Steven Davidoff Solomon and Frank Partnoy pose for a selfie on the rocky soil of Tejon Ranch
Justin Fantl

Frank and Steven’s Excellent Corporate-Raiding Adventure

Two law professors tried to mimic big activist hedge funds, investing their retirement savings in a small, languishing public company and trying to shake it up. Here’s what happened.

If we had showered or shaved or not been dressed in wrinkled shirts, we would have gotten out of our rented Hyundai to speak with the man in the blue blazer who was walking into the Balboa Bay Resort, a hotel and private club in Newport Beach, California. It was Gregory S. Bielli, the president and CEO of the Tejon Ranch Company. We’d met him once before, when we were in a better frame of mind.

Tejon Ranch is a small public company headquartered in Lebec, about an hour north of Los Angeles, and its main asset is obvious from Interstate 5: real estate. The company owns the largest continuous expanse of private land in California, a 270,000-acre parcel—about half the size of Rhode Island—wedged between two national forests, Los Padres and Sequoia.

Together, the two of us owned more than 18,000 shares of Tejon Ranch, an investment our wives had advised us against. When we’d bought in about a year earlier, the shares had been worth nearly half a million dollars—a significant chunk of our retirement nest eggs. Tejon Ranch had appeared to us to be poorly managed. As professors who write about shareholder activism, we’d thought we’d seen an opportunity to mimic the big activists, such as Bill Ackman and Carl Icahn, who agitate to improve the transparency and performance of much larger companies.

Listen to the audio version of this article:Feature stories, read aloud: download the Audm app for your iPhone.

We had been pressuring Tejon Ranch’s executives, using the playbook that top activists have developed over the past decade or so. But the stock had tanked, we had lost more than $70,000, and we thought Bielli had lied to us.

We rolled down our windows to shout to him as we entered the resort’s roundabout, but then thought better of it. We were on a scouting trip, in advance of the company’s annual shareholder meeting the next morning; we’d come to see the meeting room and plan our attack. (The cheapest rooms at the Balboa Bay Resort were four times as expensive as those at the Newport Mesa Inn, so we were staying four miles inland.) We would have plenty of time to badger Bielli at the meeting, when we would be clean, better dressed, and better prepared.

For as long as public companies have existed, so too has tension between shareholding owners and company managers. In their 1932 book, The Modern Corporation and Private Property, Adolf A. Berle and Gardiner C. Means described the “separation of ownership and control” inherent in corporations, and noted that owners and managers have different goals. As a company grows and its shareholders become more dispersed, they wrote, it becomes harder for shareholders to pressure managers, and a gap develops between the owners’ interests and the managers’ behavior.

Over the decades, the size of this gap has oscillated. At times of minimal pressure from shareholders, power has shifted toward managers, who pay themselves more, enjoy corporate perquisites, build dubious empires, and in some cases relax into mediocrity. But every so often shareholders revolt, not unlike citizens staging a coup when their leaders lose touch.

The 1980s, a decade of corporate raids evoked so memorably in the book Barbarians at the Gate, were one such revolutionary moment. At the start of that decade, most stock was held by scattered, individual investors, and institutions such as pension funds and insurance companies were passive owners. In 1981, there was not a single attempt in the U.S. by any investor to unseat a manager. It was a good time to be a chief executive.

Magazine Cover image

Explore the May 2017 Issue

Check out more from this issue and find your next story to read.

View More

But during the following five years, all of that changed. By 1986, more than 10 percent of corporate takeovers were hostile—the buyers bypassed managers and instead directly offered shareholders a large premium to sell their shares—and banks were making record-setting loans to fund them. (The raiders greatly augmented, or leveraged, their investments with borrowed money, enabling them to target even the biggest corporations.) Carl Icahn targeted and broke up underperforming companies, such as the airline TWA. T. Boone Pickens and others went after bulky conglomerates, questioning what a company like Beatrice might gain from making both orange juice and bras, or why the CEO of Unocal, a sprawling oil company that eventually merged with Chevron, needed a piano on a company jet.

