Who Gets Credit When The Tide Comes In
Welcome to issue #40 of The Davem Dish. Every week I share what actually works in investing based on my 20 years of wins, losses and expensive lessons. You’ll also get my thoughts on solopreneurship and life in general because the same principles apply — keep it simple, stay consistent and focus on what matters.
Let's talk about activism. Not the social or political kind, but investor activism. This is another one of those investing practices that confuses people, partly because the headlines make it sound like a hostile takeover from a 1980s movie, and partly because the people involved like it that way.
It's really not that complicated. Let me explain.
The Risk That Wasn’t Registered
I spent a few years working in enterprise risk management at AEP, one of the largest electric utilities in the country. Our main job was to manage the collective risk profile of the company and report out to the C-Suite and Board of Directors. In some ways it was as boring as it sounds but you also learned a lot about different aspects of the company and got a limited window into how the C-Suite and Board operated.
Around 2020, activist investors showed up on our radar as a potential enterprise risk. I don’t remember exactly how, but usually new risks were brought to us by an executive and then our job was to gain agreement amongst the entire C-Suite on how much that risk mattered or whether it did at all. From where I sat, executives generally preferred to not bring attention to the risk register — more flagged risks meant more board attention, and more board attention meant less freedom to execute the plan they’d already committed to. The strategic conversations happened elsewhere, in planning sessions I wasn’t part of.
There wasn’t a lot of discussion around the activist investor risk. Everyone sat there stone-faced when it was introduced and then without objections it was added to the register for future monitoring.
I left right as Julie Sloat took over as CEO at the end of 2022. A little over a year later, Carl Icahn had two of his people on AEP’s board and Sloat was out of a job.
A quick disclaimer before going any further: I don’t have any verified information about board discussions or what happened behind closed doors at any company mentioned in this post. What I have is an eye for patterns, public filings, and a little inside conjecture based on my experience working at AEP. Weigh my take accordingly.
On the surface, everything worked out. A new CEO came in, the stock climbed, and everyone looked vindicated. The real story is more complicated, and it says a lot about how the investment world keeps score. We’ll come back to it after covering the basics.
The Playbook
An activist investor buys a stake in a public company and then uses it as leverage to push for changes that will lift the share price, rather than waiting for the market to get there on its own. The lineage runs back to the corporate raiders of the 1980s (Icahn himself is one of the originals), and today’s cast includes big funds like Elliott, Starboard, and Trian, along with a growing crowd of smaller, first-time players.
The sequence is fairly predictable. The activist quietly builds a position, then approaches the company privately to tell them about what’s wrong and how to fix it. If those conversations go nowhere, they escalate with a public letter or a slick presentation aimed at other shareholders. The final threat is a proxy fight, where they nominate their own board candidates and ask shareholders to vote them in.
Most campaigns never get near a vote, though. The company settles first, usually by adding a few of the activist’s directors, launching a “strategic review,” or committing to buybacks and cost cuts. The demands tend to fall into a handful of buckets: sell the company or pieces of it, shake up the board or the CEO, return more cash to shareholders, or change the strategy (lately, that often means AI).
The part that gets lost in the corporate drama is activists talk about accountability, governance, and “unlocking value,” and sometimes they genuinely improve a company. But an activist fund’s job is to generate returns for its own investors, and the way they do that is to buy a stake, push for changes that move the stock price, and then sell. They aren’t marrying the company any more than a trader marries a position. It’s just another investing game, with a better PR department.
Why Everyone’s Doing It Now
Activism used to be rare. Now it’s routine, and North America saw a record 94 campaigns in the first half of 2026 alone.
The main reason is that it’s gotten cheaper and easier to win. A 2022 rule change lets shareholders mix and match between management’s board nominees and the activist’s, so an activist no longer has to convince investors to replace the whole board — they just need to pick off a few weak directors. The threat alone became credible enough that fights became unnecessary. In 2025, U.S. companies reached a record 52 settlements with activists, and nearly half came before the activist ever went public.
For individual investors, that last point matters. Half the time, the first you hear of an activist is the announcement that they’ve already won something. And the CEOs know it: a record 32 of them resigned within a year of an activist campaign in 2025.
The CEO Who Kept His Job
Southwest Airlines is a great example of how winning and losing in activism aren’t always what they look like.
In June 2024, Elliott disclosed a $1.9 billion stake, pointing to a stock that had fallen by more than half over three years and blaming the airline’s infamous December 2022 meltdown on outdated technology. Elliott said CEO Bob Jordan had delivered “unacceptable financial and operational performance quarter after quarter” and called for his removal. Its presentation pegged the airline’s fair value at around $49 a share, with the stock trading around $30 at the time.
