of ideas like capital return, sell a company, break the company, run it better. Those are the four. I think that sometimes the pressure that they put on companies is with the goal of having a company do something more short-term oriented because there's decisions you can make that would lead for a stock price increase in the short-term and there's decisions for the long-term. I know activists don't like this characterization, but the truth is they have shorter investment horizons than the index funds of the world. I do think there is an element of time horizons that comes into play, but I think everyone can agree that activists try and pick good stocks and then catalyze event-driven outcomes to make the stock price go up.

Jonathan Boyar (08:59):

That is a big complaint in terms of activists. They're only making a quick buck. Some are like that and some are very long-term engaged shareholders. If someone's taking a three, four, five-year view of a stock or of a company, is that you think enough of a time horizon where you think they can make a legitimate suggestion? Or what do you think is the alignment of time horizons?

Lina Tetelbaum (09:23):

See, that's a great question because sometimes I will hear someone say, "No, activist MS for the long-term, they could stay in a stock for three years. Oh my goodness. Is that what we count as long-term?" When you just take one step back, obviously this depends on the industry. Obviously, in all fairness an activist isn't just looking at an underperforming stock, they are looking at peers. So if your peers over the same time period are doing well, it is sometimes a fair question of why is this company also not doing well. On the other hand, businesses often have cycles, long cycles, and there are decisions that you can make at the wrong point of the cycle that could lead to increased stock price in the short term. And the classic example is let's just take capital return. At any point in time, what a stock is undervalued.

(10:14):

Anytime you could say, give more back, give more back. The market is not rewarding you for your strategy. Give it back to us so we can invest in a different stock. But the opportunity cost of that capital return always is investing in the business, whether organically or inorganically. You can have management teams and boards very much focused on, of course I understand that yes, I could use my capital to do share buybacks and dividends, but there's this opportunity coming up right now, or it might come up two years from now and I need to have the cash in order to be able to do that because that's going to set this business up for success for the next 20 years. And I do believe that there is tension in sometimes the strategy takes time to bear out and the market won't necessarily reward you right away.

(10:59):

And that's not necessarily a good enough reason to just give up. I'm not saying activists are saying give it all back. Sometimes they do. Sometimes they say liquidate. Sometimes they say sell yourself, but it is a matter of degree. And I think sometimes the level of repurchases and stock and shareholder return that activists are asking for is to basically get the bump for themselves in the short term at the expense of real growth opportunities that investors could ride in the long term. I do believe that.

Jonathan Boyar (11:28):

There's definitely a tension there, but a lot of times activists have points and a lot of times there's entrenched board members there who have been there for 15, 20 years and are collecting a really nice salary and they don't want to either sell the company or do other things and they're happy with the status quo. So how do you as the advisor to these boards work with them to try and get the optimal outcome where ultimately shareholders are awarded long-term shareholders and the business performs better?

Lina Tetelbaum (11:58):

First of all, I will just say I had a lawyer once say to me that they are upset that activists don't get enough credit for the ways not just that they create change in any one campaign, but the way that they really move the market in terms of what boards are doing year round. And I had a different perspective, but I acknowledge that things really have changed. So even take something like this idea of the entrenched board. When you take a snapshot of most major public companies, I'm not talking about small cap, but just large cap mega cap public companies, their non-gov committees are very focused on managing tenure on the skills matrix and they're not doing it because of activists. They're doing it because in their engagement with their shareholders, they're often asked questions about that. And how are you making sure that you have the skills you need for this moment in time and also for the future strategy that you're running?

(12:56):

You don't have these boards that are 20 year tenured majority of the board has basically been there forever and they're entrenched. I think especially in businesses that are cyclical, it's just helpful to have someone who has seen the play before, otherwise you're always reinventing the wheel. And these are just very basic, obvious business concepts I'm saying. I'm not saying anything controversial, but I will say that when an activist comes along, they do tend to target those longer tenured directors and they'll say, "Well, the reason this underperformance is happening is over your tenure, the newer directors, they would think differently. They would act differently if you weren't in the room because there's too much deference to you. " And when I'm in these boardrooms, I have to tell you, many of the longest tenure directors are the most even-handed, the most able to get people's honest opinions.

