Firms keep blocking activist investor's goal

Richard Breeden, founder of activist investment fund Breeden Capital Management, has one goal this year: no proxy battles.

But he acknowledges achieving this is unlikely, given his record. Since founding his $1-billion-plus firm 18 months ago, he has launched two major proxy battles that have won him seats on the boards of H&R Block Inc. and Applebee's International Inc. And last Friday, jewelry chain Zale Corp. gave up without a fight, giving Breeden two seats on its board.

"I'm an optimist," said Breeden, 58, a Harvard-trained lawyer who was chairman of the Securities and Exchange Commission from 1989 to 1993. "I always hope boards will do their best to improve poorly performing companies. My goal every year is zero proxy battles."

But Breeden, like many investors who try to pressure companies to change strategies or management, is also a realist who expects some companies to resist.

If they do, they could face a barrage of negative publicity that rivals a nasty political campaign, as did Applebee's before it was sold last year to IHOP Corp., giving Breeden's fund a 30% gain.

"There's never a shortage of badly run companies," said Breeden, whose fund invests only in companies that fall behind their peers. "If you don't want me in your shareholder base, do a good job of running your company."

Breeden's entry into the sometimes raucous world of shareholder agitation comes at an opportune time, some say. As the economy turns south and financing dries up, more companies are hitting rough patches and attracting the kind of shareholder ire that can build support for dissidents.

"In today's environment, there are a great number of companies that can use activism," said Carl Icahn, the 71-year-old billionaire investor who has a long history of initiating hostile actions against companies. "I think we're going to be very active this year."

Breeden's strategy is similar to other multibillion-dollar activist fund managers, such as Jana Partners and Pershing Square Capital Management, which regularly take large stakes in public companies and press for changes.

But Breeden's background as a former SEC chairman seems to give his campaigns more clout, possibly worrying corporate executives who fear regulatory wrath, said Herb Denton, the longtime corporate agitator who follows Breeden's moves.

"He carries a big invisible stick as former chairman of the SEC," said Denton, who heads hedge fund Providence Capital Inc. and has undertaken 32 proxy battles over nearly 20 years.