Last year marked the 30th anniversary of the legendary Wall Street takeover of RJR Nabisco. Through the final months of 1988, private equity giants waged a battle royale to take the food and cigarette conglomerate private. The plan was to split up the company for spare parts, flog them, and pocket $100m. Not bad work if you can get it. The deal – immortalised in Barbarians at the Gate – now epitomises corporate greed.
But the days of an entrepreneur raising billions of cash on a brash ambition to liquidate businesses is now firmly behind us. Today ambitious financial entrepreneurs need much more than a blank cheque and the ability to read a spreadsheet. They need to sell a moral mission and have a reputation for adding more than just financial value.
Banks have pulled back from doling out huge credit lines to maverick corporate raiders, like Texan cowboy T Boone Pickens or, on this side of the Atlantic, tycoon Sir Jimmy Goldsmith.
I’ve heard people say that this is because our economy is more efficient – that rich pickings are slim for the slice-and-dice deals these dynamic personalities specialised in.
I don’t believe that. There are still too many poorly managed private companies. And today, the number of conglomerates – where there is the most money to be made from a corporate raid – is arguably on the rise because of the emergence of new software conglomerates, such as SAP and Workday.
The truth is that if you want to raise money for a corporate raid, you would quickly find yourself being escorted out of the boardroom, with a light hand on your shoulder, and down the hallways of the biggest banks and family offices.
The last decade has been defined by rising consumer concerns over the activities of companies. It is no longer enough for a company to provide good soap at an attractive price – instead, they must believe in “happy people with happy soap,” to quote high-street soap store Lush which captures the contemporary zeitgeist.
Banks do not want to be associated with deals that are seen as predatory or greedy; they want the very opposite
Of course, some bankers may say these trends don’t impact the City. But many know they are wrong.
Banks with a retail arm are petrified of spates of consumer activism. And executives at other financial institutions lose sleepless nights over opening the pages of the FT – or, more likely, their Twitter feed – and finding their mugshots plastered everywhere as the latest example of corporate misbehaviour.
Today, banks do not want to be associated with deals that are seen as predatory or greedy. In fact, they want to be seen as the very opposite. They do not want to ally themselves with entrepreneurs whose business plans simply end in a very long list of zeros. They want to see an argued case for the value – the economic and environmental contribution – that the deal will provide as well.
This may well explain Elon Musk’s more peculiar stunts on Twitter – from launching a company to build a utopian subterranean transport system to, most recently, implanting a chip in the brain of a pig. You can level a number of criticisms against Musk, but it is harder to say he is simply in it for the money. It’s clear that’s a byproduct not a motivation. Maybe’s the point in this post-profit world? And, of course, the share price of his companies continues to climb.
But it’s not just tech moguls on the West Coast. Financiers are at it too. Look at Bill Ackman of Pershing Square who has made a name for himself as an “engaged” activist, in the words of adviser and investor Claudio Rojas. Those words were used to describe Bill’s investment in Canadian Pacific Railway.
But the financier’s short on Herbalife, a multi-level marketing company alleged to be a pyramid scheme, is perhaps a better example. Ackman has described the rationale for his short position as a moral crusade to stop an immoral, greedy multinational taking advantage of poor distributors.
Of course, people will say that despite what it looks like, everything has stayed the same beneath it all. And that while activist investors taking a short position may say they’re on a moral crusade, it’s still just about squeezing a huge margin from a collapse in a stock. The Wolf of Wall Street has simply gone into the latest, trendiest fashion store and picked up a new set of slacks.
That may be true. But it proves the exact point all the same: making money is no longer enough. If you want to be a successful financial entrepreneur – or any entrepreneur for that matter – selling a moral mission is critical. Reputation is key. And that is why the age of the corporate raider is over.
Jordan Greenaway is Managing Partner of Transmission Private, a communications firm that advises successful individuals, investors, entrepreneurs and private clients on their reputation. transmission-private.com