Corporations with a record of underperformance and a history of shareholder discontent can often find an activist investor at their gate. And when they do, one can expect insurgent managers to target chief executive officers for removal.
In 2017, CEOs at some of the biggest and most well-known U.S. companies resigned under pressure from activists, including at General Electric Co. (GE - Get Report) , American International Group Inc. (AIG - Get Report) , Arconic Inc. (ARNC - Get Report) , CSX Corp. (CSX - Get Report) , Pandora Media Inc. (P) , Perrigo (PRGO - Get Report) and Buffalo Wild Wings (BWLD) . All of these corporations experienced CEO ousters in the midst or shortly after coming under pressure from high-profile activist campaigns.
Jim Rossman, managing director and head of Lazard's shareholder Advisory team, suggests that the trend of companies pushing out CEOs in the wake of activist campaigns can be tied to a shift in boardroom culture in recent years. He argues that corporate executives have to contend with directors that are more independent and have greater industry expertise than their predecessors.
"Boards are becoming more independent and knowledgeable about activism and therefore less tolerant and more demanding of management teams," said Rossman.
We take a closer look here at why activists were successful in seven big campaigns.
Probably the most high-profile activist-driven CEO departure of the year involved Trian Fund Management's Nelson Peltz and his ultimately successful behind-the-scenes effort to push GE CEO Jeff Immelt (pictured) out. Immelt resigned in June. However, he was already in the hot seat with Peltz in March when the fund manager suggested privately that he had been missing earnings targets and hadn't cut expenses enough. The expectation was that Peltz might try to push Immelt out if he couldn't meet financial goals.
Flash forward a couple months. By May 15, GE shares hit a 52-week intraday low, amidst cash flow issues, and a Deutsche Bank note suggested that the company would have to cut its dividends in the next couple years. Later also in May, Immelt wavered on whether GE was likely to meet guidance of $2 a share for 2017 earnings. All of this came after Peltz in 2015 issued an 85-page white paper laying out a strategy and share price goal for the industrial giant that largely wasn't met.
Activist investor Elliott Management's Paul Singer scored a major victory when the CEO of Arconic, Klaus Kleinfeld, resigned in April from the aerospace part company's board. The removal of Kleinfeld was a core goal for a months-long private and later public Elliott Management campaign - the insurgent fund had argued that he was a key impediment to driving share price improvement.
The ouster also followed an unusual unauthorized letter Kleinfeld had sent to Singer. The board said that Kleinfeld had shown poor judgment with the letter, while Elliott Management said in a statement that the letter read as "a threat to intimidate or extort a senior official of Elliott Management based on completely false insinuations." Soon after that Kleinfeld was out. However, his ouster wasn't enough for Elliott Management, which later succeeded at installing three dissident directors to the company's board.
Singer's team is likely involved in the CEO search process, but the company's share price has been on a downward trajectory in the wake of London's Grenfell Tower fire, where at least 79 people were killed. Arconic, which supplied aluminum composite panels to a distributor for the refurbishment of the tower in 2015, said last month it was discontinuing sales of its Reynobond PE for use in high-rise applications.
CSX CEO Michael Ward had initially planned to retire in 2019, but an activist investor campaign launched by Mantle Ridge's Paul Hilal expedited his plan. Reading the writing on the wall, Ward in February announced his plans to depart the large railroad. One month later, the insurgent investor reached a deal that installed Hilal's partner, railroad veteran, and ex-Canadian Pacific (CP - Get Report) chief executive Hunter Harrison as CEO.
And last month, in a move that cemented Harrison's position, shareholders voted to support an unusual and controversial one-time $84 million payment related to his installation as CEO. Harrison was brought in to focus on an approach he pioneered - and is famous for -- known as precision railroading, an operating strategy that allows the railroad company to schedule shipments in a precise way by knowing how trains move between customers and interchanges. CSX shares spiked upwards once Harrison and Hilal launched their campaign in January, and they were on an upward trajectory ever since. However, there are health concerns that continue to plague Harrison.
The Wall Street Journal reported recently that Harrison has an undisclosed medical condition that requires he use oxygen occasionally and demands that he works from home several days a week.
Billionaire corporate-raider-turned activist Carl Icahn reached a settlement with AIG, a top contributor to the 2008 financial crisis, in 2016 to install two dissident directors including hedge fund mogul John Paulson. However, Icahn didn't succeed in convincing AIG to break itself into three parts, as he had hoped. Even so, with no break up pending, and AIG's share price stagnating, the insurer's board decided in March to remove CEO Peter Hancock so it could avoid yet another proxy war with Icahn. Hancock announced his departure, citing a lack of support from stockholders. Nevertheless, it will be interesting to see if Hancock's successor, Brian Duperreault, will have more success with Icahn. The recently installed CEO told consumer insurance investors at a meeting in May that he didn't come to AIG to break it up.
Tim Westergren, a musician and Stanford University graduate who co-founded Pandora Media using an algorithm to organize music, left the money-losing radio service in June amidst an executive shakeout, 15 months after returning as CEO. Westergren's departure came less than three weeks after Pandora secured a much-needed cash infusion from Sirius XM Holdings Inc. (SIRI), which agreed to buy a 19% Pandora stake for $480 million. With a Sirius XM deal in place, Pandora cancelled a $150 million private placement set up by private equity firm KKR & Co. (KKR) The move to bring in first KKR and then later Sirius XM brought to an end - for now - an activist campaign launched by investor Keith Meister and his Corvex Management. Meister had been agitating to have Pandora sold, and there were numerous indications that he was planning to nominate directors to the company's board this year had the web-radio company not reached a deal with KKR and then later Sirius XM.
In February, activist investor Jeff Smith of Starboard Value succeeded in gaining five director seats onto Perrigo's board, including one for himself. The Dublin-based manufacturer of over-the-counter drugs later that same month moved to divest its royalty stream for multiple sclerosis drug Tysabri, a move that likely pleased the activist and other shareholders. However, by June, Perrigo announced that its CEO, John Hendrickson planned to retire, a little more than a year after taking the chief executive job. Hendrickson, who joined Perrigo in 1989, became CEO in April 2016 after the previous top executive, Joseph Papa left to join and help revive Valeant Pharmaceuticals International (VRX) .
Buffalo Wild Wings announced Friday, June 2 that CEO Sally Smith will retire from the wing and beer restaurant company before the end of the year, a significant win for activist Marcato Capital Management LLC's Mick McGuire who had called for her resignation. McGuire, on the same day, also succeeded at installing three of four dissident director candidates to the company's board in a bitterly fought battle that was almost a year in the making. Nevertheless, since Marcato's June 2 victory the restaurant chain's shares are down about 16%, suggesting that Marcato has a long way to go still.
-- Leon Lazaroff and James Langford contributed to this article