TSLA, How activists think

Welcome to shareholder Primacy from free flow media podcast about activist investing Securities Law, and all the ways, the financial legal rules intersect in Collide in real life. And I have returned once again. And Lipton is a law professor at the University of Colorado, she teaches and researches Securities and business law and she holds up the legal end of the podcast. And that's Mike Levin an activist investor who lives and works in Chicago. He covers the financial side of our podcast. Yes, I, I do I think, and you cover the legal side that was so we have some, some not exactly breaking well. Breaking news on one of the subjects, we were covered today. Our old Nemesis test, lot back back to Tesla, just move on this way sex, but now we're still in Tesla, right? But there is a really kind of interesting development with Tesla and its domiciles. Yes, I think is how the best to describe it where. Delaware Dora Delaware kind of washed its hands of the company or something, but will plunge into it. So that should be kind of fun. Yeah, and we're also going to talk about how activists think, or what company leadership. Should know about. How activists think yes. There's I have a little axe to grind. On that. So we can actually we can grind it well. And then plunge you into it. But before we go there and the mailbag, yes, you can email us at shareholder Primacy one word at freeflow.com LLC, and let us know all of what you think about what we do here. So getting into the meat of the matter, it was it just last week or a couple weeks ago that this was done. So this is so this is like having Sunday night. So this is basically six days ago. This is a hot news, then this is this past week. And so Tesla. Received, I suppose you could call it good news. If you're testing from the Delaware Chancery Court at least bored whether I'm so let's explain exactly what was decided and what, the under what the matters were that and then we can go off and several different directions on that. So, okay. So This was basically the last of the cases that were pending in Delaware, concerning Tesla. I mean, there's a little bit of a stub of something, but this is basically it and it, we've mentioned a couple of times before it was actually a group of complaints but they were all Consolidated into one action and they were all filed. Just before Texas mood Tesla moved to Texas. So as we all know, Tesla for a very long time, was a Delaware company. And after Chancellor McCormick, rescinded, Elon, musk's payback musk announced that he was going to reincorporate Tesla in Texas and then the board took a to a shareholder vote, and they did that they reincorporated in Texas, but after Tesla announced, when was what I have to interrupt, when was that? When did that happening, right? The reincorporation was, yes, I believe that was true. So it was just a couple months after the opinion came down for Sunday, so it was late later on later on, in 2024 AGM, the shareholders are so year and a half ago. They Approved the move. And I think the next day, Type of the reincorporation paper in boom, they were in Texas so that was I think August 2024, it was well the vote was actually I think in June 2024. Okay great. So Anyway, so as after Tesla announced that the vote was going to take place, but before the actual vote occurred shareholders filed these last-minute complaints against the board of Elon Musk and it was really last minute, I think one complete was actually filed the day of the vote, like, just so shareholders. Kind of hurried to the courthouse. Yes. And so the file these cases? Yeah, they file these cases in Delaware. While Tesla was still a Delaware company and they all concerned conduct that had occurred. While Tesla was a Delaware company. So Delaware law, applied and these cases were all filed in Delaware and they were Consolidated and what they're about. Well, I mean, it's actually, it's a grab bag of stuff, but I think the strongest allegations are about how musk kind of freely, allocates Tesla assets to his other companies. So for example, after saying, the Tesla's future was artificial intelligence. He ended up developing artificial intelligence and his own private company, XI, he reallocated computer chips. They were slated to go to Tesla for AI and he sent them to Twitter and to Xai. He moved Tesla employees to help out with this other companies, that kind of thing. So, the claim and and is that musk breached his fiduciary to these duties to Tesla by essentially appropriating Tesla resources for producing his other companies, and that the board breached their duties, by allowing that to happen, and not overseeing musk's conduct. And I mean, these claims I would think on the surface have legs. Like I'm absolutely not saying that if they go to trial planners to Shorter win but I am saying that they're serious allegations enough so that they would have a real chance in Delaware. They're not frivolous and they all landed in Chancellor McCormick's lap because she was she was like the overall. If it said Tesla and it got put in her inbox essentially because of this problem. But basically at the time that the judge is a sort of Beats, they heard different kinds of Kate, like they all heard certain cases with a theme or cases involving the same company. So anything musk or Tesla related went to Tesla McCormick's Tustin Tesla beat yes. On the Tesla