Some 220 years ago, two dozen stockbrokers and merchants sat beneath a buttonwood tree on Wall Street and signed the famous Buttonwood Agreement forming the New York Stock and Exchange Board. This exchange, and the others that followed, ushered in a new era of free-market capitalism and changed world history.
One byproduct of the freedom implicit in a free market has been activist investing. Some activist investing is good for the marketplace, increasing shareholder value and improving corporate management and business practices. Activist investors play a critical role in preserving and strengthening companies they target, while making our nation’s economy stronger and more dynamic.
Unfortunately, in the never-ending pursuit of an edge, some activist investors are using techniques and tactics that go too far. These investors are attacking strong, healthy companies with misguided and destructive campaigns based on falsehoods, deceptive practices and intimidation. The ultimate intention is to manipulate stock prices for the activist’s own personal enrichment – in the meantime, doing untold damage to families, companies and our economy.
I know about such campaigns because I have seen them firsthand. My company, Herbalife, has come under an unprecedented, three-year and $1 billion public short campaign by Bill Ackman. His staff told the New York Times in March 2014 that this reckless initiative was simply about making an “enormous return.” This brutally honest explanation tells the whole story; his crusade is about nothing more and nothing less.
Ackman’s initial investment proposition was that Herbalife would collapse. He engaged in a massive pubic relations and lobbying campaign to see his dream come true, insinuating that our business practices were unethical and unsustainable in an effort to shake investor confidence. Yet when investors such as Carl Icahn and Bill Stiritz examined Ackman’s research, they came to a completely different conclusion and instead became significant shareholders in Herbalife.
Undeterred, Ackman changed his thesis. He now asserts that the company will collapse because of poor earnings. Yet Herbalife has exceeded earnings expectations, and the stock is now trading higher than when Ackman began his public campaign. All told, Ackman admits that he has spent hundreds of millions of dollars just so he can win this billion-dollar bet.
During this epic battle, we have been the target of an insidious attack that at times has become personal. Fortune magazine recently engaged in an exhaustive and intensive six-month investigation of both Herbalife and Ackman and stated that Herbalife’s “executives, employees, and distributors have all been villainized, if not defamed.” Editor Alan Murray called Ackman’s antics “disturbing” and indicated that they probably had gone a “step too far.” Murray also asked: “In his all-out fight against Herbalife, is the activist investor assuming the role of judge, jury, and executioner?”
Self-serving campaigns by carnival barkers like Bill Ackman do not benefit the larger system, they corrupt it. What was once healthy activist pressure has transformed into a dangerous game of manipulation and deception, with no regard for the collateral damage that can include the lives and careers of ordinary Americans and the investing public.
Additionally, Ackman completely ignores the fact that our millions of members in 93 countries around the world buy and use our nutrition products because they help people lead healthier lives. Our direct-selling distribution model means we provide people with the opportunity to earn additional income, in a flexible environment and on their terms, similar to Avon, Tupperware and Pampered Chef.
What is happening to Herbalife is wrong. It is reassuring to know that recent articles in the Wall Street Journal, New York Times, Fortune and Forbes, as well as dozens of other publications, have raised serious questions about Ackman’s behavior.
The United States Department of Justice and the FBI are also concerned about Ackman’s campaign and as the Wall Street Journal reported, they have opened a criminal investigation.
Experts, such as former Securities and Exchange Commission Chairman Harvey Pitt, are additionally calling Ackman’s actions into question, with many asking Congress to investigate the way Ackman is manipulating the government regulatory process for his personal financial gain.
In Herbalife’s case, we will prevail. Our products and market fundamentals are simply too strong and too well established. We have been around for 35 years and we will be here, stronger than ever, in another 35.
But this is larger than one man’s reckless campaign. After three-and-a-half-years, some investors are waiting to see how this “game” shakes out to see if they can replicate and advance Ackman’s model. Yet our members, employees and shareholders are not mere pieces to be shuffled on some dime-store game board. No, this is about people’s lives and livelihoods.
Two centuries ago, the Buttonwood Agreement set the stage for a powerful new American economy to flourish, and ever since our economic model has been rooted in the idea of building equity and lifting all boats. To preserve that system, we must not allow a few to undermine its long-term stability in pursuit of short-term profits.
Michael O. Johnson is the Chairman and CEO of Herbalife, a global nutrition company. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
