November 7, 2017 Bruce Goldfarb in The New York Times: Ackman’s Impact on ADP

Ackman Is Defeated in Activist Bid to Jolt ADP Board

By David Gelles

The activist investor William A. Ackman suffered a stinging rebuke on Tuesday, failing in his campaign to shake up the board of ADP, the $50 billion payroll-processing firm.

Mr. Ackman, a billionaire hedge fund manager, had waged a bruising three-month campaign against ADP leaders, saying that they were complacent and that the company was underperforming. ADP countered that its revenue and share price were both up substantially in recent years, and that Mr. Ackman’s recent track record was weak.

Investors sided with the company in decisive fashion. Mr. Ackman and his other two nominees — Veronica M. Hagen, the former chief executive of Polymer Group, and V. Paul Unruh, a director at Symantec and a former Bechtel executive — each received a significant minority of the votes cast. Instead, investors re-elected all 10 of ADP’s current directors, the company said.

In an interview, Mr. Ackman put an optimistic spin on the results. He said he had received more votes than the company said he had, and that his loss had actually been narrow.

“I lost by one shareholder,” he said. “Had Vanguard voted for me, it would have been too close to call.”

But in remarks at the shareholder meeting where the votes were tallied, Carlos Rodriguez, ADP’s chief executive, disputed Mr. Ackman’s rosy interpretation of the outcome.

“Bill, despite your characterization of the result as close, what I was told was this was an ‘ass-whooping,’” Mr. Rodriguez said.

The result was a very public no-confidence vote in Mr. Ackman by the investor community. He made his name as one of the most aggressive activist investors, shaking up companies like Wendy’s and Canadian Pacific Railway and enriching himself and his investors along the way.

But his performance has suffered in recent years. An investment in Valeant Pharmaceuticals International cost Mr. Ackman’s hedge fund, Pershing Square Capital Management, around $4 billion, prompting Mr. Ackman to acknowledge it was a “huge mistake.”

His bet against Herbalife, the supplements company, has also proved to be a mistake. And his investments in companies including Borders and J.C. Penney did not result in the promised turnarounds, either.

Other activist investors have also struggled to sway investors this year. Nelson Peltz tried to shake up Procter & Gamble, but lost a shareholder vote by a slim margin last month and is awaiting the results of a recount. And David Einhorn faltered in his campaign to shake up the General Motors board and create a new class of shares.

ADP was an unusual target for Mr. Ackman. Although the company is facing challenges from upstarts that use newer technology, it has performed well in recent years. Revenue has grown steadily, and the stock has doubled over the last five years.

Despite that, Mr. Ackman started his aggressive campaign in August, suggesting that Mr. Rodriguez should be replaced as chief executive.

Mr. Rodriguez did not mention Mr. Ackman in a statement on Tuesday announcing the results.

“This process has sharpened our focus on the importance of insightful, strategic engagement with our investors, which, over the past few months, has given us a greater appreciation of our owners’ perspectives on our business and growth plans,” he said in the statement.

Mr. Ackman and his candidates were defeated despite having substantial support from the three main proxy advisory firms, which give shareholders advice on how to vote in such situations.

Two of the firms, Egan-Jones and Glass Lewis, supported the election of Mr. Ackman and both his nominees. But Institutional Shareholders Services, or I.S.S., the most influential of the firms, essentially encouraged investors to vote for Mr. Ackman, but not Ms. Hagen or Mr. Unruh.

That was clearly not enough to persuade ADP shareholders.

“Over the past several months, we have had the opportunity to speak with many of them about ADP’s performance, strategy and our positive outlook for the future, as well as hear their ideas and views of the company,” John Jones, the ADP board chairman, said in a statement. “We appreciate all of their input and look forward to continuing that dialogue.”

Mr. Ackman said the company had expressed a commitment to improving margins and introducing new products in the future. As a major shareholder, he added, he would benefit if that happened.

“If they do that, the stock is going to do extremely well and we will win,” he said in the interview on Tuesday. “Our goal is not wining proxy contests, it’s making money for our investors.”

And if the company fails to perform well, Mr. Ackman said he would be back next year.

“This board will be under huge pressure to deliver,” he said.

Bruce Goldfarb, chief executive of Okapi Partners, a firm that helps run proxy fights but was not involved in this one, said that Mr. Ackman’s reputation had taken a blow, but that if ADP performed well in the future, investors might give him some of the credit.

“The short term sting to Ackman’s reputation will be painful and may impact his next campaign,” he said. “Nevertheless, the true reputation of any activist is based on the change in value of the target selected and the impact on that value that can be attributed to the campaign.”

Full story here.

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