Beach and the complaints were filed. And then right after they were filed, the Tesla shareholders, voted to reincorporate in Texas, right? Yeah. And Tesla became a Texas company and at that point Tesla moved to dismiss the complaints on the ground. That Tesla is now a Texas company and Tesla argued. The complaint should be filed in a Texas Court. Aha. Okay. So we've been, we've been kind of whenever we talk about Tesla here, which is unfortunately, too often we talk about cases involving Delaware, we always have referring. Oh, and then there's two or three, or a couple other cases that are kind of hanging out there that got filed later after we incorporation. Whenever we talk about, these are them, and they were three separate cases though. It sounds like they kind of pertain to sort of the same type of stuff kinds of things. But it was all in the realm. There was some insider trading claims, but a lot of it was a revolt and I think the strongest clients revolve around this reallocation of resources. So from breeding, essentially listening to me breaching the duty of loyalty. Exactly. Yeah. Allowed to take resources for your private use and that includes opportunities, right? Just sort of a big dog but it's a really, it really matters. Like so like if Tesla was supposed to be the one developing AI, It is arguably, shall we say of breach of video Sherry Duty that had to say? No, I'm not gonna have Tesla develop AI. I'm gonna put it in my own separate company. All right, so Tesla moved to just not just, you can't like, move these cases. Just move to dismiss them. Right? They wanted to. Yeah, exactly. So that said, the idea here, the motion is that to the Delaware Chancery should dismiss the case is on the, and that plaintiffs that they want to pursue them, they should be required to file in a Texas court. And this is actually a complex point because it's really clear to lawyers, but I know that like, non-lawyers and my students often, don't quite get it. So, just to be clear, there is a distinction legally between the court, where you file the lawsuit, The Forum that the plane of chooses and the actual legal standards that will govern the claim. So when it comes to corporations, as we all know the state of incorporation, that's state provides the law that will govern things like fiduciary, duty, shareholder lawsuit. So if you're Incorporated And evidence or whatever the whole procedure. Exactly not. Well, no, no, but, but the substantive standards that you have to adhere as a fiduciary, what counts as a breach of fiduciary duty, whether directors are independent, how you cleanse conflicts? That's all going to be Delaware law. But that doesn't mean that the shareholder has to actually file a lawsuit in Delaware. Shareholders could theoretically file in courts all over the country. Certainly wherever the company has its headquarters, for example, which is really going to be Delaware. So what happened if you years ago was about 10 years ago? Now I guess was every time there was a big merger that was announced, what would happen is shareholders, would file, simultaneous cases all over the country alleging that the target directors, breached their fiduciary duties, they'd be these simultaneous cases. They were all, and most of these targets were Delaware companies. So you'd have like, cases filed and multiple courts simultaneously. All challenging this merger under Delaware law, and that created a lot of dysfunction. So corporations started, adopting Forum selection Bible. Sure. They'd pass a bylaw that said, all the fiduciary lawsuits have to be filed in Delaware, the state where we're Incorporated and remember, Bi-Lo's can be passed unilaterally by directors. So they would just do that. Like, in the drop of a hat, they would pass a bylaw. And now, there's a bylaw that says, if you want to sue us, it has to be in Delaware where we're Incorporated. And then this was funny, a Delaware company passed a bylaw that actually said, okay we're Delaware company but all losses have to be filed in North Carolina. I wanted the cases to be heard in North Carolina because that's where their headquarters were, even though they were a Delaware company and it was going to be Delaware law that applied. So in North Carolina, Court would apply look to Delaware laws. And so, the North Carolina court that judge would have to, like, go learn Delaware. Oh yes. And that was the idea. So if you Fight. Like if you file these claims you can file them anywhere in the country but what that court is going to do is they're going to research Delaware law reach their own determination, what Delaware Law requires, and then hold, and then, you know, adjudicate the case that way. But immediately after this, North Carolina thing happened, the Delaware legislature passed a law where they said, yes, you can have form selection bylaws, but you can't deny access to Delaware courts. If you're a Delaware company. So the law became you could have a forum selection by law that requires Delaware. And you can have a forum selection by law that gives a choice to shareholders of Delaware or some of other place, but you can't have a forum selection by law that denies access to Delaware entirely. So that was like that was like helping themselves. Exactly. They wanted to make sure that the case is hot have they're not only interested in Delaware. Jewish Prudence being used around the country, but they