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eRaider is
a set of core principles, an Internet confederation and a family of
companies. It began on November 17, 1998, went public in March 10, 2000 and announced a restructuring on June 27, 2004. “Restructuring,” in this case at least, is not a
euphemism for bankruptcy or abandonment. eRaider will reopen with principles intact,
confederation (hopefully) still healthy and a new company or family of
companies. Until then, this site will remain open as a resource for people
interested in shareholder rights or the history of the Internet. We welcome
comments and submissions for publication at info@eRaider.com.
eRaider grew out of groups
of shareholders who organized on Yahoo! and other Internet message boards.
While many of these boards in 1998 were noted only for frauds, flames and
idiocy; many other boards achieved thoughtful discussion of company affairs.
In a few famous cases, the boards managed
to organize significant blocks of stock and force positive change at
companies.
The trouble with this tactic is you could only get a critical mass of
activist investors when insiders attempted a truly outrageous scam. A victory
just meant getting your money back, and you never get complete victory. eRaider was created to organize
investors in companies that were not run by crooks or incompetents, before
disaster struck. The idea was to fight for improved profits, rather than
reduced losses.
Our plan was simple. We formed a public mutual fund, the Allied
Owners Action Fund, which acquired 5% stakes in companies our analysts
felt were good investments that could become great with improved governance.
Bad companies are bad, regardless of who runs them. Great companies cost too
much. Anyway, a well-governed company can only get worse, while a badly
governed company can only get better. We looked for solid assets and cash
flow in sensible, well-run businesses; that we could buy cheap because governance
problems had chased away all professional and serious individual investors.
The Fund made a long-term commitment to buy and hold its securities. Once it
finished acquisition, the target company was announced on the eRaider website (and simultaneously, live from the floor
of the New York Stock Exchange on CNN Financial), along with thorough,
professional analysis. We picked obscure companies with no analyst
coverage, so having reliable information easily available on the Internet was
an immediate positive for the company. We invited all shareholders, both Fund
shareholders and people who owned the stock on their own, to come to our
public message boards and discuss the companies.
We recruited 36 well-known moderators: finance and accounting professors,
CEOs, journalists, lawyers and other business experts. These moderators
answered questions, both basic and advanced, and help shape discussion. But
we found, as we had hoped, that we also attracted many knowledgeable
shareholders who had first-hand, detailed knowledge of the companies.
We did force a lot of change at our companies. Although
we came very close (losing 52% to 48%) to electing a director, we did not
succeed at that. But we did just about everything else: winning votes on
resolutions we proposed, getting companies to put qualified outsiders unbeholden to management
on the boards, getting companies to sell themselves and pay off shareholders,
getting companies to restructure for shareholder advantage. We did this
through a combination of persistent lobbying, shareholder votes and exercise
of other shareholder rights. We never sued a company.
We also succeeded in other arenas. We catalyzed a lot of change in Securities
and Exchange Commission rules about shareholder activism, years before Enron
caused everyone to jump on that bandwagon. We vigorously supported other
shareholder rights groups and self-organized shareholders in many fights.
Among many other accomplishments, I think our lobbying at the Financial
Accounting Standards Board, the National Association of Securities Dealers
and the SEC was responsible for effectively ending the issuance of toxic
securities. We spoke tirelessly at institutional investor conferences, SEC
round-tables, business schools and other venues. We won many prestigious
awards, including two Forbes Best of the Web (one for Theory and
Practice of Investing and one for Corporate Governance, and garnered a
tremendous amount of press coverage. Our site became a standard reference in
business school courses on corporate governance, and we sponsored a
prestigious award for MBA students.
While we’re very proud of all these accomplishments, the idea didn’t grow.
The Fund did not grow to the size necessary to cover the high fixed cost of
running a public mutual fund. Without large inflows to the Fund, we were
limited to a few small company targets. Many participants lost interest, it’s fun to declare a raid and agitate for reform, it’s
hard work to continue a long-term partnership to make a good company better.
That’s all okay. We know it’s a good idea, and it would have been remarkable
luck to package it just right on the first attempt. Also,
we came from nowhere and had to expend a lot of energy earning credibility
with the SEC, institutional investors, the press, investors on the Internet
and corporate boards.
With over five years experience, we’re rethinking
the business model from the foundation. When we reopen, we’ll be wiser and
we’ll have credibility. We’ll have enlisted new allies and re-energized old
ones. If the second try is as successful at the first, we’ll be proud to have
done it. But we hope for much more than that.
Please keep us in mind and check the site from time to time. Let us know that
you’re interested, and maybe even contribute an article or two. Or, just drop
a line to info@eRaider.com. eRaider will rise again.
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