Daniel Loeb, head of hedge fund Third Point and a prominent activist investor, is after his latest victim: Sotheby’s CEO William Ruprecht, who Loeb wants to oust from the company.
In a letter written to the Ruprecht and submitted to the SEC, Loeb revealed that Third Point has a 9.3% stake in the high-end auction house. And according to Loeb, working with high-end clients does not entitle Ruprecht and his staff to live the high life. He argues that the firm spends far too much money on Ruprecht’s $6.3 million annual salary and lavish, company-paid perks for high-ranking employees. For example:
Typical of the egregious examples was a story we heard of a recent offsite meeting consisting of an extravagant lunch and dinner at a famous “farm-to-table” New York area restaurant where Sotheby’s senior management feasted on organic delicacies and imbibed vintage wines at a cost to shareholders of multiple hundreds of thousands of dollars. We acknowledge that Sotheby’s is a luxury brand, but there appears to be some confusion – this does not entitle senior management to live a life of luxury at the expense of shareholders.
The company has disappointed Wall Street, earning less than analysts expected in the second quarter, even despite a $6.8 million income tax benefit. Revenue was flat after falling for two quarters. All the better for rival auction house Christie’s, which has gained market share. Part of Sotheby’s problem, according to Loeb, is that it’s falling behind the times in new technology like internet sales.
But the real zingers are all about Sotheby’s luxury corporate lifestyle, which Loeb believes undermines company culture:
A review of the Company’s proxy statement reveals a perquisite package that invokes the long-gone era of imperial CEOs: a car allowance, coverage of tax planning costs, and reimbursement for membership fees and dues to elite country clubs. What example does this set for Sotheby’s hard-working employees, who see leaders at the top collecting guaranteed perks rather than rewards delivered for growing earnings? In our experience, skewed compensation programs approved by a Board with little oversight inevitably result in exactly the type of lackadaisical corporate culture evident at Sotheby’s today.
Adding insult to injury, Loeb suggests that Ruprecht is incompetent; he calls for a new leader with “sufficient knowledge of the global art markets to make critical decisions…Sotheby’s is like an old master painting in desperate need of restoration.”
Not surprisingly, Sotheby’s has rebuffed these accusations, calling them “incendiary and baseless.”