want jealous Delaware, courtrooms to be full. Exactly, that was exactly. They wanted the cases in Delaware where they now, you can talk about the purity of Delaware law, because Delaware judges, no Delaware, but you know, filing fees in Delaware courts. So there are there are there Delaware companies that require adjudication in Delaware, using some other states law. You couldn't do that. You literally couldn't do that. I mean, that, okay, you can't do that for a corporation. You can do that for an LLC actually, you can't do that for Corporation corporate. I mean, the whole point of a corporation is, if you choose the state where you're Incorporated, that's the law that applies. So, there are companies that, that will have contracts though that Delaware law might be applied like, but in a New York Court, I mean, but that's not a biology, right? So a lot of companies, Delaware companies started passing, these violas, they became ubiquitous so that shareholder litigation would have to be filed in Delaware and Tesla had such a bylaw. I mean the actually I mean in this case obviously the plan is wanted to be in Delaware. That's why they filed these complaints at the last minute before Tesla reincorporated but at the time Tesla had a bylaw. That said you have if your shooing us for fiduciary breach of fiduciary duty you have to file in Delaware but when Tesla moved to Texas It had a new bylaw, and the new one said, all cases, going forward have to be heard in Texas, where our new incorporation is and shareholders knew that when they voted on the move because they saw the documents and they saw, we vote to reincorporate in Texas and also there will be a new bylaw that says, cases have to be filed in Texas. And so this is exactly what Tesla argued was the basis for moving these complaints, they were filed in Delaware before. Technically the shareholder vote just before the shower vote. And but Tesla is saying, look when these were filed, everyone new Tesla was moving to Texas. Everyone knew Texas hat. It's going to have a Texas forum, selection bylaw, the shareholders voted for that. So these cases really should be heard in Texas. Right now if the shareholders refile in Texas, it's still Delaware. Look, the conduct being challenged occurred when Tesla was a Delaware company. So Delaware law would apply Texas Court would have to go and look at Delaware president and applied Delaware loss. So the only issue is what court hears. The claims a Texas, Court would be looking to Delaware case law to decide what standard for these for these three Consolidated. Yes, exactly. Start based on what Delaware just decided. Okay. Right. Yeah, so that's where we are. So yeah. So There's a couple different questions that come up and I think you answered the first one which is why Delaware, the chancellor wasn't McCormick. She like move these case someone else. Well, I'll get ya that we haven't gotten to that part. That, that is a fun little thing but yeah. All right. So what's so okay. We'll talk about that a minute. So what the next step then is for these plaintiffs to refile. Yeah. This cases but they don't want to I mean well I mean that would that's what Tesla wants. So they want them to be volatile in Texas. But the problem here is well first, I mean these plaintiffs don't want to be heard in Texas for at least two reasons. The first most obvious is, um, I mean, I think they think with some justification, the Texas Courts are going to be more sympathetic. Like it doesn't matter the legal standards, they're just going to be more sick but that doesn't matter what Delaware law says. It's just write whatever Tesla wants Tesla gets. The other issue is remember under Texas law. Tesla was allowed to adopt a bylaw that says, if you want to sue us, you have to hold three percent of the stock. Oh, so yeah, exactly. So if the plaintiff's Revival in Texas, the first thing that's going to happen is Tesla is going to try to get the Smith because they don't have 37 billion dollars worth of investment. I mean, these are institutional plaintiffs. They have like, at least like a lot of money but yeah, 37 billion, right? So yes, So yeah, so like here's the thing, like and this gets to like who who decided it. So like, remember they so Tesla moved to dismiss but after that and McCormick had this case, pending for a while like months passed with no ruling and then this is what you were alluding to this very weird thing happened. This is so strange musk lost a Security fraud trial in California. We've talked about their case before, so he lost the Securities fraud trial in California federal law. Nothing to do with fiduciary breaches. And then, mystically Chancellor, McCormick's LinkedIn account registered, as having liked a post that gloated over the loss, So it like, it looked like she had said, like, yay, I support someone who was saying thank God. Muscat has come up, it's whatever the post was right. So immediately musk's legal team move to recuse her saying that she demonstrated by us and she shouldn't be hearing any of these Tesla cases and I got to agree if she had like that post then that really would have created at least an appearance of science. But the problem was she denied she ever liked it? She says either it was inadvertent or her account was hacked and she never even saw the post. So I want to be clear, I believe her. Like it's seems obvious to me that this much is