When Doing the Right Thing is The Right Thing to Do

Posted by on June 16th, 2016

In February 2013, Dell, Inc. announced that it had struck a near-$25 billion leverage buyout[1] deal to delist its shares from the NASDAQ and take the Company private. Michael Dell and Silver Lake Partners, a private equity firm and one of the largest tech investors in the world, aided by a $2 billion loan from Microsoft, would acquire the Company shares at $13.65 apiece (Dell, Inc. announced the close of the deal on October 29, 2013 for $13.75 per share). Founder and CEO Michael Dell cited the offer as “an exciting new chapter for Dell, [its] customers and team members.”[2]  This quote, presumably drafted by a KCSA-type communications professional, aimed to temper concerns and, as the verbiage suggests, “excite” shareholders and interested parties. However, T. Rowe Price, one of the largest managers of U.S. retirement assets and a significant investor in Dell, Inc., was not convinced.


  1. Rowe Price vocally opposed the deal from the outset, claiming it undervalued the thirty million Dell shares held by its various mutual funds. Given the size of its position, the money manager had significant voting power in the proxy voting process. Just this week a large number of investors were awarded additional compensation when the courts ruled that Michael Dell and his partners underpaid for Dell by $6 billion; T. Rowe Price and its investors did not participate. Under circumstances that likely cost someone their job, T. Rowe Price mistakenly voted in favor of the original buyout, thereby disqualifying it from future compensatory payments. In addition to being exceedingly embarrassing and damaging to its brand, T. Rowe Price’s voting error cost its clients money. Ostensibly, T. Rowe Price’s attention shifted from (potentially) suing to being sued.


The rarity of such a misstep aside, the Baltimore-based money manager – wait for it – chose to do the right thing.


Earlier this week, T. Rowe Price announced that it will pay $194 million to clients as compensation for the proxy voting blunder – a move that has been described as “a rare level of atonement in the money-management world.”[3] Essentially, $194 million will be deducted from second quarter earnings as reparations for monies lost as a result of the error. It goes without saying that T. Rowes’ balance sheet will take a hit in the short term. But what, exactly, does the decision to pay out client investors say about the Company?


The reaction effectively serves to offset any ongoing damage done to T. Rowe Price’s reputation by the voting snafu. Monday’s announcement was a proactive attempt to make amends and to rebuild its reputation with investors, which in turn demonstrated its respect for their clients’ savings which they are entrusted to oversee. Wall Street is constantly criticized for its disregard for the everyman by the greedy men and women at the helm. In the last few months alone, we have seen LIBOR manipulation, international currency fixes and controversy in Malaysia all make headlines. In comparison, T. Rowe Price emerges as beacon of integrity in the financial services industry. We can only hope that the Company’s act of atonement will set the tone for other financial institutions’ future run-ins with trouble.


Regardless of what impact T. Rowe Price’s decision has on the financial services industry, there is no denying that the money manager has done right by its investors. In a press release issued yesterday, William Stromberg, President and CEO of T. Rowe Price, said the following:

[1] A leveraged buyout (LBO) is a transaction in which a company is purchased with a combination of equity and significant amounts of borrowed money; usually employed when a financial sponsor acquires a company.

[2] Chang, Adrea. “Dell Inc. to go private in $24.4-billion deal.” Los Angeles Times. 2/5/13. <http://articles.latimes.com/2013/feb/05/business/la-fi-tn-dell-goes-private-20130205>. 6/7/16.

[3] Krouse, Sarah. “T. Rowe Price Pays Up After Botched Move: Client investors to receive $194 million tied to firm’s proxy error on Dell buyout.” WSJ Online. The Wall Street Journal. 6/6/2016. <http://www.wsj.com/articles/t-rowe-price-to-reimburse-clients-194-million-for-dell-deal-flub-1465244254>. 6/7/2016.