Eventually, companies developed defenses, most notably the “poison pill,” which dilutes the stake (and voting rights) of anyone who acquires a substantial amount of stock without first obtaining the board’s approval. By the 1990s, power had been returned to management.

But the past decade or so has brought another round of agitation against management, just as significant as the corporate raiding of the 1980s. Activist hedge funds have sought out companies whose managers didn’t seem to be acting in the best interest of shareholders, and exposed them. Some of these funds, like the ones led by Ackman and Icahn, have attracted the media spotlight, but most are considerably quieter in their approach and in the news coverage they generate.

Unlike the 1980s corporate raiders, activist hedge funds don’t seek to take over companies outright. Instead, they buy minority stakes—typically 5 to 10 percent—in companies that seem to be performing poorly, and then press for actions that would increase the share price: buying back stock, spinning off a key division, firing the CEO, or even selling the company to someone else.

Activists have found allies in mutual funds and pension funds, which are unwilling or unable to play an active role on their own, in part due to the sheer number of holdings in their vast portfolios. Hedge funds also help one another, forming “wolf packs” that together can overcome managers’ resistance to their demands: After one buys in, others follow. Today, numerous activists, including Ackman, Icahn, and Paul Singer at Elliott Management, each control more than $10 billion of capital—capital that is, in its own way, highly leveraged, not by debt but by the money and voting shares of allies.

Activist hedge funds are controversial; some observers have accused them of pushing companies to take actions that yield quick profits but ultimately destroy value and jobs. Regardless, major companies have bent to their will. Activists pushed for the ouster of Microsoft CEO Steve Ballmer. They created turmoil at Sotheby’s, where they aggressively fought to rework the board. Starboard Value, a prominent activist fund, shook up Darden Restaurants, not only replacing the entire board, but scrutinizing small operational details at Olive Garden. (Starboard’s analysts found that Olive Garden could save up to $5 million a year simply by training staff to give each patron one or two bread sticks instead of passing them out like swag. Savings would likewise emerge from cutting down on salad dressing—a win for patrons as well, the analysts surmised; they’d concluded that overdressed greens were leaving customers unhappy.)

By the time we were ready to try our experiment, in 2014, shareholder activism was ubiquitous, at least at large companies. More than 500 activist funds controlled a total of more than $100 billion in assets. According to our research, they were targeting more than 100 public companies a year.

Steven Davidoff Solomon (above) and Frank Partnoy studied and wrote about shareholder activism for years before deciding in 2014 to try it themselves. (Justin Fantl)

On November 2, 2014, over dinner at Juniper and Ivy, a bustling “left-coast cookery” in the Little Italy neighborhood of San Diego, we got to discussing our professional plans. We thought we had done just about everything two academics studying shareholder activism could do. We had published well-received research articles. One of us (Frank) had served as an expert witness in disputes brought by companies who challenged activists’ tactics under federal law. We had spoken at and hosted conferences on activism and knew many of the big players. In between bites of buttermilk biscuits, we considered possible new projects.

When dessert arrived, Steven was struck with what initially seemed like a crazy idea: “Let’s get out of the ivory tower and try actually being activists. We’ll pick a company and target its managers. How hard can it be?” It wasn’t completely crazy. Steven had been a corporate attorney for almost a decade, and Frank (also an attorney) had worked in derivatives at Morgan Stanley; we hadn’t always been creatures of the tower, and had skills and experience that seemed germane. We resolved that night to find a small company, invest, and shake things up.

We first learned about Tejon Ranch from a student presentation in one of Steven’s classes. The company made money from a hodgepodge of farming and minerals businesses related to its land, as well as from commercial leases. It grew almonds, grapes, and pistachios; collected royalties on oil and gas and on limestone excavated for cement; even traded water rights. Along Interstate 5, a giant Tejon Ranch outlet mall boasted the highest-grossing Starbucks in California. But the company’s true value was still unrealized.