true, whatever, she's pretty scrupulous straight, she's very vocal about the Delaware. System. Yes. So she she expresses her. I mean, when she's not expressing her opinions in cases, which is her job, she's vocal and I tend to support, you know about, you know, her and vice Chancellor. Last last, our outspoken about the virtues of the Delaware system but that's where there that that's where they're they're outspoken. This I think ends they're not talking about plaintiffs or defendants or parties in their courtroom, that's crazy. All they're all very outspoken about the Delaware. So they all defend the Delaware. Yes, they make a lot of public appearance, but I mean it's just the idea that a judge would like, I mean, she just she didn't lie, she didn't like it either. I mean, maybe it was an advert and she definitely didn't see the post, which she said she never saw it. Until somebody told her that she had like this post. So she refused to recuse herself but even though they had moved to have her recused because she was biased and she said I'm not going to accuse myself, I'm not biased but then she said that given all the hoopla and publicity surrounding her role. In these cases, she was going to step back to a boy, even the appearance of unfairness. And she had this hearing where the attorneys had to pick Scrabble tiles out of a Like to randomly know, it's the randomly reassign, the cases to different to other chancellors, or vice versa. They're actually, there are a couple of different little ones pending and then this big one which was the three Consolidated. The other ones were nothing. But but this big one was the big one. Then there were a couple of others. So they were randomly assigned and this group of cases that were talking about, they got reassigned to Vice Chancellor, David. And literally one week after the reassignment. Remember they've been sitting on McCormick, just for months, but one week after the reassignment, Vice chancer, David dismissed. Oh she rules, she ruled on this motion, she ruled on this motion and she held that the Texas forum selection Clause should apply and a plaintiff should be obligated to refile their claims in Texas, where, of course, they're going to be dismissed because the plainest don't on 37 billion dollars, right? So, what was the basis for her saying, that? Just because the, what you said that, the plaintiffs kind of knew that this was good that and the Tesla shareholders know. So, like her a lot of a reasoning was Tesla shareholders chose this. I mean, normally buy laws are passed by directors, pretty unilaterally. But in this case, the Tesla shareholders voted to move to Texas Nelly that, that by was going to be there. But, I mean, but here's the thing about that logic at the time of the reincorporation vote, Texas's law looked a lot like Delaware's the proxy statement even had a expert report Professor right there. You are not going to notice anything. It's gonna be exactly. Sure holders vote for the Texas road because if you Texas, Is comparable to Delaware but after Tesla moved, that's when Texas completely revamped its law. And one of the big changes was this thing where you can as a company, you can pass a bylaw that requires shareholders to hold 3%. Before they bring claims, there was no way Tesla shareholders could have anticipated that plus oh, no way. Yeah. No, of course not and plus Vice Chancellor David had this thing about how these Delaware plaintiffs should not be viewed as having some kind of inalienable vested right to litigate in a particular Forum. Because remember before I'm selection by laws, they can be adopted unilaterally by corporate directors. And that means shareholders are always in a sense kind of on notice that they're they may not get to litigate in their preferred Forum. So they can't say they had a firm expectation, they'd always be able to litigate where they want to litigate, but Little weird shareholders, do have that right because the Delaware legislature said, Delaware Corporations. Have to give shareholders the right to a Delaware Forum. So I say they do have a vested right to a Delaware Forum in Delaware and it's at least plausible that the point of that law. Well, I mean, we know, the point of that law is to get cases in Delaware Corps, but it's also to make sure to invest in a Delaware company. You can enforce Delaware created rights in Delaware. So I don't really buy Financial Davis logic. But here's what's actually so striking to me historically, traditionally Delaware has been very possessive about, its right to decide matters of corporate law and in particular its right to decide matters of Delaware, corporate law. In high-profile cases, where president really matters because Delaware wants to preserve the Integrity of its law. And quite frankly Delaware is always had a little bit of a chip on its shoulder like where they sit. Yeah we have expertise in this man so I can't describe how incredibly out of character. It is for a Delaware Court to say this case involving what was a Delaware Corporation Delaware created rights filed at a time when the Della where legislature required Delaware stockholders be giving access to Delaware Courts for Delaware Court to say at the Texas decided I mean it's very out of character so it reads a lot. Well frankly like the Delaware Supreme Court opinion that we talked about before that restored, Elon musk's pay. Its Delaware