Thursday, February 20, 2014

The Outsiders: The Book the Activists Are Reading

If activist investors seem like they are all using the same playbook, it may be because many are at least reading the same book. 
“The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success” has created a buzz among the activist community for laying out in plain English what the activists are often arguing for. 
Hedge-fund managers, bankers and lawyers have all cited the book to explain the logic behind much of what activists are seeking, including the push to break up companies WSJ wrote about Wednesday. 
Written by William N. Thorndike, and published in late 2012, “The Outsiders” won a mention in Warren Buffett’s annual report that year as being on the famed investor’s reading list. 
The book is more geared toward the Buffett-type of long-term investor. It chronicles the experience of eight CEOs, including Mr. Buffett, Henry Singleton, John Malone and Katherine Graham, and the huge shareholder returns they created. The entire book is built the premise that CEOs should be scored on the numbers, like baseball players today. Take Jack Welch, for example: While Mr. Welch was a good CEO at General Electric, he ranks well below other CEOs based on shareholder returns, according to the book. 
The central trait of the top chief executives, according to the book, is how successful they are at allocating capital.

Related previous post: Cash return on capital…