Jeff Gramm – Activist Investing

**Patrick O'Shaughnessy** (0:04)
Hello and welcome everyone. I'm Patrick O'Shaughnessy and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories, and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

**SPEAKER_1** (0:24)
Patrick O'Shaughnessy is a principal and portfolio manager at O'Shaughnessy Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Shaughnessy Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.

**Patrick O'Shaughnessy** (0:46)
My guest today is Jeff Gramm, a portfolio manager at Bandera Partners and the author of one of my favorite investing books, Dear Chairman, Bordered Battles and the Rise of Shareholder Activism. Jeff is also one of the nicest people I've come across in this business. It's been a pleasure getting to know him in recent months.
In our conversation, we discussed the history and current state of shareholder activism and how Jeff invests himself, taking large positions and often board seats in undervalued companies. Please enjoy. Okay, Jeff, so I'm going to start with a couple quotes from your book because I think there are good bookends for understanding this history of activism that you explore. The first one is from Ben Gramm, which kicks off the book, and really I'm quoting these two passages less for their content and more for their tone because it's changed so much over the years. So Gramm was fighting against a company called Northern Pipeline, which I'll let you describe kind of what he was doing in a few minutes. But this is an excerpt from the letter you published in Dear Chairman, where he says, because of its ownership of the largest interest therein and because of the prestige represented by its name, the Rockefeller Foundation must be considered to some extent in the ethical position of trustee for the smaller participants. We are hopeful, therefore, that it is high minded and generous solicitude evident in so many fields will be manifested to some degree in the Foundation's attitude towards its fellow shareholders. It's a very nice, professional tone and then we'll fast forward to a later letter in your book written by Dan Loeb to Eric Seven, who was the CEO of Star Gas at the time.
Loeb writes, Sadly, your ineptitude is not limited to your failure to communicate with bond and unit holders. A review of your record reveals years of value destruction and strategic blunders which have led us to dub you one of the most dangerous and incompetent executives in America. I was amused to learn in the course of our investigation that at Cornell University there is an Eric Seven scholarship. One can only pity the poor students who suffer the indignity of attaching your name to his academic record.
It's a pretty interesting change that we've seen in eight or nine decades in activism. So what I'd love to start by doing is really highlighting the major stages that you lay out in your book. Maybe starting with what Gramm was fighting and what he was doing and how he was a pioneer of activism.

**Jeff Gramm** (3:01)
Sure. Well, with Ben Gramm, he kind of existed in a different era, right? So like when he was a shareholder in the Northern Pipeline Company, it was the mid-1920s.
And, you know, most of the smaller public companies had big, concentrated owners. And so he had to appeal to the Rockefeller Foundation, who was a 30% holder, to win their vote. And you don't do it like by, you know, we're calling them a crazy person and, you know, we're pulling a Dan Loeb on them. But obviously, I mean, just, you know, the kind of like the times were very different. I mean, it was interesting, like to read, like the company's responses to Ben Graham, like, like, I don't think I put them in the book, but they were very civilized.
But you know, with Ben Graham, like the era was very different by the time that we got to the like, like the 1950s and the proxy tiers, which was the next chapter. You know, like you had seen this, this big diffusion in, like in stock ownership in the country and the proxy fight in the 1950s that I highlight, which is the Robert Young against the New York Central, it was like a political campaign because you're like appealing to these individuals, shareholders, like, and that's kind of the key movement in the book. Like it really is a history of how, you know, passive share ownership evolved. So, so like a lot of the changes of activism and the changes in the dynamics of these campaigns has to do with the changes in the underlying shareholders.