Southwest fought back with the usual defensive toolkit — a poison pill, a $2.5 billion buyback, and new board members with airline experience. The poison pill is the classic defense. Despite its sinister name, it just means that if any new shareholder crosses a set ownership threshold, every other shareholder gets to buy new shares at a discount, which floods the market with stock and makes the activist’s stake more expensive to build. Elliott, now holding about 11%, responded by calling a special meeting to replace eight directors, its first U.S. proxy fight in seven years. The settlement that October was lopsided. Former CEO Gary Kelly and six directors accelerated their retirements, five of Elliott’s nominees joined the board, and Jordan kept his job.
So did it work? By most measures, yes. The airline that had never laid anyone off cut 1,750 corporate and leadership roles in early 2025, then ended the practices that once defined it: open seating, free checked bags, and a one-size-fits-all fare. In January 2026, after management guided to 2026 earnings of at least $4.00 a share (up from $0.93 in 2025), the stock jumped nearly 19% in a single day, its biggest one-day gain since 1978. It later hit $55, nearly double where it traded before Elliott showed up.
Give Elliott its due on the numbers. Since the disclosure, Southwest has returned about 55% including dividends against roughly 47% for the S&P 500. Zoom out and the hole is still deep — down about 24% over five years while the index gained 72%, with a wider gap over ten. What the campaign captured was a recovery inside a long decline, which is exactly what this strategy is built to do.
What Elliott did next is right out of the playbook. The fund started selling in late 2025, locking in a roughly 75% gain while keeping a sizable stake. That’s the game working exactly as designed: identify the gap, force the changes, ride the momentum, and start cashing out.
The irony is the man running the turnaround is the same CEO Elliott said needed to go. Jordan is still in the chair, and his company’s results are finally improving. Which raises the question: was Jordan the problem, or was the board and the business model? We’ll never know for sure, but it’s worth keeping in mind as we head back to AEP.
Disney offers the same lesson from the opposite direction. Nelson Peltz’s Trian lost its 2024 proxy fight in a landslide, then sold its stake at a profit reported to be around $300 million. Losing the vote didn’t stop them from winning the trade.
What The Record Shows
So do activists actually make companies better? The research is mixed, and I’ll spare you the academic back and forth. What’s consistent is the short-term pop: when an activist stake becomes public, the stock usually jumps. What happens after that is where it gets less exciting. Goldman Sachs found that after one year, only 42% of activist targets had outperformed their sector, and the median target trailed by 5 percentage points.
What the activist earns and what you’d earn following them are two very different numbers. They built their position quietly, at prices you’ll never see. By the time you read the headline, the easy money is gone, and if you’re buying the pop, there’s a decent chance you’re buying from them.
Back To AEP
Remember my stodgy utility? Let’s finish the story.
Icahn’s stake in AEP was tiny by activist standards — around $120 million, roughly 1% of the company. That’s far below the 5% threshold that requires a public filing, so there was no public warning. The first most investors heard of it was the settlement on February 12, 2024, which put two Icahn picked directors on the board. That same day, Icahn said publicly he looked forward to working with Julie Sloat.
Eight days later, the board voted to remove her. Before feeling bad for Sloat, on her way out she received almost a $6 million cash severance along with two years of salary and target bonus in exchange for agreeing to a non-compete for two years. She’s since picked up seats on three corporate boards. In the activist game, the CEO who takes the fall usually walks away just fine.
Analysts at the time couldn’t say how much the Icahn deal actually drove that decision, and AEP’s explanation was vague — companies almost never explain these things. What we do know is the environment Sloat was working in. When the board explained 2023’s results, it pointed to higher interest rates and one of the mildest weather years in AEP’s territory in three decades, and operating earnings slipped from $4.51 to $4.26 per share. Rising rates were hammering every utility, and on top of that, utilities are always playing a delicate game with state regulators who are understandably reluctant to approve rate increases for customers. Sloat had started cutting costs, and the company laid off workers in early 2024 after too few employees accepted a voluntary severance offer.
In other words, the “underperformance” that made AEP a target was at least partly a headwind no CEO controlled.
Then came the replacement. The board recruited Bill Fehrman, the former CEO of Berkshire Hathaway Energy, who arrived in August 2024 from Centuri — a company spun off from Southwest Gas as part of, you guessed it, an agreement with Icahn. To bring him on, the board waived AEP’s mandatory age-65 retirement policy and paid him millions to replace the bonuses and stock he was giving up at his previous employer. A year later, he was also named chair of the board.
