Aftershocks — second-order effects — can shake the ground far beyond the original shift in tectonic plates. Few predicted that an unprecedented increase in interest rates would turn mortgages into handcuffs and send housing prices skyrocketing. Or that mobile phones could facilitate a bank run. The earthquake of the October 7 Hamas attack on Israel has caused devastating destruction and loss of life, on both sides. The aftershocks, including the presidents of Penn and Harvard resigning, may signal the beginning of the end of DEI on campuses. The media has focused on big and small issues, including antisemitism on campus and what qualifies as plagiarism. The real story? A: The steady shapeshifting of influence. An apex predator known as an activist investor has escaped its cage and is now attacking social issues. What happens to Harvard is a sideshow. Ackman’s billionaire tantrum represents a far more dangerous virus that has plagued humans throughout history: the concentration of power.
After October 7, university responses to pro-Palestinian activity angered wealthy donors, including a hedge fund manager, Bill Ackman. Disastrous congressional testimony and revelations about citation inaccuracies by Harvard President Claudine Gay in her academic work led to her ouster. A few days later, Business Insider reported that Ackman’s wife, Neri Oxman, a former MIT professor, had similar citational inaccuracies in her dissertation. Oxman admitted to the mistakes and apologized. Business Insider then followed up with more examples, including 15 passages lifted from Wikipedia. Ackman demanded a retraction from fellow billionaire Mathias Döpfner, the CEO of Business Insider’s parent company, and threatened a lawsuit. “Business Insider is toast,” he announced.
Bill Ackman is an “activist investor.” Activist investing is what it sounds like: An investor acquires a stake in a company and gets “active,” i.e. influences the direction and strategy of the business, seeking to generate greater returns. A modern phenomenon that flowered in the 1980s is now an enduring force in the public markets.
A successful activist play can net billions of dollars, and an industry has evolved around the tactic. Lawyers specialize in the laws governing share purchase and disclosure, proxy solicitation (asking other shareholders to vote a certain way), and anti-takeover provisions (e.g. poison pills). PR firms specialize in the management of activist campaigns — a company called Institutional Shareholder Services (founded in 1985) makes recommendations on director slates. There are even private investigators who dig up dirt on management or activists, depending on who’s paying.
Successfully rattling the cage of a public company board and CEO requires a specific set of skills and attributes. Most activist investors possess three key traits. 1) Intelligence: Good activists see strengths/weaknesses the market is missing. After amassing a short position, Hindenburg revealed that Nikola was a fraud. Elliott is building a position in the underperforming Match Group, as it has a monopoly in online dating, minus the monopoly-like valuation. 2) Leadership: Every activist bid is a battle that requires significant financial and psychological commitment from the activist and their investors. And 3) Narcissism: Like influencers, activist investors crave attention. They know their actions make headlines, because takeover bids are corporate violence.
I have some domain expertise/insight here as from 2003 to 2008 I raised over $1 billion and spearheaded several activist campaigns. My investors and I became large shareholders at United Retail, Sharper Image, Gateway Computer, and The New York Times Company, securing board seats at Gateway and NYT. I just read the last sentence and may be guilty of the weakest flex in the history of activism. But I digress.
Activists assemble and deploy resources and skills to go directly to the consumer (i.e., the shareholder), bypassing the board. I believe Ackman sees the same opportunity with social issues. He’s trying to bypass lawmakers and university governance, going straight to the media and other donors to “unlock” change. University management has been an interest of his throughout his life — his undergraduate thesis was about Ivy League admissions — but despite two degrees from and millions in donations to Harvard, he’s never had the kind of influence there that he’s experienced over the past few months, when he brought down the president herself. At some point during that fight, it dawned on him that what he was doing on evenings and weekends is what he does during the day.
In addition, he’s eaten from the same rancid fruit plate as another billionaire and has also come down with severe Twitterhea. It’s likely most everything you know about Ackman you learned against your will. He also missed this verse in the Bible, Matthew 7:1-3: For in the same way you judge others, you will be judged, and with the measure you use, it will be measured to you. And Business Insider highlighting Oxman’s citation inaccuracies was no more antisemitic than Claudine Gay’s firing was racist. Ackman and Gay’s reactions reveal a surprising lack of self-awareness; they’re more focused on their egos than the causes they claim to be waging war against. Their hollow bellows of bigotry are a distraction from real injustice. Ackman, Gay, and Elon Musk are the same person: entitled rich kids who look out the window and see themselves, crediting their character and grit for their success and bad actors for their shortcomings.
Step One: Attack the Media
Ackman isn’t the first billionaire to go after a media organization he dislikes. The go-to when advocating for a transfer of power from an institution is to fulminate against any check on (your) power or hypocrisy. Can’t answer the question? No problem — mis-direct and attack the organization holding you accountable. Also, don’t trust scientists, academics, or even data. Urge people to trust their feelings, unencumbered by logic or data, as that’s where they’ll find “your” truth.
Tech venture capitalist Peter Thiel put Gawker out of business for outing him as gay, and Musk bought Twitter when he disagreed with the platform’s moderation policies. Trump started his own social media platform, and Andreessen Horowitz cosplays media with the sole charge of protecting the firm’s virtuous portfolio from other media.
