Wednesday, May 27, 2015

Hypocrisy and Corporate Activism: Gamco


Hypocrisy and Corporate Activism: Gamco

On Wall Street, activist managers are supposed to be the investors wearing white hats.  Hedge funds and a few mutual funds have taken on the title in an effort to shake up companies, boost shareholder value, and drive up stock prices.  As I’ve written previously, some of these funds are interested in long-term change, while many others are merely trying to make a quick profit.  Steven Davidoff Solomon, the “Deal Professor” for DealBook, has exposed the hypocrisy running rampant at one mutual fund complex.  Gamco, owned by Mario Gabelli, has all the corporate policies that it attacks when it acts as an activist investor.[1]  If Gamco were a private company, Mr. Gabelli’s  investment strategy and internal practices might be slightly more defensible.  However, Gamco is a public company, just like the companies that he attacks.


I’ll summarize Mr. Solomon’s excellent column, but I recommend you read it.  Mr. Gabelli controls Gamco through a two-class share system.  He employs his children in the company.  The independent directors of Gamco aren’t really independent.  Mr. Gabelli draws compensation that is far in excess of Gamco’s peer group.  And yet, Mr. Gabelli crusades against entrenched management, excessive executive compensation, and poor corporate governance.

Money management isn’t the only industry steeped in hypocrisy, but no industry does hypocrisy better or more convincingly than money management.

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