Activist U: Insurgent Tactics Make the Curriculum

Top activists, including Glenn Welling, Jeff Smith and Jim Mitarotonda, as well as key legal and financial advisers are volunteering their time at a growing number of university programs on activism.

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By Ronald Orol

February 02, 2024 02:54 PM

About a week before Engaged Capital LLC launched an activism campaign in October urging VF Corp. (VFC) to consider divestitures, a group of students at the University of Pennsylvania Law School enrolled in the school’s Shareholder Activism course identified the apparel and footwear company as a possible activist target.

“They found VF Corp. on their own and then Engaged came out with their deck at a conference,” said Dan McDermott, a lecturer at Penn who created an activist investing class in 2021.

McDermott, an executive at communications firm ICR Inc., said he started the course after realizing that much of the subject matter involved in the world of activist investing wasn’t being taught in U.S.

M.B.A. programs and law schools. The course is among a number of activist courses popping up at top business and law schools in the U.S.

“I have an M.B.A., and this subject material was not covered when I was in grad school, and I thought the topic goes over a lot of ground, including negotiation, business law, corporate finance, corporate governance and many ESG topics, and I pitched it to a couple schools in the Washington, D.C., area, and then Penn and Penn Law School,” McDermott said.

Activist U’s Growing Enrollment

Columbia University – “Shareholder Activism as a Value Strategy” course (started in 2021)
New York University – “Activist Investing” course (2022)
Syracuse University – “Activist Investing and Corporate Governance” program (2022)
University of Pennsylvania:
- Law School’s “Shareholder Activism” course (2021)
- Wharton School’s “Shareholder Activism and Corporate Governance” (executive education, four-day, nondegree program)

McDermott’s class in 2023, a group of 28 students, includes law and

M.B.A. students in University of Pennsylvania’s Wharton School, and students seeking a combination J.D. law and M.B.A. degree.

In the program, students compared public companies to their peers over one-, three- and five-year intervals, from a shareholder-return point of view. They also reviewed capital allocation, performance and growth topics and presented campaigns about companies.

“At the end of each semester, five or six students will have a go at making a presentation from the activist point of view,” he said. “They identify opportunities for strategic and operational improvements; sometimes it is an M&A thesis, and they think the multiple is down and the company should be acquired, and these are the directors that should resign. They pick real companies, and they mimic advisers working on a campaign.”

Top activists and advisers have volunteered their time as guest lecturers.

Notable Guest Speakers

Advisers:

Georgeson partner Bill Fiske (Penn)
Okapi Partners LLC Bruce H. Goldfarb (Syracuse)
Olshan Frome Wolosky LP partner Elizabeth Gonzalez-Sussman (Penn)
Patricia Lenkov, a director candidate recruiter at Agility Executive Search (Syracuse)
Evercore Inc. managing director at Zach Oleksiuk (Penn)
Jeroen van Kwawagen, partner at Bernstein Litowitz (Syracuse)
Sidley Austin LLP corporate partner Reuben Zaramian (Penn)

Fund Managers:

T. Rowe Price active manager Donna Anderson (Penn)
Jeff Gramm, founder of Bandera Partners (Columbia, Faculty)
Engaged Capital director of research Chris Hetrick (Penn)
Terrence Kontos, portfolio manager at TIAA CREF (Columbia, Faculty)
Barington Capital Group LP’s James Mitarotonda (Syracuse)
Starboard Value LP founder Jeff Smith (Penn)
Engaged Capital founder Glenn Welling (Penn)

Governance and ESG experts:

ISS chief of sustainability advisory services Kosmas Papadopoulos (Syracuse)

Jared Landaw, a former activist fund COO and general counsel, said he brings in a variety of experts to the activism program he oversees at Syracuse University College of Law.

“We bring in experts, including proxy solicitors, bankers, lawyers and institutional investors to provide students with insight into shareholder activism, from a wide variety of perspectives,” Landaw said. “At the most fundamental level, however, it is a course on corporate governance, using shareholder activism to examine the rights of stockholders and their ability to influence publicly traded companies.”

With a wide variety of speakers the classes offer different view points of the activist process. Welling, for instance, noted that he typically takes students through several case studies each year, which include evaluations of both completed investments as well as live investments.

Shake Shack Inc. (SHAK), an Engaged target, was among topics that were reviewed — and Welling ordered the class burgers from the restaurant chain to go with the talk. In May, Welling and his fund reached a deal that reduced founder Danny Meyer’s director designation rights and added ex-Domino’s Pizza Inc. (DPZ) CFO Jeffrey Lawrence and former Panera COO Chuck Chapman to the board.

“We covered everything from our research and diligence to our investment thesis, which was primarily focused on operational improvement opportunities within the four walls of the restaurants,” Welling said. “The class tasted why the company has some of the highest unit volumes in the industry and we talked about the fixable issues constraining their profitability as well as our engagement with management and the board and how we got to what was an extremely successful cooperation agreement.”

Welling said he discussed Meyer’s “unique set of governance rights,” in the context of seeking to explain to students as they become emerging lawyers how shareholders view insider control of companies “so they can provide cogent advice.”

VF — a Double Target

Tasos Dimitrakopoulos, 25, was one of four Penn students who identified VF as a possible target.

Underperformance compared with its peers and the Russell 2000, coupled with a strong portfolio of brands, helped the group identify VF as an activist candidate. The group concluded that VF also paid too much for Supreme, a street wear fashion label it purchased in 2020 for $2.1 billion, Dimitrakopoulos said. “It was popular with younger ages and was at its peak when VF bought it, and after that, it started underperforming,” he said.

From a financial point of view Dimitrakopoulos, who is interested in working for an activist fund, wasn’t surprised VF was targeted by an activist.

“As students, we were all very excited when we found out, as it affirmed that we had done a good job,” he said.

The Engaged Capital founder added that he wasn’t surprised that University of Pennsylvania students identified North Face owner VF as a potential activist candidate because, he argued, it was a “glaring activist opportunity with a board that had overseen the destruction of 85% of the company’s value as they failed on succession and put the company at real risk through a large acquisition.”

However, finding a great idea is only the beginning of the activist process, and Welling said he tells students that the real value creation comes in figuring out how to convince companies to change behavior.

“We don’t believe it’s an accident that just a few weeks after we shared our investment thesis at an investor conference that the new CEO of VF announced practically all of the changes we suggested,” he said.

Landaw’s 13-week Syracuse program class session for law students delves into key activist case studies, including campaigns targeting Olive Garden owner Darden Restaurants Inc. (DRI) in 2014 and Barington’s multi-faceted 2019 campaign at L Brands Inc., as well as governance, board diversity and other ESG topics. Students must make 20-minute presentations on key topics in governance and activism, such as staggered boards, poison pills, universal proxy cards and activist shareholder proposals.

At University of Pennsylvania, Georgeson’s Fiske said he takes students through how proxy solicitors identify what investors make up a company’s ownership base. “We talked about how Georgeson advises company clients in contested situations, whether it is a normal annual meeting at a company with governance concerns or contested matters such as a director contest. We reviewed how we look at possible settlements or taking a situation to a fight.”

Fiske, head of M&A and contested situations at Georgeson, noted that he spoke to McDermott’s class in 2021 and 2023.