The land had been in development for decades, and yet the great majority of it was still undeveloped. What’s more, it was unclear exactly when the various residential developments that the company had approved would be finished (or even started). The market capitalization of Tejon Ranch—the value of all its shares traded on the New York Stock Exchange—was about half a billion dollars. By our calculations, the value of the land alone was likely at least twice that. We spotted two crucial problems that we felt we could help address. First, Tejon Ranch needed to improve its disclosures, so investors could understand the value of its land. (For example, the company could disclose the value per square foot that its joint-venture partners had estimated for small parcels that were already being developed.) Second, the company needed a more aggressive timetable for development.

Tejon Ranch seemed like a perfect target. Its stock price had dropped almost 50 percent over 10 years. Its revenue in 2014 was minuscule for a public company: just $52 million. Profits were just $5.7 million. Meanwhile, the managers were feasting: Bielli, the CEO, made $2.7 million in 2014; his CFO and second-in-command, Allen Lyda, made $1.2 million. The company appeared in need of a shake-up.

We began buying shares, building our stake over the course of about a week and a half. On some days, our purchases were more than 10 percent of the company’s stock activity on the New York Stock Exchange. By May 13, 2015, we each owned about 9,000 shares—more than Bielli himself owned.

At lunchtime the next day, we sent a short letter to Bielli, asking for a meeting. We didn’t say much other than that we were “significant shareholders” who were “excited” about the business. We assumed the company would ignore us, at least at first.

But the head of investor relations replied that afternoon, saying he, Bielli, and Lyda would be “more than happy to meet with you.” We set a date in July. It was that easy.

Frank Partnoy (Justin Fantl)

Shareholders are typically happy when activists target a company they’re invested in: When an activist hedge fund announces an ownership stake of more than 5 percent (the threshold that requires public disclosure), the company’s stock price tends to go up immediately. (Frank’s co-authored research shows that this increase has been, on average, about 7 percent.) Securities analysts give targeted firms higher ratings and, although studies differ, most available evidence shows that targeted companies report higher returns over the next five years.

And yet chief executives are seldom pleased when activists darken their door. It’s not hard to see why. In a majority of cases, activists push for some kind of organizational change, especially at the top. Historically, CEO pay has declined by an average of about $1 million in the year after an activist intervention, and CEO turnover post-intervention is higher than that at similar corporations.

There is also the matter of some activists’ tactics. One weapon in their arsenal—sometimes deployed almost immediately—is the “poison pen” letter, a vitriolic exposé not unlike the letters that sometimes featured in Agatha Christie’s novels, but focused on business transgressions instead of sexual ones.

Daniel Loeb, a pioneering activist and the founder of the hedge fund Third Point, made billions of dollars by excoriating CEOs and board members with such letters, which he released publicly. In 2003, for instance, he labeled L. Pendleton Siegel, then the CEO and chairman of the lumber-and-real-estate company Potlatch, the “Chief Value Destroyer” after the company’s shares dropped 60 percent in six years. Loeb also lambasted the company’s directors for acting as management’s “lackeys,” calling two people on the board—both descendants of the timber baron Frederick Weyerhaeuser, a co-founder of Potlatch in 1903—members of the “Lucky Sperm Club.” He asked pointed questions about Potlatch’s losses, its pension plan, and its business strategy. In another letter, to Irik Sevin, the CEO and president of Star Gas, Loeb wrote: “Do what you do best: retreat to your waterfront mansion in the Hamptons where you can play tennis and hobnob with your fellow socialites.” (Sevin resigned less than a month after Loeb first disclosed his fund’s investment; Siegel fared better, staying on as the chair of the Potlatch board until he retired in 2006.)

We imagined a gentler approach—we wanted to work constructively with Bielli and the Tejon Ranch management team. We figured it would be difficult to force Tejon Ranch to develop its property more quickly. But several sophisticated investors already sat on the company’s board, including Daniel Tisch, the son of Laurence Tisch (the late financier and a co-founder of the Loews Corporation), who had been buying up Tejon Ranch shares for years. Four investment funds held stakes more than 100 times larger than ours. If we could persuade management merely to illuminate the business more fully—perhaps with the support of some of these large investors—we might start a chain reaction.