(13:49):

They can often have one-on-one conversations, synthesize it. I just think some of the conversation around how board composition leads to bad outcomes is very reductionist and really presumes too much about these crude measures and how useful they are in understanding board dynamics. That's my view. But to kind of go to the heart of your question, let's say there's two categories of activist campaigns. There's the activist campaign where the ideas the activist has the company is already planning to do. I can't tell you how many times a company is actually thinking about doing a sales process, an activist comes banging on the door saying, "You need to do a sales process." They're knocking on an empty door, but the companies really cannot tell people that they are going to do it because as you know, if there's the failed sales process, you could do real harm to the company.

Jonathan Boyar (14:44):

How would you resolve those?

Lina Tetelbaum (14:46):

In situations where there's alignment between what the activist wants and what the board is already planning to do, typically first thing you would try and do is you would try and get an activist to agree to a short-term NDA or something to say, "Hey, look, we are doing what you want. Please don't nominate, please don't agitate. Let us do the thing because actually your disruption and distraction might stop us from achieving the very goal that you say you want. " That doesn't always work because activists, obviously, they don't A, want to be restricted from trading. So if you're not going to announce something in the next few weeks, an activist doesn't want to be locked up from trading for months. So this strategy works best when you're on the eve of an announcement or really very close to something that's in your control that you can announce very quickly.

(15:37):

Second thing is reality is activists often don't trust companies when they come into the stock. They often think that the NDA is some kind of ploy to lock them up or restrict them. It's hard to do that if there isn't already some trust built up, but if you cannot get the NDA, then what you can do is depending on where you are in the life cycle of the activist proxy season, you can wait it out a little bit, ask them not to go public, or even if they go public, be patient and then announce the thing that you were going to announce and that at some point there really is no thesis remaining. So whether or not you get them to be pencils down or trust you or cite an NDA, if there's actual business alignment, the activist gets what they want because they've made an investment, they get the catalyst and the stock and often they're able to get public credit for this event even if they weren't really the ones catalyzing it because they will have leaked that they're in the stock and everyone will kind of know that the activist was hanging around the hoop.

(16:42):

Those situations tend to resolve with just announcements. Maybe sometimes a director will be added to kind of oversee the announcement or be a part of the announcement.

Jonathan Boyar (16:55):

Before we continue, if you're enjoying this conversation, I'd encourage you to subscribe to our Substack at boyarresearch.substack.com. That's where we share some of our research, all of our interviews and our thoughts on investing. Now back to the conversation. I think what might be extremely helpful because a lot of our listeners, they hear of activist investing, obviously they know about it, but just like an example, okay, so you have a well-known activist, let's say Elliot, I mean, they're probably one of the best known now. They have a thesis that they want done. How does that work? What happens? Are there behind the scenes talks before this occurs? Does a letter get sent? Can you maybe take us from point A to resolution?

Lina Tetelbaum (17:45):

Let's just start with the basics of how does an activist even decide how to approach the company? Do you approach first and then make your investment? Do you make your investment then make yourself known? So there's a lot of judgment calls that activists themselves make in the reveal and the unveiling and it really runs the gamut. Sometimes an activist will ask, you show up in an IR inbox, ask for a meeting, they haven't even taken a position. So that's one example. Another example on the other side of things is an activist will have taken a position through derivatives that the company was unaware of, never reached out to the company and announced themselves via a white paper or a presentation or a full-fledged you were going to nominate. Those two things are very different from the company's perspective and you might ask, "Well, why would an activist do one versus the other?" I think they're making judgment calls about the receptivity of their ideas.

