DEAR CHAIRMAN

The rise and triumph of shareholder activism through the previously unpublished letters of some of the U.S.'s most successful investors.

A hedge fund manager who also teaches investing at Columbia Business School, Gramm looks at a variety of case studies, including Benjamin Graham and Northern Pipeline, Warren Buffett and his involvement in American Express, Electronic Data Systems founder Ross Perot and his battle with Roger Smith of General Motors, and Carl Icahn, who is still successfully chasing money-making deals after 50 years. Their battles to maximize shareholder rights—through takeovers, leveraged buyouts, cash distributions, or sales of public companies with underperforming or even incompetent managers—are told through their own correspondence. In the letters, which sometimes take the official form of Securities and Exchange Commission filings, investors outline their objectives and the motives that drive them to act. In a straightforward narrative, Gramm threads a path through abstractions about the rights of corporate ownership and the obligations of governance, highlighting the many ways conflicts of interest can develop “as long as investors are motivated by financial gain, and as long as they determine the makeup of boards of directors.” The process he traces has led to circumstances under which we must ask the question, “why did shareholders triumph in the struggle for corporate control? Who were the key players that ushered in this period of so-called shareholder primacy?” Each of the battles he recounts involved different ways of valuing and realizing the asset value of companies. Political campaigns played their parts, as well, whether conducted behind the scenes or in the full glare of publicity. Now, writes the author, “judging activism purely based on stock performance can be tricky and superficial.”

Now that shareholders have secured their right to exercise control, Gramm’s compelling account raises questions about where and how the new situation will affect the continuing maximization of profits.