Activists often target the most-opaque companies. By shining a light on the dark corners of a business, they can uncover problems that demand fixing. In the case of Tejon Ranch, a lack of clarity about land value and development hurdles—regulatory, environmental—created uncertainty about whether management was doing all it could. That uncertainty might have inhibited potential buyers of the company from coming forth. If we could persuade the company to disclose more details, a potential buyer might emerge.

A billionaire activist might have traveled to the Tejon Ranch headquarters by private jet or helicopter. We drove.

We followed the same route that the Butterfield Overland Mail stagecoaches took in the mid-19th century. We marveled at the mountains, the valleys, the trees—and the absence of people. There hasn’t been much development at Tejon Ranch since it was established in the mid-1800s, with land grants from Mexico. Much of the acreage probably looks about the same now as it did then.

To prepare for our meeting, we pulled into one of the company’s few developed plots of land, a rest stop, where the Black Bear Diner was as deserted as the surrounding landscape. Midway through 2015, Tejon Ranch was not having a banner year. Combined revenues from farming and minerals were essentially flat, and the timetable was uncertain for the company’s main hope, three new residential communities totaling more than 30,000 homes.

We finalized our pitch while we pulled up to the corporate headquarters, an unimposing ranch-style building. There were maybe a dozen cars in the front parking lot. We pulled on the door handles of the entrance, which are replicas of the Tejon Ranch logo: a cross above a semicircle, a little like an upside-down ankh.

The lobby was deserted, but the receptionist was expecting us, and Bielli and Lyda quickly appeared, along with the head of investor relations. The three men ushered us into a conference room. There was no general counsel. The only lawyers present were us.

Bielli had well-coiffed hair and a smooth, friendly swagger. We liked him immediately. He had been hired in 2013 to replace the outgoing CEO, after working as a regional president of a residential real-estate developer. At age 55, he was also the company’s youngest board member, its “new blood.”

We told Bielli we thought that Tejon Ranch shares were massively undervalued, and that the company needed to disclose many more details about its finances and its development timetables. We believed that if potential investors knew that the land would be developed soon, the stock price would skyrocket. Disclosures are a touchy issue for corporate managers: They can make problems public or, if they are false or misleading, they can be the basis for a future class-action lawsuit. But Bielli was gracious and affable, saying that he agreed with every point. He assured us that Tejon Ranch had a disclosure-review process that would be lead to improvements by the end of the year. It would respond to all our concerns. We left after an hour feeling energized and validated. Bielli seemed ready to do everything we’d asked. Lyda, the CFO, followed up a few weeks later with assurances that the company’s joint ventures, a specific area we had mentioned where we thought disclosures were poor, were “definitely an area where we will continue to expand our disclosure.”

We were frankly at a loss as to what to do next. We had the promise of improved disclosures in six months, but after the meeting, we began to worry that it was a delay tactic. Some shareholder activists might have turned up the heat immediately, publishing an angry letter. But we decided to be patient.

We also worried a bit about what the disclosure might show. Would it really cause the share price to rise, as investors came to understand the company’s true value? Activists succeed by demonstrating that the answer to that kind of question is yes. But it was also possible that more disclosure would show that faster development was nearly impossible, due to California’s bureaucracy, regulatory requirements, and environmental challenges. In that case, the share price might not change—if anything, the revelation that management could do nothing to develop the land faster might depress it.

Interstate 5 runs alongside Tejon Ranch, which was established by land grants from Mexico in the mid-1800s. Much of the land remains undeveloped today. (Justin Fantl)

The end of the year came and went with no disclosure-review results in the areas we’d discussed, so on January 19, 2016, we sent Bielli an email asking for an update. We also expressed our displeasure with Tejon Ranch’s recent performance. The stock price had declined by more than a third since the start of 2015; we had lost more than $100,000 collectively on paper. Bielli received $1.9 million in pay that year.

