"AS A YOUNG SECURITIES ANALYST, I was limited in my knowledge of boards and how to analyze the quality of the directors. Boards were certainly more of an old boys-type club in those days. What I did find surprising was that you actually had brokerage guys on boards who would peddle monthly earnings to the investment community -- not selling the reports but providing them as part of a continuing relationship kind of thing. I can remember one company which I was particularly close to and which shall remain unnamed that would send me their monthly earnings. It was a conglomerate involved in many different parts of the economy, so I just loved having this information. We had a big holding in it so they probably felt that they were fulfilling their obligation to the investors. Those times were a bit different from today.
In 1979 I wrote in Institutional Investor magazine that it was the obligation of institutions to make their voices heard. That was a kind of watershed statement. The popular institutional exit strategy at the time was to vote with your feet. Yet you just killed the stock if you had a sizable position. And of course you would probably be selling it at just the wrong time. Unless the company was a disaster, this just didn't seem to me to be the right way to go. So we developed an inclination to be a bit more forceful in regards to corporate governance.
If we weren't getting any satisfaction in our normal contacts with management, what we would do is write letters -- and we wrote a lot of them -- to the board, particularly to directors who were members of brokerage firms. We weren't about to ask for anything ridiculous. What we wanted was more of a qualitative discourse. We were just trying to do well for the shareholder.
There was a situation where I owned B.F. Goodrich when it was just a tire company in Akron. It was a cheap stock with pretty good cash flow and I was after them to buy the stock in, which made a lot of sense when it was selling at five or six times earnings. Well, Goodrich went out with its low P/E stock and bought, at 14-times earnings, an industrial roofing company. We made the case to John Ong, who was their strong CEO, and to John Weinberg of Goldman Sachs, who was a director, that it would be so much more productive for the shareholder if they used that money to repurchase their stock. "Where is it written that you have to buy this?" I asked Ong and Weinberg. "There are alternatives."
When those conversations...