Why the Brokaw Mill Closed

A recent submission to the Journal of Business, Entrepreneurship, and the Law looks at the “Brokaw bill” of 2016 and at the facts said to have motivated it. There are lessons to be drawn from this about how things work in the world, about how the managers of failed enterprises like to think they work, and about who politicians believe.

In March 2016, Sens Tammy Baldwin (D-WI) and Jeff Merkley (D-OR) introduced a bill to “increase transparency and strengthen oversight of activist hedge funds.” Bernie Sanders, then in the midst of a campaign for the Democratic nomination for POTUS, signed on as a co-sponsor.

The proposal was said to have been inspired by the cloture (five years before) of a paper mill in Brokaw, Wisconsin. That paper mill had provided jobs to some of Senator Baldwin’s constituents for years. According to Baldwin and Merkley, the mill closed because a predatory activist hedge fund bought control of the Wausau Paper Company and demanded immediate returns “at the expense of the company’s long-term future.”

But if the 2011 closure inspired the bill, why did it take five years for said bill to be introduced? Was all that time spent sweating the drafting details?

The new revisionist article on the subject, "Failed Anti-Activist Legislation" by Alon Brav et al, answers that question. The bill wasn't introduced in 2011 because the closure had nothing to do with activist hedge funds and it took a few years for the story to percolate that they were at fault. 

The bill closed, NOT under pressure from the hedge fund usually scapegoated here (Starboard Value), but simply in the face of a global decline in the demand for paper in the age of the internet. The falling demand for paper put pressure on profit margins, and the Wausau board late in 2011 approved a plan for closing Brokaw, in the process eliminating 450 jobs, some hourly and some salaried. That was, of course, very bad news for all of the families directly affected. But it isn’t something that can be helped by “oversight” of hedge funds. Indeed, in this specific matter there is, the authors say, “no evidence that hedge fund activism played any determinative role in the closure of the Brokaw mill."