Today activist hedge fund manager Dan Loeb filed a letter with the SEC calling for William Ruprecht, the CEO of Sotheby’s, to step down.
Loeb argued that he sees “no evidence” of Ruprecht’s capability to continue leading the company.
Since August, Loeb’s fund, Third Point, has upped its stake in the auction house to 9.29%, but since then things have been pretty quiet — strange for an activist investor known for calling CEOs out for “tooling around” on private jets and saying that they should be kicked out of their companies “by a well worn boot planted in the backside.”
So this letter shouldn’t come as a surprise to anyone, but as usual, it’s an interesting read.
Loeb argues that while Ruprecht led the company valiantly through the financial crisis, his time has now passed. The art market is becoming more and more dominated by Contemporary and Modern art, and Sotheby’s just isn’t in the game.
The house’s main competitor, Christie’s has taken market share in newer markets like China and the Middle East and in the face of that competition, Loeb argues, Ruprecht has basically shrugged his shoulders.
We have heard many excuses — but no good reasons — why Sotheby’s competitive position is deteriorating, such as: “Christie’s is buying market share and making uneconomic deals to make headlines,” or “Christie’s is private and doesn’t have to disclose its guarantees.” These pretexts are poor substitutes for the truth: despite its advantages of historical superiority, a more prestigious brand, and a publicly traded currency with which it can attract, motivate and reward top talent, Sotheby’s has languished while Christie’s has thrived.
Of course, this wouldn’t be a love letter from Loeb if there was no mention of the CEO’s lifestyle or compensation package.
So here that is:
Emblematic of the Company’s misalignment with shareholder interests are both your own generous pay package and scant stock holdings by virtually all Board members. Third Point’s current stake represents nearly 10 times the number of fully-vested shares held by Sotheby’s directors and executive officers. Your personal holding of 152,683 shares, representing a mere 0.22% interest, is particularly noteworthy because you have been an employee of the Company since 1980 and its CEO since 2000.
In sharp contrast to your limited stock holdings is a generous package of cash pay, perquisites, and other compensation. We see little evidence justifying your 2012 total compensation of $US6,300,399 in both salary and PSU awards valued at over $US4 million, seemingly based on a mysterious target not disclosed in any of the Company’s public filings…
For the dismount, Loeb says he is willing to join the Sotheby’s board immediately and appoint directors that can take the company into the future, unlike Ruprecht.
It is… time, Mr. Ruprecht, for you to step down from your positions as Chairman, President and Chief Executive Officer… you have not shown the innovation or inspiration the Company sorely needs to play offence today. Sotheby’s requires a CEO with sufficient knowledge of the global art markets to make critical decisions, who can move seamlessly around the globe building the business and strengthening client relationships. Respectfully, we do not see evidence that you are the right person to repair the Company and drive its growth in today’s dynamic global art market.
Of course, it’s signed “Sincerely, Daniel S. Loeb”.