Frank and Steven’s Excellent Corporate-Raiding Adventure
If we had showered or shaved or not been dressed in wrinkled shirts, we would have gotten out of our rented Hyundai to speak with the man in the blue blazer who was walking into the Balboa Bay Resort, a hotel and private club in Newport Beach, California. It was Gregory S. Bielli, the president and CEO of the Tejon Ranch Company. We’d met him once before, when we were in a better frame of mind.
Tejon Ranch is a small public company headquartered in Lebec, about an hour north of Los Angeles, and its main asset is obvious from Interstate 5: real estate. The company owns the largest continuous expanse of private land in California, a 270,000-acre parcel—about half the size of Rhode Island—wedged between two national forests, Los Padres and Sequoia.
Together, the two of us owned more than 18,000 shares of Tejon Ranch, an investment our wives had advised us against. When we’d bought in about a year earlier, the shares had been worth nearly half a million dollars—a significant chunk of our retirement nest eggs. Tejon Ranch had appeared to us to be poorly managed. As professors who write about shareholder activism, we’d thought we’d seen an opportunity to mimic the big activists, such as Bill Ackman and Carl Icahn, who agitate to improve the transparency and performance of much larger companies.
We had been pressuring Tejon Ranch’s executives, using the playbook that top activists have developed over the past decade or so. But the stock had tanked, we had lost more than $70,000, and we thought Bielli had lied to us.
We rolled down our windows to shout to him as we entered the resort’s roundabout, but then thought better of it. We were on a scouting trip, in advance of the company’s annual shareholder meeting the next morning; we’d come to see the meeting room and plan our attack. (The cheapest rooms at the Balboa Bay Resort were four times as expensive as those at the Newport Mesa Inn, so we were staying four miles inland.) We would have plenty of time to badger Bielli at the meeting, when we would be clean, better dressed, and better prepared.
For as long as public companies have existed, so too has tension between shareholding owners and company managers. In their 1932 book, The Modern Corporation and Private Property, Adolf A. Berle and Gardiner C. Means described the “separation of ownership and control” inherent in corporations, and noted that owners and managers have different goals. As a company grows and its shareholders become more dispersed, they wrote, it becomes harder for shareholders to pressure managers, and a gap develops between the owners’ interests and the managers’ behavior.
Over the decades, the size of this gap has oscillated. At times of minimal pressure from shareholders, power has shifted toward managers, who pay themselves more, enjoy corporate perquisites, build dubious empires, and in some cases relax into mediocrity. But every so often shareholders revolt, not unlike citizens staging a coup when their leaders lose touch.
The 1980s, a decade of corporate raids evoked so memorably in the book , were one such revolutionary moment. At the start of that decade, most stock was held by scattered, individual investors, and institutions such as pension funds and insurance companies were passive owners. In 1981, there was not
