Corporate Governance

Wachtell, Lipton and the Opening Salvo Against the Shareholder Bill of Rights (Introduction)

By J. Robert Brown

Wachtell, Lipton is an outstanding and wealthy firm with a definite point of view in the corporate governance debate.  It is the firm that represents management.  In the takeover era, no one was better at fighting off unwanted overtures than Marty Lipton, the inventor of the poison pill, the devise that he, in conjunction with the Delaware courts, used to end hostile tender offers as a meaningful acquisition method.

Unsurprisingly, then, the firm has been at the forefront in opposing the shareholder rights movement.  The firm authored a lengthy and often pejorative letter opposing access for shareholder nominee bylaws, a strategy that we have characterized as short sighted.  Their memos have favored the Delaware approach to corporate governance which is to impose few meaningful responsibilities on the board of directors.  There have been occasional cracks in the facade, but on the whole the firm has been pro-management through and through. 

So it is not news that the firm has gotten out ahead of the bill yet to be introduced by Senator Schumer titled "The Shareholder Bill of Rights Act of 2009" or, as I have called it, SOX II. 

The Bill will, if it passes, will supplant in a significant way the authority of Delaware to set corporate law standards.  It is an invevitable result of an approach to regulation in Delaware that is so resolutely pro management that the courts resist imposing any meaningful standards on the board, whether in connection with the determination of executive compensation (resulting, as we have seen, in compensation without limits) or in connection with risk assessment.

An editorial in the Wall Street Journal set out the likely path Wachtell's opposition will take (it was written by Marty Lipton and Jay Mirvis, partners at Wachtell, Lipton, and Theodore Lorsch, a professor at Harvard Business School.).  The editorial was largely empty, saying little more than the current crisis is the fault of shareholders (sort of swift boating the shareholders).  A memorandum sent around by the firm the same day, however, set out its views in much more interesting detail.  The memo is reprinted on the Harvard Corporate Governance web site. 

So we will mull over the basis for the opposition in the next few posts.

Full post as published by The Race to the Bottom on May 15, 2009 (boomark / email).