Paul Singer’s Latest Strategy: ‘Provoke Into Self-Destruction’

In his years as perhaps the most sharp-penned activist in the hedge fund industry, Elliott Management chief Paul Singer has made more than a few corporate managers and directors (and at least one head of state) very, very angry. He is not bashful about laying bare the many, many problems he has with such people and their varying levels of incompetence, negligence and personal avarice, and how they are negatively impacting his own avarice and that of his investors.

Still, even by his own standards, Singer’s frontal assault on Arconic CEO Klaus Kleinfeld was particularly brutal: “Abysmal.” “Broken.” “Wasteful.” “Massively underperforming.” “Years of poor performance.” “A culture of grandiose rhetoric devoid of any real substance or follow-through.”

Harsh stuff, indeed. And if you thought Singer typed out those opinions and sent them to Kleinfeld because, like Ron Swanson, he believes them, you’re probably right. But there was more than principle to Singer’s savage missive. Having sized up Kleinfeld like a toreador, Singer knew that if he could make Kleinfeld angry enough with his ad hominem red capes, Kleinfeld would plunge the lance into his own flank. And so he has.

Mr. Kleinfeld stepped down as Chair and CEO by mutual agreement after the Board learned that, without consultation with or authorization by the Board, he had sent a letter directly to a senior officer of Elliott Management that the Board determined showed poor judgment.

Arconic was too busy throwing laurels at the CEO it just induced into professional seppuku to go into details about it. Singer is a bit less circumspect about offering some color, however.

To be clear, the letter read as a threat to intimidate or extort a senior officer of Elliott Management based on completely false insinuations, a threat that we took seriously and about which we immediately and privately informed the Board. This is highly inappropriate behavior by anyone and certainly by the CEO of a regulated, publicly traded company, in the midst of a proxy contest.

In its own statement, Arconic made clear that Kleinfeld’s exit had nothing to do with its “abysmal operating performance,” “broken company culture,” “antiquated corporate governance structure,” “years of poor performance” or the Elliott-backed proxy battle resulting from the same. And since Arconic knows that all Elliott really wanted was “a CEO change," it’s sure the hedge fund will be satisfied and lay down its arms. Which only goes to show that Arconic doesn’t know Paul Singer at all: He’s only just starting to have some real fun.

This letter cannot be viewed in isolation. It is simply the latest debacle in a pattern of conduct in which the Board has repeatedly excused, endorsed, and participated in Dr. Kleinfeld’s poor leadership and attempts to entrench himself and his allies on the Board. When such conduct manifests itself in a pattern as it has here, it is not a CEO problem. It is a Board problem….

For the past nine years, this Board, in particular its legacy directors, have aided and abetted Klaus Kleinfeld in destroying enormous shareholder value. They deceptively frustrated shareholder attempts to de-stagger the Board, and they stubbornly refused to change the Company’s outmoded corporate governance regime. They allowed Dr. Kleinfeld to trade Company assets for votes (the Secret August Voting Lock-Up), and they enabled the creation of a potential $500 million liability purely to entrench themselves (the Hidden April Poison Put). Now the Board says it simply wants to continue Dr. Kleinfeld’s strategy….

Clearly, this Board is a poor judge of character and doesn’t even appear to understand how profoundly it has failed Arconic’s shareholders and employees. The Company’s attempt at the end of its press release to say that Elliott has achieved its objective of a new CEO and therefore should stand down rather than ‘burden’ the Company with a continued contest is a ridiculous attempt to try to take its own failings and use them to tarnish Elliott’s efforts.

Aluminum giant makes its CEO an offer he can’t refuse [N.Y. Post]
Klaus Kleinfeld Steps Down as Chair and CEO of Arconic [press release]
Elliott Management Responds to Klaus Kleinfeld’s Resignation [Business Wire]