General Motors doesn't need a hedge fund stooge on the board

US Outlook

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Harry Wilson wants a seat on the board at General Motors.

Despite his credentials and background, shareholders should reject the idea outright when the opportunity to do so arrives, as it will do when the company gives investors a chance to vote at its next general meeting.

Mr Wilson is a former Goldman Sachs banker who ran a hedge fund and now represents the interests of four other “activist investors” – a modern phenomenon meaning people who find cash on a balance sheet and set out to get it. He was also a member of President Obama’s task force that bailed out the auto industry, including GM – without which there probably wouldn’t be an American auto industry.

The first thing to say is that Mr Wilson deserves kudos for playing his part in saving GM, even if lending the company American taxpayers’ money in exchange for stock that could be (and was) sold at a later date isn’t exactly the financial equivalent of brain surgery. GM is now in better health than it has been for years, even if his criticism about its anaemic share price is hard to deny.

Also to his credit, he appears to be no Eddie Lampert, the Ayn Rand-loving hedge fund man who is busy running an actual business, the department store giant Sears, into its grave. So if he does get the seat on the board he is looking for, he won’t be running the show. At least that’s not officially part of his plans. 

Mr  Wilson’s sole stated aim is to get the company to return some of its balance sheet capital to shareholders in the form of an $8bn (£5bn) share buyback, for which he will be reimbursed by the hedge funds that are his real employers.

If he gets his way, he will then presumably retire from the board and return to the relatively harmless obscurity from whence he came. That said, those board gigs are pretty sweet, so in fact that’s unlikely. The chances are that lots of institutional shareholders, and a few private ones too, will support Mr Wilson. They should not. Unless he has some sort of ulterior motive, his aims are incredibly short-term and short-sighted.

Even if his plans are advantageous to shareholders in the short term – and a buyback programme may indeed give GM’s share price a shot in the arm – why do his hedge fund employers think that he needs a seat on the board to agitate for it? His presence on the board will also be a big distraction and probable headache for the chief executive, Mary Barra.

GM’s stated aim is to have cash and equivalents on its balance sheet of between $20bn and $25bn, but even though its current balance of $28bn is in excess of that amount, it also has several recall issues that are likely to result in big payouts over the next year or so. If any business needs a lot of cash for rainy days, it’s the car making business.

Earlier this month, GM announced 2014 profits of $2.8bn, despite significant recall costs. That’s not an insignificant sum – worse than 2013 but probably better than anyone could have imagined back in the financial crisis days of 2008. The company also increased its dividend – real cash being returned to shareholders – by 20 per cent.

However, there was something else, something remarkable, hidden in those results: GM paid unionised hourly-wage workers a bonus of up to $9,000 for meeting performance targets. The bonus was only payable if the company also met overall profitability targets – take note, Wall Street bankers: that’s how bonuses should work. Even more remarkable was the fact that the impact of recall costs was felt mainly in management and executive bonuses.

It isn’t just the balance sheet that would take a knock if Mr Wilson got his way. If anyone thinks that someone with a background at Goldman Sachs and hedge funds, as well as a failed run at Congress as a Republican, is going to be good for workers then they’ve lost their mind.

Inviting a hedge fund manager on to the board at GM could be a big mistake, no matter what the rest of his CV looks like. General Motors shareholders need to reject this wolf in sheep’s clothing.

Don’t hold your breath, though.

The male dinosaurs taking aim at female bosses

Speaking of activist investors, can we please stop calling them “investors”? Buying enough stock in the open market and then issuing demands that have no aim other than to extort cash out of a company – only to sell if it doesn’t work or if the cash is paid out – does not make anyone an “investor”. It makes them a chancer. Which is how I will refer to them from now on.

That’s exactly what Carl Icahn did at General Motors and it’s a pattern that is being repeated everywhere, only here in the US apparently it’s female chief executives who are most often targeted. Out of a mere 25 female chiefs running S&P 500 companies, almost half are facing some sort of activist chancer revolt.

You can almost feel the condescension that some of these chancers express towards female executives. Run along, dear, go and make us all a nice cup of coffee. They are dinosaurs who belong in an episode of Mad Men, not the business world of the 21st century.

It’s not a stretch to think that these female bosses are being targeted because the chancers think they will give in easily, because it really is a stretch to think they are all running companies that are in a mess. Indra Nooyi at Pepsi, Meg Whitman at HP and Ellen Kullman at DuPont might have work to do to straighten things out, but they are formidable executives who need time to get the job done. Like any man would expect and get. Harry Wilson even had the nerve to announce that Ms Barra “needs help” at GM.

And if these corporate chancers think that these female bosses will be a pushover, they are mistaken. Besides, it also appears that, overall, women make better chief executives than men.

As the New York-based Bespoke Investment Group pointed out, female-led companies are doing just fine. Of those 25 businesses, only three have seen their share price fall over the past 12 months, while the rest have contributed to a total return of more than 19 per cent – nearly 5 per cent better than the S&P. Take a bow, ladies.

A handful of American publications took flak last week for asking if “activist investors” are sexist. I guess if people are offended at the question then it’s on the right track. No female executives gave an on-the-record response, indicating to me at least that they agree but aren’t willing to say so publicly because of the inevitable “victim” backlash. What a horrible world this is sometimes.

There are often good reasons for companies to look at how they are being run, including how they are managing their cash reserves. But targeting companies because they happen to be led by women, as appears to be the case, ought not to work.

These chancers are indeed mad men.