(18:43):

I think that if they think that the company's probably going to play ball and we can just kind of start this dialogue, we can do something constructive, I think they would prefer to. I think if they've convinced themselves based on the research that they've done that there isn't going to be receptivity, I do think activists tend to believe that pressure, media attention, that's the kind of way to get the board to do what you want. Let's start with what I think is the most common approach. I think the most common approach is to have built your position secretly. Reveal yourself once you have built your position because the activists try to build their position cheaply and if the market knows they're there, the stock price is probably going to go up and it will cost them more to build the position. So build your position in private.

Jonathan Boyar (19:32):

How do they do that? They do it with derivatives or ...

Lina Tetelbaum (19:35):

With Zurimus. Almost always the activists will reach out and say, "We are one of your largest investors." They tend to say investors versus stockholders because they are not in fact owning your share so their ownership wouldn't be on a 13F filing or 13D filing. They are using derivatives to get the economic exposure to you. Once they have done that, they will reveal themselves, say, "We are one of your largest investors. We would like to meet."

Jonathan Boyar (20:00):

Do you think they should be allowed to do that? I've always found that really strange. I know Elliot does that. They say that to the largest shareholders and then you look at the 13D and they don't own anything, at least in common shares. Is that something that is controversial in the activist community?

Lina Tetelbaum (20:14):

Absolutely. There has been a lot of lobbying and thought leadership certainly by my law firm, Wachtell, Lipton, to try and level the playing field, which I think is highly asymmetric as to the company's ability to even know who is invested in when and what their intent is. And there's been some evolution. The 13D rules have been modified recently to say, "Okay, instead of waiting 10 days to file, you have to do it in five business days, so that's a little bit faster. You could see them coming a little bit faster, but most activists don't even take positions higher than 5%. I think to me, yes, the rules absolutely could make this better for companies. With the larger issue I think is that investors themselves don't seem to care that activists are not aligned with them as stockholders. We as companies and company defense counsel had won that battle of ideas.

(21:14):

We would be in a different position. We are not able to convince shareholders at a large scale level, don't you understand they are building this in derivatives. They're using peer sex to try and take money off the table in a way that you're not able to. Their ideas naturally are going to accrue to them in a disproportionate way. They only own a tiny percentage of the shares. You own 10 to 20%. Those ideas for some reason do not lead shareholders to say, "Yeah, I'm not going to vote for activists." Instead, what they'll say each time, "Well, I just need to understand their ideas." If they have a good idea, we don't care how they've taken their position. I think that has itself given a lot of ammunition to activists to just build their positions however makes economic sense to them and they don't get flat for it.

Jonathan Boyar (22:02):

Who are you referring to where you're trying to educate? Are these the index funds?

Lina Tetelbaum (22:06):

The index funds, the institutional investors, ISS, anyone who is in the business of advising or voting shares could absolutely have taken the view that we don't think that activist investors are aligned with long-term. That's not the view held. Even if they believe that, they say it doesn't matter because in any given situation, we're going to look at the ideas they brought to the table and who they have found as potential director additions. So they will treat everything case by case, even though I do think there's a larger systemic issue about the way that activists are operating and the way they are able to influence and impact companies that I think is really asymmetrical in their favor.

Jonathan Boyar (22:52):

Let's talk about index funds. Should they really even have a vote? They're not really investors in the company. Obviously they own stock, but they're by definition passive. They just own it because it's X percent of the S&P and a lot of times these index funds own 10, 20% of a company and they're effectively the decision makers. Is that fair to active shareholders? How do you thread that needle?

