We held an hour-long discussion with Carl Icahn on Monday as part of our Reuters Global Investment Outlook Summit, going over everything from his spectacular year of performance to his thoughts on the excessive media coverage of activists like himself who push and prod corporate managers to return cash to investors. We also talked about the legacy he wants to leave.
There was much Icahn wouldn't talk about on the advice of his lawyer, however. While he said he took a look at Microsoft, he won't say why he decided not to join ValueAct's Jeffrey Ubben's activist campaign. He also stayed mum on any plans for his Las Vegas white elephant, the unfinished Fontainebleau Las Vegas resort, which he bought out of bankruptcy proceedings in 2010.
Never one to mince words, Icahn said he takes issue with Bill Ackman's brand of activism which he believes borders on micromanaging by telling chief executive officers how to do their jobs. "I think Ackman is the opposite of what I believe in activism. You don't go in and you don't go tell the CEO how to run his company."
Icahn, 77, is arguably this year's investor story of the year, not just for his daring, profitable bets in Herbalife and Netflix but also for his transformation as the dean of activist investing.
The following are excerpts from our discussion.
On the meteoric rise in Icahn Enterprises shares this year. We ask if he feels they are overvalued now:
Carl Icahn says: "You are right it is up 150%. But I sort of think it was quite undervalued before, but I think that you look at IEP - at least I like to look at it but it's my company so maybe I have certain feelings about it - but I think that we have a model that we follow assiduously and that model works tremendously well. And that model is very simplistically put that we're activists. And I think this model works because so many of our companies are so badly run in this country. And it's amazing when we go on these boards how well we do even as a minority. And our record speaks for itself."
On Icahn's style of activism
Carl Icahn: "We get involved on the board. We don't micromanage and interestingly we get invited back because we're not a disturbance or a disruption. And Hanes is a good example — we bought it at 20 and it's now at 80. And I think the CEO will say that in the beginning he was wary of us but he said that we helped him quite a bit. And Motorola I think I still stay friendly with Greg Brown (chairman and chief executive officer of Motorola Solutions, Inc.) who says we helped him. I think this model must be used in this country if we are going to remain competitive. One of the major reasons I think for the fact that we have unemployment is and we don't compete is the mediocrity of so many of our managements and so many of our boards. I want to make it clear that there are some very good managers and some very good boards. But generally, it's amazing how badly these companies are run."
On the U.S. economy
Carl Icahn: "I'm not telling you that we're not a great country. We have great assets. I just think it should be much stronger. You have a real problem in this country today. You have a major unemployment problem in this country. And frankly, I don't really think this economy is growing all that quickly. I think it's growing because (Ben) Bernanke keeps pumping money in and I'm not saying that's a bad thing, but I am saying you can't do that forever."
Media coverage on activists like Icahn
Carl Icahn: "The reason guys like me I think are covered is because it's fascinating that we do so well. You know, Why do you cover a winning athlete? I think it's just that the success breeds the coverage, to some extent. But the real interesting thing is that even with that coverage - and some of that coverage, by the way, is not positive. I don't have to tell you guys. A lot of the coverage that I get is certainly not positive. I mean, here, we are saying Apple should do a major buyback, which to me is self-evident and yet you get a lot of umbrage about that. How can you tell Apple what to do and all that stuff?"
On Bill Ackman
Carl Icahn: "I do not believe that we should micromanage at all. I think (Bill) Ackman is the opposite of what I believe in activism. You don't go in and you don't go tell the CEO how to run his company. I know this sounds strangely anti-intuitive to you but this is why I think we've been so successful and these companies have been successful. You don't go in and tell a CEO, ‘You know what, I think you should do this. I think you should change the way you retail, which is what Ackman did there.' I don't think you should change what they did. They changed the whole system of pricing. We don't do that all. We go in and we set up parameters. We talk to the ceos, there is nothing definite. What the board does today it accompanies the exact opposite of what they should be doing. The board should be keeping the ceo accountable. You could have a lot of measurements for that and parameters, mostly against the peer group. Return on equity, how's revenue going, you measure against the peer group. It's unique to each company, so I can't give you every parameter that we do. That's what a board should do. They shouldn't come in and tell you, ‘You should build a factory here. You should do that.' If the ceo who's working on that and should be working on it 20 hours a day, he should make that decision, not some board member that comes in and sits there - it's ludicrous — five times a year and makes himself a half million dollars and gets tickets to the Super Bowl. He shouldn't be doing that. But he does. They come in and each guy has an idea — a lot of these guys are retired - they think about it for three hours on the plane coming in. And they say, ‘build a factory here and do this.' Maybe they were all in the business before, so they think they really know something. We may have an idea here and there but we never push it but we keep them accountable. Now that ceo knows he's accountable, we have numbers to look at, we look at costs, we look at this. And if he is not producing, we look at the peer group, we wonder what he's been doing, how many times he has been on the golf course literally almost, literally where the hell has he been. And by the way, he shouldn't be on other boards or should be on few boards."
On his legacy
Carl Icahn: "I haven't really thought about it really that well. Be a real force in changing corporate governance because I know it sounds completely corny, I grew up as a poor kid from Queen's. And I was lucky enough to get into Princeton because I did well on the college boards and I came from a tough neighborhood. No country in the world could have done as well as I did and you feel like you owe the country something. You're giving back most of the money you made. But the real issue I think you could do to change this country and what is almost outrageous is the corporate governance is the pay. I mean, it is completely, totally reprehensible that a ceo makes 1,000 times what a worker makes and then he's playing golf all day. I am not saying every ceo plays golf. And on top of that, the stock of his company has fallen and he's still making a 1,000 times what the guy makes and when you finally get him out he gets a huge severance package. This is outrageous. There is no corporate governance. I think it's time the big institutions start paying much more attention to what their obligation is. My legacy can be to change (the structure) somewhat. In some way, I'd like that to be my legacy."