kind of punting because we don't want, we don't want to, we don't want to, we don't want to exactly. And I can only think I, I was thinking that there's one comparison historically and on this, I'm going to give a shout out to professors ed rock and Marcel Kahan at and why you? Because they wrote a really great paper about this. It's called On how to prevent hard cases from making bad loss. So this is a great story at the height of the financial crisis. We all remember the financial crisis. Oh yeah, Fierce Stearns was going to collapse and it might have dragged the entire us and Global Financial system down with it. Well, it's sort of, kind of a little did, okay. People thought that this was gonna be the end of everything. This is going to be in the nuclear bomb in the financial system. So the treasury Department orchestrated a merger where JP Morgan would sweep in and buy bear Stearns and save the world economy. The problem is bear shareholders, didn't want the merger and they had to vote in favor of it, but they didn't want to vote in favor of it because they thought they could hold out for more money. So, the bare board agreed to issue a huge amount of new stock to JP Morgan so that JP Morgan could vote the stock and favor of the merger, regardless of what public shareholders wanted. Now, this was almost certainly a legal under Delaware law. You can't do that. You can't like, force emerge down shareholders, by just issuing New Stock and shareholder, and it was Bear was a Delaware company and Chevrolet filed lawsuits. New York, and one in Delaware. And normally again, a Delaware Court would absolutely have kept a case of this magnitude. Delaware wants to be able to articulate. Its own like this stuff. Yeah. But if they applied their whole lot, they would take down the financial system and they didn't want to have to distort their law to justify the deal. So instead the Delaware Court said, we're not going to decide it, we'll stay out of it and we'll let New York handle it. And that's what this feels like. Delaware didn't want to have to tangle with Elon Musk again or any reasonable application of Delaware's law would at least, possibly hold him liable. So it's sad, let's Texas. So even Delaware As we've seen before, and probably very well Illustrated. Right here is kind of subject to sort of the realities of the marketplace or politics or something, as much as they try to stay above it. In 98% of their cases. When it concerns are not immune. Yeah that. Yeah, you'd like him to be, but doesn't always happen. We'd like them to be but I mean here's the thing. Okay, so Tesla shareholders, I absolutely could not possibly have anticipated. What Tesla was Texas was going to do about new barriers to shareholder litigation. I couldn't cross. That was that was there was no way to predict that. But what's also true sort of is look? Don't we all know that the Tesla shareholders, in general, in the main really did vote to remove Tesla from the Delaware court system. I mean, dress it up, but that's the reality, Tesla shareholders, they like their CEO, they liked his performance, they don't mind that he has these outside companies. They tend to view them as one big thing. Yeah. The whole reason for the Texas move that shareholders approved was to get away from Delaware oversight which they thought was too strict so on that kind of meta level, Maybe The shelter David was right, this was fundamentally what Tesla shareholders wanted and they wanted Delaware to stop policing Elon Musk but the problem is and I felt this way about McCormick's decision were sending Elon musk's pay the legal standards for this. Don't really line up that way like we can all say come on don't we know Tesla shareholders love their CEO. They're fine with all this stuff but that's not how derivative actions work. The derivative lawsuit is the mechanism by which we determine what shareholders want a court isn't supposed to just not sure why you know like well actually Cheryl their votes but Cheryl votes on like the actual thing under consideration, not like some separately, like a court isn't just supposed to say, well, my vibes are Tesla shareholders, love their CEO. So I should just miss the case. So the fundamental problem is that the legal standards, the legal tests that we use to evaluate, what's best for shareholders are in some ways. Disconnected from the reality of what she'll just want. And now we've got this tension where you can either go with the formal legal standards, but that feels artificial like the court is superseding. The shareholders. Will or you can ignore the legal standards and then it looks like Delaware law isn't real and Tesla is just unconstrained by any law. There is a really great solution. No, it does not. Sound like it, even though, well, I mean assuming they can try to refile. And they'll be rejected if they were to be heard, these would be heard in Texas. Under Delaware law. Did I hear that right? Yeah, exactly. But well, if yeah, it would be well, there, I think they're going to appeal first. But then you and, and if they do appeal to the Delaware Supreme Court, like if they, if, the Delaware Supreme Court agrees with David and affirms, then they can try refiling in Texas. Now, of course, the first thing they're going to do when they refile and Texas is argue that, for some reason, it is in our another, the three percent limit showing why it was like, yeah, I