And from there, everything seemed to click. AEP’s stock rose about 31% in 2025, and the new CEO was celebrated. Case closed?
Look at what was happening underneath. On Fehrman’s first earnings call in the fall of 2024, about three months into the job, AEP already had 20 gigawatts of new customer demand lined up through 2029, driven by data centers. A new pipeline that then exploded. By mid-2026, the figure had grown to 69 gigawatts, nearly 90% of it from data centers, and the five-year capital plan swelled to $78 billion.
For a regulated utility, that matters, because utilities earn an approved return on the infrastructure they build. A massive wave of new demand means a massive wave of new investment and earnings. And AEP wasn’t alone — utility stocks were having their best start to a year in decades, all riding the same AI power story.
Meanwhile, Fehrman’s 2025 pay came in at $36.6 million, making him the highest-paid utility CEO in the country, with about 80% of it in stock. For comparison, Sloat’s CEO package was set at roughly $11 million at target, and Nick Akins, who ran AEP for more than a decade before her, typically earned ~$15 million a year. The problem is that when a sector-wide tide lifts the stock, the pay package can’t tell the difference between skill and circumstance, and neither can the scoreboard.
Now comes the harder part. The data center boom that lifted AEP is now drawing backlash, including in its home state of Ohio, where customers are pushing back on higher utility bills. Rising interest rates make financing construction more expensive, and the growth story still hinges on AI spending continuing at its current pace. Fehrman and his team will have to manage all of it, and if the tide turns, it will be worth watching whether the board and the market give him the same benefit of doubt they didn’t give Sloat.
That’s AEP in a nutshell. From where I sit, Sloat absorbed the blame for a headwind (interest rates) just as her successor collected the credit for a tailwind (AI power demand), and neither one controlled either. Timing and luck did a lot of the heavy lifting in both directions.
How To Spot The Next Target
If you can’t see activism coming through the headlines, can you see it at all? Mostly, yes, because the warning signs sit in plain sight.
The biggest one is relative underperformance. Activists rarely target companies that are simply falling; they target laggards, especially ones whose stock has trailed their peers for a couple of years, alongside weak sales growth and shrinking margins. Big cash piles and repeated restructuring charges are additional red flags.
You don’t need a research team to find it, either. AEP’s own proxy statement showed the peer gap in a table every shareholder receives, years before anything happened.
The second signal is how easily a motivated shareholder can change the board. Companies are most exposed when every director is up for election every year (as at AEP), when shareholders can call special meetings (the lever Elliott pulled at Southwest), when ownership is spread across many institutions with no controlling holder, and when the board is full of long-tenured directors an activist can paint as stale. On the other end, founder-controlled companies with special voting shares are nearly untouchable.
Two softer signals round it out: a recent CEO change (AEP shows a new CEO can become the target) and a conglomerate whose pieces look worth more than the whole. Most of this is in the company’s proxy statement, and it’s worth fifteen minutes for any individual stock you own.
Not A Buy Signal
Spotting a likely activist target doesn’t make it an investment strategy. The pop fades for most targets, the activist bought in at better prices than you’ll get, and they’ll be heading for the exit once the stock hits their number.
That’s also why activist targets don’t make the Davem Watchlist. By definition, they’re companies that have been lagging — turnaround stories, and I don’t invest in turnarounds. I’d rather own the quality companies that give activists nothing to complain about. That said, there’s more than one way to invest, and knowing the playbook can help you make better decisions and read the headline for what it is instead of reacting to it.
The bigger lesson reaches beyond activism. Every turnaround story credits the person at the top, and every pay package gets justified by the stock price. Before you give anyone credit — a new CEO, an activist, a fund manager, or yourself — ask what the tide was doing at the time.
Back in 2020, activism was a line item on a risk register nobody really paid attention to. Four years later, it had replaced a CEO, reshaped a board, and handed the next leader a tailwind he’ll get credit for a long time.
So who gets credit when the tide comes in? Whoever happens to be standing there.
Make sure you know the difference in your own account.
Cheers,
Andrew
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The content provided are personal opinions and presented for educational purposes only, as of the date published or indicated. Davem Advisors LLC is not a bank, licensed securities dealer, broker or investment advisor. Displayed returns are unaudited. Nothing stated constitutes a recommendation or advice as to whether any investment is suitable for a particular investor. You alone are solely responsible for determining whether any investment, strategy or service is appropriate for your objectives. Past performance is no guarantee of future results. Inherent in any investment is the risk of loss.