Robert L. Chapman: Mighty Market Mencken

For those of you who don’t remember him, Robert L. Chapman jr. was the world’s greatest flame warrior. Chapman invented and perfected the poison pen letter applied to an obscure SEC filing known as the 13D. The 13D is filed when someone buys more than 5% of a company’s stock. The company’s management rather has to read it, as it tells them who owns the company. Chapman’s game was to buy good companies with battered stock prices, beat their management into shape (in part with 13Ds), then sell for a healthy profit. Capitalism at its best: taking something good, fixing it up, and selling it. Many bad companies are simply badly managed; replace the managers with good ones, and the company can go on to further create value for shareholders, which is their only legal reason for existing in the first place.

I am no journalist, and am afraid to call him on the phone to see what’s up these days, but google tells me he worked as CEO at one of his holdings for a few months.I was rather hoping the 13D letters would come back once he was done, but they haven’t as of yet. Seeking Alpha doesn’t seem to realize this or perhaps I’m getting the story wrong. People in the comments section of the SA article claim he got wind of the coming debtocalypse and closed up shop in 2007. While I’d like to believe this, I have reason to believe that this wasn’t so. He has occasionally piped up since then, but no letters yet, damn it.

With any luck, he’s being fed grapes by dusky maidens on a beach somewhere, but whatever the reason, he’s one of my favorite living characters in the financial business. I mean, how punk rock is this?

In the spring of 1987, 20-year-old Bob Chapman had arrived in the lobby of 555 California Avenue, the downtown San Francisco headquarters of Salomon Brothers. He was a wreck. His $99 suit was ripped; there was glass in his hair. Blood was soaking into the rag bound hastily around his thumb. He had come to personally hand in his résumé for the bank’s summer associate program. Bill Frasier, the Salomon broker who had been given the task of recruiting, gasped. “What the hell happened?”
Recalls Chapman, “I said, ‘You won’t believe this. I got in an accident on the way over.’” Chapman handed the broker his résumé. The bandage on his thumb slipped off and blood gushed out. There was blood everywhere.
A horrified Frasier ushered the candidate onto the trading floor and arranged for some rudimentary first aid. Patching himself up, the Berkeley undergrad recounted how he had slammed his street-illegal dirt bike into a car on the Bay Bridge en route to the office. After flying through the air and landing in the back of a pickup, he had insisted on being taken to Salomon Brothers’ offices rather than to the hospital. …
After hearing this tale, Thompson turned to Frasier and asked, “Is this guy for real?”
“I’m afraid so,” Frasier replied.
“Then hire him.”

Beyond his fantastic curmudgeonry, he is a first rate prose stylist. I’m presently (slowly) teaching myself Old English. The Old English poetical form is alliterative. So are Chapman’s 13D’s, which often read like some glorious moustached Anglo Saxon warrior beating his war song out on his shield.

As Chairman of the Board of Directors of Sunterra, you cannot escape blame for weak oversight of a partially-expelled executive management team that dwelled far too long in the abyss of confident incompetence. It may have seemed like an expeditious exercise in denunciation to “direct that” Mr. Benson take paid administrative leave (God forbid he be forced to survive on his mere $1.3 million in 2005 compensation). On January 17, 2006, apparently to deflect yet again the Company’s top shareholder’s repeated requests for Board representation, you defended the existing Board’s competence, stating, (irrelevant)-SL However, for many months, Sunterra’s Board has acted out a series of sham indulgences of Sunterra’s former top owner group, which had communicated publicly to the Board its reasonable critique of Mr. Benson’s Oscar award winning Pollyanna performance every time the curtain rose on Sunterra Europe. Sunterra’s Board, along with its connected-at-the-hip management team, may have become insensitive to the sheer agony being felt by these owners due to the Board’s near failure to qualify as owners themselves.

And in the same filing, something rarely stated by someone in the financial business:

…modern capitalism is characterized by pervasive oligopoly and the separation of management from ownership . For a decade now, I have lamented publicly via Schedule 13D filings how fragmented equity ownership converts capital-risking “Owners” into un-concentrated, faceless, DTC-coded “shareholders.” In this conflicted world of “Agency Capitalism,” a board and its hired hands (together, the “Agents”) conveniently lose sight of the most important fact of their corporate lives: the Agents work for the Owners, and should such Agents differ in opinion from the majority of Owners regarding strategic and operational direction, it is incumbent upon those Agents to convert dissident Owners to management’s disparate views rather than simply state, “We possess more complete information and/or better judgment than the Owners who hired us.” Importantly, for the Agents’ intransigent approach to have any legitimacy, this “ complete information” must be material in its relevance to a rational investor in his making a decision to buy or sell the company’s shares. If such “information” is in fact “material” by the SEC’s definition thereof, then under Regulation FD the Company has a responsibility to make “fair disclosure” of any such information promptly via an 8-K filing (possibly accompanied by a press release), thus feeding the process of informing Owners of any material developments that the Agents feel is creating deficient Owner comprehension.

Read the whole thing here.

And, Bob, if you’re reading this: I’m looking for work. I got references.