The response was again swift, but not nearly as friendly. Bielli wrote: “We wish to clarify that during our meeting in 2015, we advised you that management and the board, including the audit committee, regularly and continually discuss our level of disclosure, and that of our peer group.” Then he said, “We did not intend to imply that the board and/or management was engaging in a specific, unique disclosure review process”—but rather that there was an “on-going” process to review disclosure. (Tejon Ranch declined to comment further on our conversations with Bielli and other company executives, or on our arguments in this article, except to say that the company “does not disclose material non-public information unless such disclosure is to all investors at the same time,” that it is “receptive to the views of shareholders,” that its board and management regularly review its strategy, that it is a unique company, and that it is confident in its prospects. It also declined to participate in the fact-checking of the article.)

Bielli had evidently lawyered up, and we should not have been surprised. As activism has become more common, some companies have responded proactively by doing what many activists would ask for: buying back their own stock, spinning off divisions, and paying out cash to stockholders in the form of dividends. But they are also defending themselves better against the deeper operational changes some activists seek. Many have hired lawyers and consultants to advise them on how to avoid being targeted—and how to resist activists’ demands if they are targeted.

Some companies have adopted notice provisions in their bylaws, which force activists to give the board advance warning before they try to replace directors or propose new strategies. These and other measures add cost and red tape to activists’ efforts, and give management time to wage a public-relations war against them. Companies have also become more proactive with shareholders generally, blasting them information and conveying the idea that they are transparent and open to dialogue. The main goal of all this defense is to rally the shareholder base to management’s side. Painting activists as money-grubbing short-timers who will harm the company’s long-term prospects—and who care nothing for the broader social goals the company’s management has always cherished—is a favored strategy. We worried that Tejon Ranch might be preparing some of these strategies against us.

We retained an attorney—a prominent securities lawyer who agreed to represent us for free—to try to prove that Bielli had backtracked on his promise of disclosure. But that was a tough assignment, because we had nothing in writing, and we weren’t successful.

We again considered sending out a Daniel Loeb–like poison-pen letter, to cast public aspersions on Bielli for misleading us. But that didn’t appeal to us, so we swallowed our anger and tried to understand his perspective. Bielli made a lot of money, but he was a new CEO and his job was difficult.

We wanted to keep the pressure on him and the company, but in a responsible way. Shareholders of public companies really have only one chance per year to do that: the annual meeting. That is when the directors are elected or reelected, and threatening to unseat directors is the activist’s ultimate weapon. In recent years activists have won some 70 percent of election contests, known as proxy fights, and even when they lose, the board and management frequently yield to the pressure anyway. For example, the activist Nelson Peltz lost his proxy fight against DuPont, but the CEO still eventually resigned.

We couldn’t credibly threaten a proxy fight. We didn’t have the money to stage one; it would require the hiring of both a publicist and a proxy-solicitation firm to reach out to all the other shareholders, and would cost more than $1 million. But there was one thing we could do at the annual meeting: talk. We would have an opportunity to take the floor and advocate for improved disclosure and a clear timetable. We thought our plan was a good one—and well timed to resonate with other shareholders. The stock price of Tejon Ranch had recently hit its lowest point since the 1990s. Our retirement funds were evaporating.

The meeting at Balboa Bay was scheduled to begin at 9:30 a.m. on May 11, 2016, with breakfast in the Commodore Room, overlooking some yachts. As we signed in, wearing freshly pressed shirts, Bielli appeared with Lyda, the CFO, and a newly hired general counsel who had been an attorney with the city of Anaheim. Lyda seemed uncomfortable interacting with us, but Bielli slapped us on our shoulders and joked about our row over disclosures. We told him we were looking forward to some new disclosures in his investor-relations presentation later that morning. He laughed and suggested we grab some food.

This was a half-billion-dollar company, one we thought was worth a lot more, but only about 10 shareholders were in attendance. One was wearing a Route 66 T-shirt and cargo shorts and told us he owned 50 shares, now worth about $1,000. He had decided to buy the stock after driving back and forth past the property for many years. Of course, we weren’t expecting a scene from Wall Street, where Gordon Gekko speaks to a packed hall of shareholders. The reality is that, with the exception of a few well-known large companies such as Berkshire Hathaway, almost no one attends shareholder meetings. (Some companies are even doing away with in‑person meetings, instead having virtual meetings where personal interaction is impossible.) Tejon Ranch’s annual meeting was typical. Although the company’s stock was languishing, it looked like the only pressure from shareholders would be coming from us.