mean, and then exactly, and then we'll see what happens. Like their chances in Texas. I got it doesn't does not feel promising you. At this point Why don't we leave that there for a minute? Take a quick break and then we can come back and talk about this kind of thing that I had on my mind about how activists think compared to how like companies and CEOs think, well, I do. That sounds good. All right. Well we'll do that here at shareholder Primacy. Shareholder Primacy is brought to you by free flow analytics.com. The only free database of corporate directors, their influence and their performance. If you want a Stocker, retirement plan go to freefall analytics.com. And look up which of your elected directors are performing well and which aren't use your vote in the alternative democracy and get your data at free flow. Analytics.com. Now, back to the show, welcome back to shareholder Primacy. I'm Ann Lipton here with Mike Levin and we're talking about how activists think. And more importantly, what activists would like company leadership to know about how active is think. So Mike, there is this community of advisors to boards that specialize in telling them about activism defense. And, and what is it that they should actually be doing to defend himself from you. So, I mentioned when we introduced this that I have a little bit of an extra grinding and here's kind of what it is. that there's this whole Community as we said of, Attorneys and investment bankers and proxy solicitors sometimes and consultants in crisis, consultants and PR firms and so forth. And they all Make a decent living trying to prepare boards for activism activists and activism and you know, because sometimes an activist, you know, faster 13 gay or something and they can someone is surprised it mystifies me why a company's surprised about this stuff. Usually your share prices sufficiently bad to anybody, but because they're 100% sure that that is something that is outside of their control and nothing to do with their excellent leadership. You, well, I mean, the share price sort of is outside their control which is, which is good. I mean, they're no opportunity, but there's things that happen that are that influence, share price that they should be well, aware of. But anyway, so one of the standard bits of advice that all these firms provide is Think like an activist sort of look at your company that way and activists would or sometimes be Ron activists and I went and looked up a bunch of these written pieces about how to think like an activist from BCG was the one I saw most recently and it's really kind of cliche. Okay. It's like, you know, look at every opportunity, unleash value or think strategically, or look at stuff on a quarterly basis or, or, you know, be objective and so forth. I mean, some real, you know, vacuous kind of stuff. I could tell you that, and I know nothing about activism. Yeah, right. Okay, thanks strategically okay. Okay. And clearly None of these people talk to activists. Okay. So I thought I would sort of help people out a little bit and sort of illustrates some of the mindset. This isn't kind of why, you know, an activist picks one or another company. This is kind of some of the the Deep cognitive Stuff that goes on. That is a little different for activists than, from like companies. And there's five or six different areas that are worth mentioning, okay? The first is has to do with how activists think about their investors and how companies think about their investors and activists are deeply obsessed. with their investors with their limited partners, they think about them way more than They think about their portfolio as much or is more. They think about their portfolio companies which is unfortunate. Okay, so, wait. So that's interesting. So the so what you're saying is that when act companies, May not think about their shareholders but activists are always thinking about the limited investors. Yeah. Exactly. They're specific investors not investors in the right right. We talked about an investor might an investor mindset, a portfolio manager and activist portfolio manager really any hedge fund portfolio but thinks about shareholders obsessively. Okay? Now this isn't something we love. We would love to think much more about our portfolio companies very frequently, but this is a brutally competitive Marketplace. Okay, you know, low fee index funds are, you know, taking away money every day. All right. And there's and, and so so we really need to think like I said, obsessively about shareholders and do that much more in our experience than CEOs and Boards too. Okay. Um sure. You know, portfolio managers you know sometimes you think you're limited partners a little bit of a nuisance and so forth. But they're really, you know, kind of why we're here. You know, we're managing their money and we have you know, the same kind of fiduciary due to them, that right boards, have to their shareholders. But we we tend to take that a lot more seriously, I think than most most boards do so that alone Just understanding that kind of environment that investors kind of live and breathe every day. That alone should be kind of helpful to understanding kind of how to think, like an act that activists are always essentially, trying to prove to their own investors that. Yes. Something that's worth their fees. Yeah, exactly. And by extension, we kind of wish that