by Rob Weigand
[First, a brief disclaimer. Nothing in this article implies that Bill Ackman of Pershing Square Capital should be compared to former V.P. Dick Cheney, beyond strictly pointing out that they are both currently using more or less the same strategy to justify their recent behaviors -- a strategy that's so embedded in the Judeo-Christian and Western Scientific traditions that it's often overlooked for being too obvious. The strategy is known as a "claim to virtue," a concept elaborated on in the writings of the renowned psychiatrist Robert Jay Lifton. However, if you perceive that this article represents a personal attack on either Ackman or Cheney, or aspires to make some sort of political statement, you're projecting. I assure you, no such intentions exist. But I believe that anyone who is motivated to figure out how the world works -- something that applies to all investors -- the following perspectives will be interesting.]
The final stages of Bill Ackman’s attempt at shaking up Target’s (TGT) board have been chronicled in some excellent journalism recently, including articles by the NY Times’ Joe Nocera, Reuters’ Felix Salmon and The Street’s Eric Jackson. The first two articles express puzzlement over what Bill Ackman has been up to with his usually successful activist strategy, as Target’s stock was never that big of a disaster. True, TGT has underperformed Walmart (WMT) in recent years, but over 5- and 10-year horizons both stocks have been mild disappointments (although both beat the S&P 500 over the past decade).
Joe Nocera and Felix Salmon really lay into Ackman over his erratic and puzzling behavior at the Target annual meeting. Evidently Ackman, who makes a good living by being a professional pain in the rear end, found it appropriate to abruptly don a halo and invoke both John F. Kennedy and Martin Luther King. Nocera quotes Ackman as he tearfully insists that he would “pay any price, bear any burden, meet any hardship,” as well as asserting:
I have a dream that directors will be elected on character and competence. I have a dream that one day the director nominating process will be transparent. I have a dream that our efforts here will be fruitful.
Nocera concludes that Ackman is “full of sound and fury, signifying nothing” (Shakespeare), while Salmon predicts he’s going to become an ever-greater object of ridicule. I’m going to respectfully disagree with these writers, both of whom I greatly respect, and devote the remainder of this article to describing why I believe that the strategy Ackman adopted as his defeat at Target became increasingly clear to him, known as a “claim to virtue,” may instead have been yet another shrewd move by someone who’s proved himself an astute student of both financial markets and human nature over the years. Ackman’s claim to virtue is quite simple — he hasn’t been a shareholder activist for money all these years, he’s been working hard to make the world a better place for you and me.
The “claim to virtue” strategy is at least as old as the Judeo-Christian roots of Western Civilization. It’s often used as a justification when someone wants to take possession of something that doesn’t belong to him or someone wants to do great harm to another (or both). A few quick examples. In the Old Testament, Deuteronomy 21:11 rationalizes the appropriation of attractive women after victory on the battlefield: “And seest among the captives a beautiful woman, and hast a desire unto her, that thou wouldest have her to thy wife.” (In this case the claim to virtue is the “fact” that the advice is being handed down by God himself.) Or, take Genesis 1:28, for example, which uses the same “but God said to do it” justification for appropriating natural resources, as man is exhorted to “fill the earth and subdue it; and have dominion over the fish of the sea, and over the birds of the air, and over every living thing that moves upon the earth.” In both past and present times this exact justification has been used as an excuse for colonial conquest, deforesting, overfishing, etc.
Now, of course Ackman didn’t claim that he was shaking up Target in the name of the Almighty, but he did attempt a decisive strategic move to the moral high ground with his quoting and paraphrasing of Kennedy and King. In my opinion, this was based on a split-second calculation on his part as he astutely perceived he would win no seats on Target’s board — he shifted to the best possible position left to him in an attempt to mitigate the humiliation inherent in his high-profile defeat, and set himself up to raise more funds for future ventures, which he will do, and do so bathed in the glory of his own high-mindedness. We’ll come back to the full brilliance of this positioning in just a moment.
Nocera and Salmon’s puzzlement stems from the fact that Ackman’s positioning of himself as a socially-concerned corporate activist is almost completely implausible to anyone with basic common sense. Modern applications of the “claim to virtue” justification always reflect some aspect of implausibility, however, often in the extreme. And, sad but true, the American Capitalist tradition is rife with these sorts of implausible justifications. Philosophies like Manifest Destiny were at first used to justify the slaughter of 60 million buffalo and 20 million antelope to make life tougher on Native Americans, and later the philosophy was used more directly to justify the mass genocide of these people. It was still God’s will in this case, but this time in the name of progress and profit. Pretty implausible from a modern perspective — but only because modern claims to virtue have become increasingly subtle. The implausibilities get harder and harder to argue with. Next, notice one more thing: no history scholar ever got a contract to write a textbook reporting these sorts of things. Or the fact that George Washington crossed the Potomac during a Christmas Eve cease fire and murdered drunken Hessian mercenaries. Facts like these get sanitized by the time the next generation sits down for its history lessons. That’s how the for-profit world works.
Everyone’s noticed that Dick Cheney has been busy lately. For such a reticent and press-shy V.P., Cheney has devoted enormous energy to a prolonged speaking tour. But he knows exactly what he’s doing. Cheney is re-writing his entire legacy around a simple claim to virtue: I wanted to keep the country safe. So I had to approve enhanced interrogation techniques. It’s not torture when you’re trying to keep the country safe. And we had to invade Iraq. No invasion is unjustified when you’re trying to keep the country safe. In my opinion, Cheney is making a smart calculation that’s eventually going to pay off. No mass market history textbook is going to dig deeply into the enormous mess Bush and Cheney created. Right now, about 30% of the country views Cheney favorably. With time, that number is likely to go up, as the implausible justifications, repeated again and again, become faintly plausible — just another point of view that must be considered if one wants to be “fair and balanced.” Eventually, no history scholar is going to get a contract to write a chapter called “The Bush and Cheney Debacle.” The facts will need to be sanitized because textbook publishers won’t take the risk that 30-40% of children’s families in any particular school district will take offense.
Bill Ackman just made a similarly shrewd calculation with his invocation of Kennedy and King. Ackman doesn’t care what I think of him. Or you either, probably. Unless one of us has $5 million or more to invest. Ackman only needs 30% of the smart money to like his latest move, wiping away those crocodile tears in front of the press in Minneapolis. If that 30% liked it, or just remembers it favorably later, there will still be a new pool of money available to him when he gets his next great idea. And, tempered with the humility maturity can bring, it will probably be a damn good idea, and we’ll all wish we had invested in it, or saw it ahead of him. Another $1 or $2 billion of personal profit later, and no one will remember that Bill Ackman looked a little silly on a cool June day in Minneapolis. The facts will get sanitized, and Bill Ackman will be pestering corporations and making heaps of money while you and I are . . . watching and commenting.