Lina Tetelbaum (23:14):

I think if when you look at any company's shareholder base, there is variety in terms of holding periods, return expectations, trading powers. I certainly would not single out index funds as those that are unfair. I could say it the other way, which is it fair to folks who have invested in index funds with the purpose of getting long-term returns and stocks that they don't intend to trade, that decisions are going to be disproportionately influenced by portfolio managers who have a year-end book that they're trying to maximize so that they get paid as part of their compensation. You could say it that way. You could say, is it fair to index funds that again, the investors who are trying to take a long-term view have a third of the shares voted by institutions who are influenced by proxy advisory firms who may have very niche, sometimes ideological perspectives on what good governance is, what any business should be doing.

(24:22):

And it's not like ISS or Glass Lewis necessarily knows every industry in the same way as the industry specific investors. I would say across the board, this is not a perfect system. There's different stakeholders with different agendas. And I absolutely think that if you took index funds off the table, then you almost have no constituency that can have a time horizon longer than a one or three, fairly even a fear period. I

Jonathan Boyar (24:49):

Don't think there's the right answer to it. It just seems like there's a lot of power held by Fidelity, BlackRock, State Street. Are you happy with how they come up with their decisions and the methodology behind it?

Lina Tetelbaum (25:03):

One thing I will just say is I know there's the perception that they have power, but in reality, the vast, vast, vast majority of activist situations result in a settlement, a mutual settlement. Tiny fraction of them actually go to a vote where the BlackRocks and State Streets and Vanguards and Fidelities of the world vote any shares. It's actually less about power that they exercise and more about the reality that when an activist shows up in September or October for an annual meeting in May or June, and you know that you're not going to know the vote until the night before the annual meeting because the index funds will vote the night before the meeting. Most companies, it's hard to tolerate that nine-month uncertainty. I don't personally think that they are yielding influence. I think it's the fact that they can't actually and won't be able to tell you, "This is what we think, this is what we want you to do, " because they are passive, that most boards when they're looking at a, what's going to happen when we go to the vote analysis, they have scenarios.

(26:13):

They have scenarios where they get all the index funds, in which case likely they do win, not always, but likely. And then there's scenarios where they lose even one of the index funds and they lose a seat or two. So when you're sitting there in October, November, December, January, February, it's a lot of time to deal with not knowing when you're trying to execute on a vision, when you're trying to make investments and build momentum in your business and keep management in the borderline. Companies decide, let's see if there's a way that we can live with a resolution that the activists can also live with. And that is what happens the vast, vast, vast majority of the

Jonathan Boyar (26:51):

Why do the index funds wait till the last minute to vote? That does seem like it doesn't help anyone. And if they're long-term shareholders, they'd want to do what's ever in the company's best interest and leaving everything in limbo for seven or eight months doesn't seem to be that helpful.

Lina Tetelbaum (27:08):

Some of this is just the legal regime that we operate in in terms of when do you actually have a voting decision to make. I think one of the challenges in this practice area is that a guiding principle for activists is to take a position at a time it makes sense economically. When is the stock most undervalued? When if there's a dip. You cannot guarantee when that's going to happen. That could happen in August, that could happen in October, that could happen in February. Depending on when you have taken your position, you might be a day away from the deadline to make nominations or 10 months away. Depending on when your economic interest aligns with the proxy calendar, you're going to have to have a different strategy. And we're either a few months away from an annual meeting or we're many, many months away from an annual meeting.

(27:53):

But until there's actually a nomination window where activists can nominate directors and then a proxy statement is filed and it is reviewed by the SEC and a minimum number of days from when you mail your proxy statement to the meeting, there is nothing for the shareholders to do. It's all a hypothetical. So you just have to take everything on the merits. You have to take the business idea on the merits and you have to take any candidates that the activist serves up and evaluate them on the merits.

Jonathan Boyar (28:25):

So since you say that most, I mean, I don't know if you have a percentage end up in settlements.

Lina Tetelbaum (28:30):

90%.

Jonathan Boyar (28:31):

90%. And most the public really doesn't even know that this occurs.