boards with think the same way and they don't always next thing has to do with how activists kind of run their business which is activists are really cheap. Okay, very frugal the feet pressure is unrelenting. Actually, you know what, the reason I think this is funny that you say that yeah, is because, you know, I, I, we had mentioned our prior show that like, I use certain activists presentations in my class to. Yeah. They're like, and my favorite one is the Olive Garden one. It's right. Along in the two, it's a big, it's iconic. It's like, yes. But here's the thing about it, it is so cheaply. Put together like, it is obvious that somebody who's not a professional like with artists like, you know, like design training, just put up like a cheap PowerPoint presentation and that would explain why a little bit. I mean, In fairness it was 12 13 14. Yeah, exactly. The production value is of improved since then. Well, I think the production is made because the technology proved that they could do in-house. They still aren't gonna hire someone to design the thing, right? So, but, you know, um, in part because the feed pressure so unrelenting in part And this is a standard complaint in part, you know, companies drive up activists costs a lot, kind of unnecessarily, okay? You know, the old saying is that a company on a proxy contest, a company's spending shareholder money while we're spending our money, right? So, um, it's just so activists tend to manage things a lot more tightly than companies and boards and CEOs might. And so when a portfolio company doesn't do that or doesn't kind of share that sentiment. It's, it's a little annoying. So, all right. So there's a second thing activists are cheap. A third has to do with how we we have this kind of portfolio, mindset activist diversify, okay, or shareholders or investors, we have this very much of a Again, it diversification approach to thinking about our investments and so forth. So Any good one knows like exactly how much a given investment adds to risk and return. We know kind of how much you know we should allocate to one or another portfolio but there's I mean again there's people who manage it a little more seed to the pants, but most have you know, minor portfolio. Theory is is really good. It kind of helping with these decisions so you're thinking like not just like this is a better shop but more like how it adds to the overall the portfolio. Exactly. And so we and so um, So this whole diversification mindset is someone distinct from how companies think about it, you know, and they companies started you know wave their hands in that direction. So yeah we have a portfolio too but they don't nearly have the understanding not a risk and reward risk and return marginal change that you know one or another investment makes. So you know and sure you know you may have a want to see or a board that says you know we have a project we kind of understand how it's going to change our risk profile and so forth. But the kind of rigor that a portfolio manager applies to that decision. And the kind of rigor, that aboard, a place that decision are dramatically different Um so a cousin of that sentiment is because we're Diversified and we kind of stick with in strategy and so forth. Activists are I will say coldly unsentimental. We because we just have this portfolio of Investments. Everything is highly. It's you should be and generally is highly depersonalized. Okay, you can have an investment, you love. That's done really well when it hits a goal when the risk profile changes or something, it's gone. Okay? Or there's something, there's some opportunity that you you like and finally gets the right price. You grab it. But it's, it's again, it's very deep personalized. Okay. Without any kind of attachment to a thesis to a business or the leadership. So we get very frustrating to a portfolio manager when a a board or a CEO gets just kind of in love with something, you know and say oh yeah you know this is and it's Understandable. We get it. We just don't like it and that's not how we work and we don't think you should work. That is the same for writers. Kill Your Darlings. Yeah, exactly. There's a problem that you can't solve it's usually because you're holding on to something that you like, but that doesn't fit. Right? And so, you know, you know we hear a lot about m&a activism, we think I'd sell division, so the business whatever and it really puzzles activists. When a company says, no, we can't do that or even with cash excess cash. You know, most boards and CEOs will be compensated, really handsomely when you sell something, you know. So we'll try to sell, you know, sell the division, get rid of something, okay, sell these assets and you'll get paid just you know someone else can manage, you better move on. And so we just don't get that you know this this unnatural and sentimental attachment to these assets that you know, if you have this you know, more rigorous portfolio view of things. You're just should be really willing to kind of get rid of. So, that was another. Another actor. Yeah, I can understand it, the boards as compared to the activists as much longer term investment so you can see, why have plenty of of long term. I mean, long term, three to five years know, you know, same same investment. I for a lot of companies. So there's a couple of other aspects of this that are worth bringing out. So we talked