WASHINGTON -- Billionaire activist investors are joining forces to raid Congress for more power.
According to a Wall Street Journal report, hedge fund operators Paul Singer, Carl Icahn, Bill Ackman, Barry Rosenstein and Dan Loeb formed a lobbying trade group called the Council for Investor Rights and Corporate Accountability, or CIRCA. The new group will push back against recent efforts to reform rules allowing activist shareholders, like the group’s founders, to raid companies to maximize shareholder profit, often at the expense of workers’ jobs. It comes at the same time hedge funds are waging under-the-radar lobbying battles on issues in which they have investments, like Puerto Rican debt and Fannie Mae, to increase their profits.
Activist investors like Icahn, Ackman and Loeb are known for using their funds to invest in companies that they believe could be producing more value for shareholders. They use those investments to secure board seats and then press for changes that often include merging with competitors, selling off parts of the company, pushing up the price of drugs, moving production overseas and, in many cases, firing large numbers of workers.
The policy fight they enter with their new lobbying muscle is one over who will hold power at big corporations -- individual wealthy investors or corporate managers.
CIRCA clearly believes that investors need more power over big companies, which means more power over the national economy. The group’s senior adviser Rob Collins, a former aide to Senate Majority Leader Mitch McConnell, said in a statement that it will pursue “a well-functioning system of checks and balances between boards of directors and shareholders.” The statement clearly implies that the hedge fund billionaires believe they must maintain and expand their power over the direction of corporate policies.
The hedge fund lobbying group’s formation also comes as Democrats have taken a sharper focus against activist tactics, such as pushing for short-term shareholder dividends or purchasing pharmaceutical drugs only to jack up the price astronomically.
Democratic presidential front-runner Hillary Clinton has called for a new policy to move investors away from the short-term outlook of immediate shareholder gains, which cost jobs and may harm corporate profits and the economy in the long term. Clinton has called for higher taxes on those who cash out short-term investments -- a position also held by large, powerful investors who specialize in long-term investments.
“Large public companies now return eight or nine out of every 10 dollars they earn directly back to shareholders, either in the form of dividends or stock buybacks which can temporarily boost share prices,” Clinton said in a speech in July 2015. “Last year the total reached a record $900 billion. That doesn’t leave much money to build a new factory or a research lab or to train workers or to give them a raise.”
Democrats in Congress, including Sen. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.), the latter also seeking the Democratic presidential nomination, have sponsored legislation to close the window for when activist investors must disclose their positions in companies.
Some of the investments made by the founders of CIRCA have come under congressional and Securities and Exchange Commission investigation as well. Most noteworthy, Congress and the SEC have investigated Valeant Pharmaceuticals, in which Ackman's Pershing Square Management holds a large investment, for radically increasing the price of prescription drugs. Ackman was called to testify before a Senate panel investigating the drug price increases.
While CIRCA will not have a political action committee, its billionaire founders are, for the most part, major political donors. Singer is one of the largest donors to the Republican Party. He has contributed at least $25 million in disclosed donations to Republican candidates, party committees and super PACs since 2011. Once a donor to President Barack Obama’s 2008 campaign, Loeb now gives almost exclusively to Republicans, with millions to the party’s super PACs. Ackman and Rosenstein mostly donate to Democratic politicians, but are not super PAC donors and have not contributed this election cycle. Icahn supports presumptive Republican presidential nominee Donald Trump and recently threatened to create a $150 million super PAC to push for lower corporate taxes on overseas profits. He never created the super PAC.
The past and present of activist investments by those leading CIRCA are riddled with tales of lost jobs. Icahn’s takeover and dismantling of TWA in the 1980s to pay back the debt he used to purchase the company’s stock is the most famous example, as it served as one of the inspirations for the plot to the 1987 Oliver Stone movie "Wall Street."
More recently, Loeb, head of the hedge fund Third Point, has taken stakes in companies and forced them to fire thousands of workers and return the profits to investors like himself. In 2014, he used his position in the pharmaceutical company Amgen to push it to fire 1,100 workers, a move that drove the stock price up. At the end of 2015, Dow Chemical and DuPont, the two largest chemical manufacturers in the United States, announced plans to merge that would lead to the shuttering of offices, closure of plants and firing of 10 percent of their 54,000-person workforce. The move was pushed by Loeb, an investor in Dow, and two other hedge funds invested in DuPont.
In Sidney, Nebraska, employees of Cabela’s, an outdoors retailer, could be victims of an investment in the company by Singer’s Elliott Management. If the company doesn’t go along with the hedge fund’s push to carve up the business, it may be targeted with an aggressive push to sell and be forced to shutter its headquarters, costing 2,000 jobs.
Ackman’s Pershing Square Management has been embroiled in a years-long fight with the multi-level marketing nutritional supplement company Herbalife after shorting its stock. He has waged a lobbying and PR campaign to get the company labeled an illegal pyramid scheme by the Federal Trade Commission. If he were successful, his hedge fund would make huge returns on its bet against Herbalife’s stock.
Activist investor strategies for immediate shareholder gratification have already influenced other corporate decisions even without their involvement. United Technologies CEO Gregory Hayes says that corporate managers are the investors at the company. In February 2016, the air-conditioning manufacturer Carrier, a subsidiary of United Technologies, announced that it would close its Indianapolis plant and move operations to Mexico. At least 700 people lost their jobs. The move came months after the company announced a $12 billion stock buyback.
CORRECTION: A previous version of this story misstated that Pershing Square Management, rather than Valeant Pharmaceuticals