Icahn’s philosophy of anti-Darwinism in management
There have been many successful investors over the years. One of whom is Carl Icahn. Icahn’s brand of investing differs from household…
There have been many successful investors over the years. One of whom is Carl Icahn. Icahn’s brand of investing differs from household names Warren Buffett or Charlie Munger, his is activist investing.
In the eighties, Icahn’s reputation as a tactical genius and bully earned him the impeccable titles of Corporate Raider and Vulture Capitalist. Icahn invests in undervalued companies (usually a result of poor management), then uses his stake to pressure for change. Private retail investors are usually unable to apply such pressure given their much smaller size. In an interview, Icahn said “The only you can get these guys off the golf course is when I file a 13-D,” referring to the regulatory filing in which an investor must declare a stake of greater than five percent in a company (in the US).
It’s rare for executives or Board members to have also built a five percent shareholding in the companies they work. Therefore, in amassing such a stake, Icahn is able to pressure boards for change aligned to his vision.
Icahn has a unique philosophy on management, titled “anti-Darwinism” which is just as important today as in the eighties. I’ve seen this philosophy in action, and I’m sure you have too. I’ve quoted the philosophy below from a talk he gave at Yale.
I have a sort of a metaphor that’s a little facetious, but not completely, about it. I call it anti-Darwinian; it’s anti-Darwinian in America’s corporations. That means, a guy goes to college and this is the guy that gets to be the CEO and, yet, he’s in college and he’s the kind of guy that was the president of the fraternity. Now, all these presidents of fraternities aren’t bad guys, but basically the normal guy that I remember at college was — he’s always there at the fraternity or the eating club. He’s always there to be there. If you have a bad day, you walk over to the club and you’re feeling bad — your girlfriend left you; you did bad on a test score or whatever — and you go over there; he’s always there.
He buys you a drink and you sit around with him; he commiserates with you; you play a little pool or whatever and he tells you whatever it is. Yeah, my girl left me; yeah well, they’re all no good — usual conversation back and forth. What would happen would be — you’d like the guy. You can’t help but like him; you used to wonder a little bit, when the hell did he do any work? But, he was always there for you. He never made many waves; he never said anything too obtrusive; or, he never showed too much intelligence. But, he was a good guy. He goes — that same guy goes out into corporate America and politically he’s astute. He knows how to get along with people and he never really rocks the boat. He never comes up with any great idea; he’s not a threat to his superior and, as a result, he moves up the ladder because, really, in corporate America, there’s really very little accountability. What happens in corporate America — he moves up that ladder.
There’s a good show, “How to Succeed in Business,” that was out many years ago that sort of sums it up. If you say — if a genius has an idea in corporate America — the genius has an idea; the next idea is, they give him an idea to resign. So, he moves along the ladder and he gets up slowly up to the top. Now he has two attributes: he’s likeable, he’s politically astute and he’s a survivor — he’s not really a threat and he gets to the top. These are the attributes of today’s CEOs for the most part, with exceptions. He doesn’t ruffle feathers; he doesn’t get the board upset; and as he moves up the ladder, he finally gets to be number two to the CEO. Now, the CEO has the same attributes — where he doesn’t want to be threatened and he’s a survivor. The CEO will never let anybody be number two who’s smarter than he is. So, by definition, the assistant to the CEO is a little dumber than the CEO; now this guy now is the assistant. The board likes him; the CEO eventually retires and they make this guy the CEO — the fraternity president we’re talking about. Now he’s now the head guy — the CEO — and he’ll bring in a number two guy that’s a little dumber than he is because he doesn’t want to be threatened. So, by definition, we’ll be run by morons pretty soon.
Facetious no doubt, but I think we all know of someone who has experienced this. What about you? What management philosophies have you seen which have prevented the best and brightest from being retained?
If you’d like to learn more about Carl Icahn, see the links below:
King Icahn: The Biography of a Renegade Capitalist (Amazon)
ValueWalk: Carl Icahn Resource Page (link)
Carl Icahn’s website (link)
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