Last month, the alliance of corporate leaders Business Roundtable updated its statement on the purpose of a corporation.
In the statement, the members of the roundtable, CEOs of America’s largest and most influential companies, recognized that by measuring their success only by Wall Street’s yardstick, they had failed to fulfill their responsibility to their employees, their customers, and our communities.
We couldn’t agree more. As a member of Congress representing Silicon Valley and the leader of a labor union representing employees at some of America’s largest corporations, we both have seen firsthand what happens when corporate executives consider the needs of their employees and customers—and the impact it has on communities, and the consequences when they don’t.
But not everyone agrees with Business Roundtable’s new approach.
The chop shop
Take Paul Singer, for example. Singer, the founder of Elliott Management Corporation, has a reputation as being a ruthless vulture capitalist—Bloomberg News has labeled him “the world’s most feared investor.” His tactics involve taking a small stake in the equity or debt of a company and insisting on major restructuring and layoffs in order to extract profit quickly. In essence, they are the antithesis of the long-term investment for which Business Roundtable advocates.
At auto parts manufacturer Delphi, Elliott Management and two other hedge funds used their position as creditors to intervene in bankruptcy court to block a sale that would have preserved a substantial portion of the company’s US operations. Instead, the hedge fund creditors demanded a bigger payout and closure of all but four of its US plants. When Delphi emerged from bankruptcy in 2009, it had 14,000 employees, down from 50,000 in 1999—a loss of 36,000 jobs. Elliott Management reportedly earned $1 billion in the deal.
Now Singer has set his sights on one of America’s most venerable companies: AT&T. Elliott Management has presented a proposal to AT&T’s board of directors that reads almost like a parody of a rapacious scheme to inflate a company’s stock price by laying off employees and selling off assets.
We all know how that story ends: The billionaire investor walks away with even greater riches, leaving behind families struggling to make ends meet, customers with substandard service, and communities trying to pick up the pieces.
Presidential power grabs
This time there’s a twist: Singer is being cheered on by his good friend, the president of the United States.
Within an hour of Elliott Management’s announcement of its plan, president Donald Trump took to Twitter to praise the move. “Great news that an activist investor is now involved with AT&T,” Trump wrote, “As the owner of VERY LOW RATINGS @CNN, perhaps they will now put a stop to all of the Fake News emanating from its non-credible ‘anchors.’”
Great news that an activist investor is now involved with AT&T. As the owner of VERY LOW RATINGS @CNN, perhaps they will now put a stop to all of the Fake News emanating from its non-credible “anchors.” Also, I hear that, because of its bad ratings, it is losing a fortune…..
— Donald J. Trump (@realDonaldTrump) September 9, 2019
Trump’s suggestion that Elliott Management put censorship on its agenda is an escalation of his relentless campaign against CNN, which is part and parcel of his attacks on the free press.
His Justice Department tried to block AT&T’s merger with Time Warner, CNN’s parent company. Reports also suggest that Trump ally and Fox News chair Rupert Murdoch has expressed interest in acquiring CNN from AT&T. This past June, Trump called for a boycott of AT&T, demanding changes at CNN.
Ever the opportunist, Singer has invested in Trump, reportedly contributing $1 million to Trump’s Inaugural Committee and followed by an additional $1 million to a super PAC that supports Trump. Fortune magazine has called Singer “a passionate defender of the 1% and a rising Republican power broker.”
It appears that those investments have paid off for Singer. Trump’s appointees at the Treasury Department, the Commerce Department, and other agencies are deregulating the financial industry at an alarming pace, leaving vulture funds like Singer’s Elliott Management generally unchecked as they hollow out companies to feed their greed.
Singer’s intervention in AT&T seems to be a win/win for both Singer and Trump. Singer profits while Trump sees an opportunity to influence the operation of a news outlet that he perceives has been unfair to him through an ally he has said has given him “his total support.”
These wins for Singer and Trump come at a steep price for the rest of us. AT&T has a long tradition of providing universal service to the public. This tradition should be renewed for a new era. Instead of reducing investment, AT&T should increase it, and focus on building next generation wireless and fiber broadband networks for all Americans, particularly those in the underserved rural areas of our country where next generation communications infrastructure is necessary to deliver critical services to businesses, residents and first responders.
As a company with a strong union presence, AT&T has created and sustained the kinds of middle-class jobs that are necessary to our country’s economic health. The cost-cutting measures that Elliott Management recommends, such as closing wireless retail stores and increasing outsourcing, would accelerate the loss of family-supporting jobs and the shift to using low-wage and potentially overseas contractors.
Elliott Management’s proposed intervention at AT&T puts Business Roundtable’s vision of inclusive prosperity to the test. AT&T’s board of directors and largest shareholders face a choice: Do they want to adopt Elliott Management’s outdated, disproven model, extracting value from AT&T for a few short-term investors at the expense of AT&T’s employees and customers? Or, do they want to chart a different course, investing in AT&T’s long-term future?
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