about getting paid for, you know, whatever activists. You know, there's always this kind of pay for performance right idea that you know, everyone pervades that, you know, CEOs, talk about oh yeah we pay for performance rights. You know, higher components and so forth and create all sorts of They can't hold a candle to the pay to Performance environment that exists within a hedge fund or with an activist fund, okay? I mean, and it's sort of that's true also for kind of investment Banks and so forth but you know, you really, you know, eat what you kill. And if you make money for your limited partners, you you get a very specific percentage of it. And, you know, sometimes percentages really healthy. Sometimes the percentage is obscene, it's a lot of money, but the paper for performance environment that exists in an investment fund is very clear, very Stark. And, you know, does not offer a whole lot of room for interpretation. And for for flexibility, well, you know, we see kind of pay for performance in a public company. And that's just it's comical about how, you know, people Overlook problems with pay for performance or, you know, set really easy goals and gets really kind of kind of vague. So the whole pay for performance, culture that companies purport to adopt is something that is, you know, a fact of life every day at a fund. Okay, there's there's one other Aspect of this. Again, it's sort of a cousin of the portfolio thinking which is just activists think about risk. Kind of differently, okay? If you ask a CEO, you talk to CEO about risk. You know, talk to the board, you gotta, you know, and and you know they'll they'll say, oh risk is risk is, you know, bad stuff. It's downside. It's it's, you know, that's why we have a risk management group and a rich management executive. That's why we have all these risk disclosures and then we have a risk committee. For them risk is like, Hazard risk is threats. Okay, to a portfolio manager. Risk is just variability. Risk is the inability to predict with Precision. Exactly. Kind of how something's going to work out. It's not Hazard, it's not bad stuff. Risk is not bad. Too to a CEO is risky. Equals bad portfolio. Manager risk is just, you know uncertainty, okay, a really very variability. And so but importantly, the way to manage variability is with diversification, we talk about that in a minute ago. Um, you talked about how you diversify and how big the portfolio is and so forth, and you know, diversifying risk and so on not like, you know, really strict controls if risk is Hazard, you know, the way to manage it is to create a big bureaucracy to kind of find all these little risks and make them go away or to hedge and buy lots of insurance. Okay? Because of this difference in mindset about what it means to kind of take and bear risk activists think most CEOs and boards are just kind of verse. I said in the piece Empire, builders that just want to protect themselves and you know, with, you know, and create as much absolute certainty as they can from some really remote kind of Hazards rather than just you know accepting that you have a portfolio of projects and there's going to be some ups and some downs and they're going to hopefully add up to profit. So there's all these different, you know, ways that kind of activists think that none of these advisors. Really I thought really kind of uncovered. They're not thinking in terms of the activists own incentives, right? Where the activists and or how the activists thinks is a portfolio manager. Yeah. Like their own incentives for their portfolio, their own issues with their limited own limited partners like that like thinking like an activist means not like how an activist looks at a company but also the actual pressures that are on the activists. Yes. And I and I contend that if CEOs and Boards had a deeper understanding just like activists. Try to have a deeper understanding, what makes CEOs tick. We really do. You know, we sit on boards. We you know, interview lots of CEOs, I don't sense that CEOs and boards. Take the same care and effort to try to understand what makes investors tick and I've just listed five or six things related to diversification. And what we mean by risk and pay for performance and so forth, all these things, I think would help. you know, may be contributed to a little bit more of a convergence between What, you know, company leadership and their shareholders are trying to accomplish and maybe cradle more common ground? I don't know. So it was, it was my, my little contribution to trying to help CEOs really understand how to think like it. Okay. All right, all right, enough of that. Let's let's maybe wrap up and move on to some other good stuff for next week, shall we? Okay. All right, let's do that. All right, this is shareholder Primacy hosted by Anne Lipton and me, Mike Levin. I am an independent activist investor, I think like an active and advisor to investors about their activist situation and who else thinks little bit like an activist is a professor of law. So much is Professor of law. Oh, think like a lawyer, fine. And is Professor of Law and Lawrence wolf. Chair of Business Law at the University of Colorado, law school. You can find me Mike. At the activist investor.com, you can find an ATU. Our podcast is, as always produced and distributed by our friends at free flow media. Thanks for listening. We'll talk again soon.