Is Short-Term Activism More Valuable Than Long-Term Health Care Solutions?

If you watch the 1987 film Wall Street, chances are you remember Michael Douglas’ villainous character Gordan Gekko. The archetype of the detestable, New York high finance figure, Gekko inadvertently inspired a generation of future corporate raiders with his famed “Greed is good” speech.

While part of the Gekko mentality may be out of fashion on Wall Street, short-term profiteering to the detriment of long-term investors is still very much in vogue even if the activist investors who emerged in the aftermath of the 2008 financial crisis want us to believe they are different from their 1980s forefathers.

An even more detrimental situation arises when an investor stymies a company or uses their influence to take control of the board of directors without paying shareholders a premium for that control.

As the head of the world’s largest investment manager, even BlackRock cofounder and CEO Larry Fink has repeatedly flashed the warning against short-termism: “Activists can create benefits in the short run. But sometimes the end result is a crippled company that has been divested of its best components or has stopped innovating.”

While activist investors are theoretically supposed to help corporate governance and positively influence the direction of companies, some disguise their intentions as good – only to wield control and make short-sighted decisions that benefit them. We should ask more of these activist investors – especially when they meddle in industries that are crucial to the safety and health of Americans.

Take the global medical technology firm Masimo for instance. A hugely profitable company best known for its pulse oximetry devices and other noninvasive patient-monitoring technologies that help save actual lives – it is now locked in a proxy battle with activist investor group Politan Capital Management.

This isn’t the first time Politan has picked a fight with Masimo. Last year, Politan successfully backed two candidates – including its owner Quentin Koffey – for the board of directors. Now with a 9 percent stake in Masimo, Politan is trying to add another two candidates of its choosing to the board while removing two existing directors – including Masimo’s founder and CEO Massi “Joe” Kiani.

The question now is: who is better suited to lead Masimo?

Is it Kiani, an immigrant entrepreneur and company founder who received the Intellectual Property Champion Award in 2018, and who sat on the White House’s Council of Advisors on Science & Technology? Or is it Koffey – a man known as a ruthless activist investor who has already claimed at least one CEO’s scalp?

Kiani has revolutionized the medical technology market through his leadership and inventorship – and has proven that he can successfully lead the company through perhaps the greatest test of strength and shareholder advocacy – a patent fight and victory against tech behemoth Apple.

By contrast, hedge fund activist Koffey has articulated no real plan for Masimo – and that’s troubling – for both shareholders as well as the hundreds of thousands of people who rely on Masimo’s health technology to live and recover.

Shareholder empowerment has its place, but not at the expense of the long-term success of industries vital to public health. If Masimo can’t reliably plan on a future business model, how can it continue to create life-saving technologies? And will hedge funds like Politan ever start producing something rather than live off the buying and selling of others?

We all hope for a better future but, like Gordon Gekko said, “We’re not here to indulge in fantasy but in political and economic reality.” The reality is companies like Masimo save lives – activist investors do not.

Jared Whitley has worked in the US Senate and White House. He has an MBA from Hult business school in Dubai. Recently the Top of the Rockies competition named him the best columnist in the Intermountain West.

Jared Whitley, Special to California Business Journal