Ackman’s Midtown jihad against Business Insider is doomed and foolish. He has not disputed any facts in the stories about his wife; rather, his complaint is that BI’s reporters had improper “motivations.” There’s no First Amendment carve-out for “bad intentions” where the facts are accurate. The activist playbook is based on applying pressure in excess of any objective measure of power through public condemnation, lawfare, and the judicious use of allies.
We are seeing in real time an ecological transition — predators are breaking free from the enclosures of decorum, media scrutiny, and even law, and scaring the shit out of institutions. Institutions who believed boards or decorum would save them from this aggression. CEOs, and now institutions, were wrong.
Direct to Consumer
The very wealthy have always had more influence over the world than other people, but it’s typically been exercised indirectly through intermediaries — taking politicians and Supreme Court justices on hunting trips, hiring lobbyists, or paying for ad campaigns to influence political races or referendums. Even Thiel’s attack on Gawker was a proxy war, funding another celebrity’s lawsuit (Hulk Hogan).
As our political institutions have become ineffectual (the current Congress is setting records for inaction), billionaires are filling the void, bypassing the middleman. In the 1990s major consumer brands were frustrated with poor execution and tired strategy in the retail channel, so they went direct to consumer and built their own stores, catalogs, and e-commerce sites. Ackman represents the same trend in policymaking: taking his campaign public, demanding resignations or policy changes, and now asking independent media to bend the knee.
We will witness evermore brazen displays of wealth power as skills and experience drawn from activist investing are applied to other areas. Controlling a university will be the next step for the billionaire who has everything. Why settle for having your name on the side of a building when you can control what happens inside? If you can take over a company, against the current management’s will (once unthinkable), or intimidate a media outlet, what’s to stop you from seizing Dartmouth, the First Amendment, an election board, or even the DOJ? Musk’s takeover of Twitter isn’t the pursuit of free speech, but its defenestration.
The emergence of activist billionaires is a function of our decreasing support for public institutions and the mammoth shift in wealth (power) from public to private hands. When the top tax bracket was 90%, private wealth was limited, and government was empowered to put people on the moon and cure smallpox. As we’ve freed the mega wealthy from the obligation to fund the state, the state has withered. When we next set foot on the moon, the feat will be accomplished mainly via privately funded infrastructure, likely built by two of the wealthiest men in history, Musk and Jeff Bezos.
There’s a silver lining here. Private enterprises are generally more entrepreneurial, efficient, and agile, so they move faster than public projects. A private SpaceX rocket can blow up and spray debris over protected wetlands with little consequence other than bad PR and maybe a trivial fine — the price of progress. If a NASA astronaut takes an unauthorized souvenir on a mission, they face Senate hearings. Planting the Stars and Stripes on our Luna is meaningful, but it required close to 5% of our national budget. Now space spending has plummeted to 0.5%, and billionaires have filled the void. In theory that means we have more funds for roads and defense, while Bezos bets on the moonshots.
But that silver lining highlights a large, dark cloud. It’s great that Jeff Bezos wants to use his Amazon “winnings” to build the next generation of space infrastructure, but should the wealthiest nation be dependent on the vision and generosity of its strangest billionaires to determine our priorities? An odd, drug-addled billionaire could just as easily decide his cash is better spent building a social media network to platform white supremacists or people who traffic in the misery of murdered children’s parents.
Ackman claims to be a warrior fighting antisemitism, but he’s gazed into the ketamine heart of another billionaire and decided his antisemitism is … not antisemitism. Billionaire owners of media companies stand behind their outlets until another billionaire doesn’t like an article and demands a review of the journalism. As with blood clots, like people and ideas cluster — and nothing clots faster than billionaires.
Billionaires are humans, and thus, not to be trusted. Humans need guardrails, because we are temperamental, short-sighted creatures. We are irrationally suspicious of those different from us, and far too trusting of those like us. Daenerys Targaryen wanted to free the enslaved from their shackles. However, once armed with weapons of mass destruction (Drogon, Rhaegal, and Viserion), she became the oppressor. It’s the natural order — power corrupts. When in history has one person’s unchecked, unilateral control of a large army not ended poorly?
Democracy is fundamentally a recognition of the weaknesses of the individual. It is a system designed to take power out of any one person’s hands. By shifting wealth to individuals, we have shifted nation-state power to individuals, which is undemocratic and dangerous. The cause is pedestrian: low taxes. We need a different nomenclature. We should rebrand “taxes” as “guardrails.” A progressive tax structure is a healthy dispersion of power. The massive reduction in the top tax rate is a concerted decision to clot power.
What’s next feels obvious to me. We have a man who could soon be a trillionaire as he builds powerful enterprises with weak governance (e.g., publicly demanding his board give him an additional $70 billion or he will abscond with the firm’s IP). What if he garnered a 9% return on this capital, and decided to assemble a militia that would be better resourced than the Russian army ($84 billion in 2022 spend). What if this army was buttressed by 51% of the world’s satellites, an army of tens of millions of sycophants, and control of a global media platform? What if this person had already demonstrated a willingness to turn on/off key battlefield technologies and developed an addiction to a dissociative anesthetic that has hallucinogenic effects? What if?
Life is so rich,
P.S. We discussed my investing strategy for 2024 on Prof G Markets this week. Listen here.