Even so, this was our chance to interact with the board. We met several of the company’s directors, including Daniel Tisch, who still owned a large stake and said he’d be happy to speak with us further at some point. All were men, and their average age was 65. One told us he was serving on the board as a public service. Another said he couldn’t believe Tejon Ranch was still a public company, and should find a buyer. When we asked a third director about the idea of selling the company, he said, “Sure, we’d be open to that, but we haven’t received any offers.” The board was certainly not without expertise, but overall, its members seemed more like a friendly group of retired local real-estate brokers than the independent directors of a New York Stock Exchange–listed company.

The meeting started on time, and the chairman of the board read from a script. Bielli gave his presentation, which summarized the company’s proposed land developments but didn’t add new detail. When he finished, the chairman asked whether anyone would like to speak. We stood up and poured our hearts out about Tejon Ranch’s potential, its falling stock price, its sluggish development, and its inadequate disclosures. We emphasized that we believed the stock price was low because management refused to commit to a clear development timetable. The man in the cargo shorts seemed impressed. We felt we had made our mark, and the meeting ended with tension in the air. A few of the directors walked over to thank us. Tisch gave us his contact information.

We weren’t sure how Bielli would react. The largest investors, who sat on the board, told us they wanted Tejon Ranch to be more aggressive. They were open to finding a buyer. But they didn’t seem inclined to put genuinely heavy pressure on Bielli or his team. Tejon Ranch was just a sliver of the portfolios of many of its investors. And some saw the company as a very long-term investment: The land would always be there, awaiting its eventual development; slow progress wasn’t optimal, but it might have a silver lining nonetheless—pushing the share price down further and presenting a good opportunity to buy more shares. (Tisch, who is 66 years old, later said his grandchildren would see the fruits of his investment.)

We weren’t interested in waiting decades, and we asked to meet with Bielli again, in early November. Even after our dispute, he agreed. We planned our final gambit.

On Election Day, we drove back to the Tejon Ranch headquarters. The air was crisp and dry, and the markets were calm. Tejon Ranch’s stock was up a bit since the shareholder meeting, but we were still carrying a paper loss of more than $40,000.

Once again, everyone knew we were coming. Bielli and a couple of his colleagues greeted us with smiles and Tejon Ranch–labeled water bottles. We sat around a table ringed with photographs of sites of the company’s potential developments. Facing us was a large photo of a shimmering lake at the entrance to one of the three residential communities the company had planned.

The best shareholder activists know the granular details of their target’s businesses. After a year and a half as amateur activists, we had learned those details as best we could. We asked about a new joint venture, which had valued some land at $3.50 per square foot. We pressed them about whether this value was accurate and represented a fair estimate of other real estate on the property. If it did, Tejon Ranch should be worth billions. But they dodged this question, and referred us to their most recent investor-relations presentation for any information about valuation estimates. Bielli was prepared. He wasn’t going to say too much, as he had during our first meeting.

We dug into some financial minutiae. We even asked about the state of the lake depicted in the photograph on the wall, given its importance to the marketing of that development project and the drought in California; Bielli admitted that “it’s completely dry now, and has been for some time.” We hoped they would tell the public more about these issues, but had little power to make them do so.

Then we asked the big question: What did Bielli think about selling the company? We had been speaking with a few potential buyers (though our conversations had been only preliminary), and we told him that. We thought he would be angry, or at least surprised. But he responded smoothly. He said that the benefits of being public outweighed the costs. He had been at a private company and had worked under pressure from private-equity investors. Public markets, he said, enabled Tejon Ranch to operate under much less short-term pressure, and to take a longer-term perspective. We were flabbergasted: Many companies go private or stay private to avoid the short-term pressure that public markets can create. But the fact is, for companies the size of Tejon Ranch—and there are thousands of them, filling the portfolios of mutual funds and pension funds, even though most investors have never heard their name—Bielli is probably right. Because so many investors are passive today, most CEOs can relax, even if their performance is mediocre.