Lina Tetelbaum (28:36):

No. I want to make a distinction between there are times where an activist has an idea approaches a company, the company says, "By the way, doesn't make sense and the activist just goes away." That happens rarely, but that happens and the public doesn't know about that. Usually when there is a settlement, the public knows either because there's a formal agreement that is filed where there's a written contract that gets filed with the SEC, everyone knows about that settlement because it's a material contract that the company files or it's an informal settlement where a company issues a press release and says, "We are going to add two new directors and we are going to form a committee to look at this interesting question of capital allocation. And by the way, we thank our great activist investor who has been a part of this dialogue with us, so they give credit in the press release.

(29:31):

I think the market has come to understand that whether it's a formal contract or just a press release, this is the activist settlement and this is the reason that there's not going to be a proxy fight at this company.

Jonathan Boyar (29:43):

So how do the settlement negotiations take place? Maybe can you walk us through one that you've done or you've witnessed?

Lina Tetelbaum (29:50):

In any settlement, you have to really separate the business idea and the governance change that is being requested. Those really are different things. Both are a part of any ultimate resolution, but they almost take separate tracks. The business negotiation is as you would expect. The activist comes in, they have an idea, they want you to return more capital, they want you to sell yourself. They want you to spin off underperforming asset from their perspective. They want you to do that. So that's one of three outcomes. The company does not agree, will not agree, will not do it. So that's that. But in a situation where there's a resolution, they could either say, yes, we will do that. So we will announce a share buyback. We will announce that we're going to run a strategic called turn this process. We will announce that we're going to sell this part of our business.

(30:49):

It could be an announcement or more commonly, we will form a committee of the board to look extra hard at this idea, which by the way, we already looked at. We don't think so, but we understand that you're going to have some new directors that you've recommended or nominated for this board. They could join this committee. They can look at this question anew and everyone can have confidence that this is an impartial analysis. So please.

Jonathan Boyar (31:18):

That's to me, one of the most fascinating things. Someone gets a board seat, one or two seats on the board. Does that in practicality do anything? I mean, obviously you can't sell the company, you can't effectuate meaningful change. Obviously it's a victory, but what type of victory is it when Elliot or Starboard or whoever was able to get one or two representatives on the board?

Lina Tetelbaum (31:41):

I was going to talk about the second part and I can answer your question as part of this. So there's the business discussion and I think you're getting to the heart of it, which is at the end of the day, when I teach this in law schools, I say, can shareholders change the CEO? No. Can shareholders issue dividends? No. Can shareholders sell the company? No. The only tool that the activist really has is the ability to change the board members who are making those decisions who do have the power to do that. That's why coupled with any business ask is often either a real threat or a veiled threat that we will replace directors if you do not agree with our business idea. And that itself can look very different. And that's why one of the biggest pieces of advice that I give to companies that I represent is you can't really do this as a hypothetical.

(32:33):

You have to actually see who the activist nominees. Who is it? Is it one name? Is it seven names? Sometimes you'll get a notice of nomination with nine names. That's one kind of campaign. Sometimes you get an activist nomination with two names that are independent directors who the activist you could tell does not know because even the D&O questionnaire says they just met the activist or they have no prior relationship with the activist. Those are two very different things. Those two have two very different resolutions. So it matters. Also, sometimes the nominees are individuals that the sitting directors know. Sometimes industries are very insular. There's a lot of history sometimes. You may have even sat on a board with one of the individuals. You may already have a view. It may be a very favorable view. It may be a very negative view. That's going to lead to a different negotiating posture.

(33:27):

What happens is the activists ultimately will find people. They will say, "We believe these people have the skillsets to bring about these great ideas that this existing group of directors is unable to execute on because of whatever the activists will allege are their conflicts or their entrenchment or their unwillingness to part with crown jewel assets." At the end of the day, I agree with you that obviously boards, it's very unpleasant to feel like certainly if you're going to be one of the individuals who might get voted out or your reputation or your integrity is going to be questioned, that's a very unpleasant thing. That's not something you would've expected to have to deal with just for being on a public company board. It shouldn't obviously be part of it that someone might send investigators to try and find dirt on you so that they can shame you in a press release publicly.

Jonathan Boyar (34:27):

That actually happens?

Lina Tetelbaum (34:28):

Absolutely happens. Absolutely happens. And we get these emails or even when we're talking to council, they'll say, "Look, here's what we know about your board and this is what we're going to say if they don't do X, Y, and Z." Respectfully, I try to be very even-handed when I talk about this stuff and I'm not saying every client is perfect, but it can be a very dirty game and it's meant to make people feel afraid. It's making directors have to choose between their own personal reputation and wellbeing versus doing what they genuinely think is best for the company. I don't personally love that. But at the end of the day, the reason many of these things are able to resolve rather amicably is that individuals that the activist has sourced when they join the board, if they join the board, they have duties to all shareholders.

(35:17):

They don't have a special duty just to the activist. They're often not even allowed to share information with the activist. As soon as they join the board, they're often actually read into confidential information that they didn't have before and they can understand decision making that from the outside looking in didn't seem to make sense. Very often, those very directors are the ones that vote with the full board maybe not to sell the company or not to split up the company or not to issue a bigger dividend. And they're often the directors who, if the activist is there next year and says, "This company still needs change." Those directors will say, "I have a fresh perspective. I'm impartial. I joined this board. I think they're doing the right thing and these are people who are trying to get to the right answer." I think it's a big mistake that companies make to alienate these individuals or assume that their plants sometimes they are and you can't ignore that if you see that, but oftentimes they also are just individuals who want to be on a board.

(36:20):

They were contacted by an activist fund. They said, "Hey, are you interested in joining this board?" And you say, "Yeah, sure." And they'll say, "Great. I mean, there's this extra step you have to do. You might have to potentially be in a proxy fight. What?" And many of these directors, they'll say, "I will join the board if I wanted, but if I have to be actually in a proxy fight, I won't do it. " So they'll still get nominated, but they will drop out if it's actually going to be public and ugly and acrimonious. And if you find those people and you accept those people into your boardroom, you often actually have someone reasonable with good ideas, industry experience, and you can get to the right answer for all shareholders.

Jonathan Boyar (37:04):

That's really interesting. I just want to get back, I guess, a little bit into Wachtell in general. I think this would be really helpful. I mean, you guys as a firm play a huge role in activist investing, obviously protecting companies, starting from Marty Lipton to obviously now yourself doing this. Can you just explain a little bit of the history of Wachtell, how it's evolved, the activism process from the '80s when Marty Lipton invented the poison pill till today? It'd be great just to hear that.

Lina Tetelbaum (37:36):

We're very fortunate because we really have a rand reputation that is best in class synonymous for defense. So if there's a bet the company crisis by virtue of the innovation that Marty Lipton and the partners that he started out with, including our litigation department that litigated so many of the cases that developed the law in what is permissible defense, all these innovations, we get called on and we get called on more than ambulance chasing this work because I do think that these are incredibly delicate, complicated, high pressure, high profile situations. We don't seek to be day-to-day counsel to companies. We're not trying to do their 10Ks. That's not our business model. We're the spartan force that gets brought in when there's something that's really major.

Jonathan Boyar (38:35):

Are you closer to being a banker than a lawyer in terms of doing mostly strategic advice than necessarily pure legal advice? Is that a fair characteristic?

Lina Tetelbaum (38:44):

I will own that characterization. I think there is an element of that where we do practice law, we do read. Sometimes there's rules that say you can't do certain things. But to your excellent point, when you do activism defense or takeover defense, the team is bankers, lawyers, PR firms, proxy solicitors. That's the four horsemen. The lanes are really blurred. Bankers will sometimes give legal advice. The lawyer will give PR advice, but it's because at the end of the day, this isn't like, "Hey, Lena, can I sell a company under the merger agreement during the sign a close period?" For that, I will read the interim operating comma and I will look at it and I will say, depends on how you interpret this comma. So I have that. That's my training. Inside of work is, what do you think they're going to do next? What do you think we should do?