We drove away discouraged. The company had enormous potential. But realizing its value seemed impracticable. To be sure, Bielli and his team faced an uphill battle to develop the property and clear regulatory and environmental hurdles. And they disclosed more in 2016 than they did in 2015, perhaps because of us. But the timeline was still vague. This was what the company’s annual report said about their three major residential projects: “Estimated completion time anticipated to be 25 years, or greater, from commencement of construction. To-date construction has not begun.” That wasn’t going to lure a buyer.

As we drove back through the mountains, we tried to imagine what the land would look like in 100 years. Would this area be a flourishing exurb of Los Angeles? A home to new campuses of big tech companies like Google and Apple? Or would it still be deserted, a source of high income for a handful of executives, but of little value to anyone else?

The value of Tejon Ranch hinges partly on the future of three big residential projects. The authors hoped for greater clarity on when these projects would be started and finished. (Justin Fantl)

Whether you love them or hate them, activist hedge funds are the most important phenomenon to emerge in the financial markets during the past 20 years. But this wave of activism recently seems to have peaked, for reasons that—if you squint hard—mirror our own failure.

Even large activists are having difficulties. Easy opportunities, like getting big, cash-rich companies to pay some of that cash out to shareholders, are mostly gone; the remaining opportunities involve the hard work of organizational change. And as companies develop and share their own playbooks for fending off activists, that’s becoming harder for outsiders to impose. This was a lesson we learned: Without a quick trick in mind—a proposal that would be relatively painless for management to adopt—you need to dig in and be willing to unseat and replace the CEO and operate the company differently. Many of today’s hedge funds are not prepared to face more-difficult operational tasks. And once you start looking at companies below a certain size, it’s not worth your while to try.

Some large institutional investors, such as pension funds, have begun pulling their money from activists. Bill Ackman’s Pershing Square, which had been one of the most successful activist funds, lost money last year (in large part due to an ill-fated bet on Valeant Pharmaceuticals). As in the 1990s, following the incursions of 1980s corporate raiders, the tide may be shifting back to calmer, pro-management seas.

It’s undoubtedly true—as the increasingly sophisticated public outreach of companies under attack tends to highlight—that activists are primarily looking to make a buck, not protect the interests of employees or pursue social goals. This feeds criticism that activists are short-termers bent only on that buck. But in our view, they’ve mostly strengthened rather than weakened the companies they’ve targeted, and provided a spur to executives that probably should be welcomed not just by shareholders but by anyone who cares about a strong economy. Activists hold stock for longer, on average, than pension funds or mutual funds do: years, not days or weeks. And while some evidence suggests that activism is associated with lower spending on research and development—which might harm a company’s long-term prospects—other evidence contradicts that finding.

We still think Tejon Ranch is undervalued. But we didn’t have the resources to make a sale happen, and in any event, we weren’t certain enough to wait for a buyer to emerge.

In the weeks after the presidential election, Tejon Ranch shares soared, increasing as much as 27 percent, perhaps on expectations that as a firm dealing in real estate, it would thrive during Donald Trump’s administration. We felt that we had done as much as we could, so we ended our experiment in December, selling our stock for a combined gain of about $55,000. We’d like to take some credit for the increase. After all, the company did improve its disclosures a bit, as we had hoped. But in truth, the gain was mostly plain luck, and as of late March the stock price had fallen back below our initial purchase price.

Whatever happens to the big activist funds, small public companies, such as Tejon Ranch, seem likely to remain mostly unperturbed. Last year, according to FactSet SharkRepellent, a corporate-governance database, fewer than 1 percent of these companies had to fight a battle with a hedge-fund activist over board control. The managers of these companies know that they’re safe—to the detriment, we believe, of their shareholders, of the economy, and ultimately even of their own employees.

From our perspective, corporate America is now too well guarded. There are too few, rather than too many, of us activists out there banging at the gate.