(39:37):

If we do this, what are they going to do? It's conversations about the board. How should we have this tough conversation? Should we ask this director to retire? Do you think this shareholder will support us? How can we message all that we're trying to do? So it's truly strategic advisory work. And I think what separates us is the fact that we don't really treat this as a distinct practice area. So even though I had this practice, it's not like we have an army of people doing activism defense as a work stream. In fact, to the contrary, every one of my partners does activism defense. I sometimes laugh because our firm was founded 60 years ago. Many of my partners are truly living legends in this space and I joke that they have forgotten more than most people have ever figured out about it. And they're still here.

(40:24):

When you hire us, you're hiring a strategic advisor that has a long time horizon with a company and we want to solve all the problems. This is something that happens to companies, but it's not its own thing. It happens at a time, you might be thinking about a new CEO. It happens at a time you might be trying to do an M&A deal. What we bring to bear is I'm also an M&A lawyer, so I can answer how you do the M&A deal as well as how that interplay is with the activism. I do think this has become a bit of a commoditized practice area where people are saying, "Well, we know this particular activist and how they think about that. " And we do too. I think this is board advisory work that has a crisis oriented nature, but at the end of the day is much closer to helping boards and management teams achieve their business objectives, whatever they may be.

(41:19):

And this is something that you have to manage and we really work as a full firm including if there's a litigation element to it, the whole thing. And that's, I think, a very special part of how we do it and it's in the discipline of how we were founded and how this entire practice area really originated.

Jonathan Boyar (41:37):

We do a lot of work with family controlled businesses, AB stock, that sort of thing. Is it a waste of time to engage with them or are they generally just set in their ways and there's nothing that could be done? Is it that's what you get when you invest in a controlled company? What have your experience been?

Lina Tetelbaum (41:54):

There is a fair amount of activism at classically controlled companies, whether by family or by visionary founders. I think what the activists have realized is what we've been talking about, which is you don't need to win a vote to get directors or to get people to change their minds because they don't want to be ridiculed. That's a really powerful influencing force. So I think what do activists bank on when they make investments in and then agitate at controlled companies? Well, first of all, they think it's a good investment. Going back to what I said at the very beginning, activists have to be good stock pickers. They have to make good investments and good entry points. If it's a good investment, sort of doesn't super matter if you're able to change any minds because you allocated capital wisely. But then seven point is if you have actually good ideas or ideas that you understand could seem good to other shareholders, to the press, to other constituencies and you lay them out there, that does put pressure on a company to say, "Well, why aren't we doing this?

(43:01):

" And maybe they have very good reasons because they've thought about it recently, but sometimes maybe they haven't thought about it recently and when they think about it again, they say, "You know what? Maybe we should do this. " And you have to remember, even at controlled companies, there's still boards. Controllers are respectful of their boards and don't necessarily want to be in the minority if there's a prevailing viewpoint of what something should be and what should happen. So I wouldn't say it's totally a waste of time. I do think those tend to be situations where the activist will try and be more collaborative because they know they don't really have the cudgel so they will try and do it with honey.

Jonathan Boyar (43:44):

I think that's a great place to end it. What I really appreciated about this conversation is that activism is one of those topics where people tend to have very strong opinions. And as Lena laid out, the reality is much more nuanced. Sometimes activists are right, sometimes boards are right, sometimes a company really does need a push and sometimes the push can be too short term. So Lena, thank you again for doing this. I really enjoyed the conversation. And for everyone listening, please follow The World According To Boyar wherever you get your podcasts. You can also find us on Substack or contact us directly at info@boyarvaluegroup.com. Thanks again for listening and until next time.

 

 

 

 

 

 

 

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