Martin Lipton vs Ira Millstein On Activist Investing

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New corporate governance paradigms are all the rage.

On Wednesday, I was at Columbia University for the 2016 Millstein Governance Forum, a day-long event dedicated to “Governance, leadership and the future of the corporation.” The Forum, and the Millstein Center for Global Markets and Corporate Ownership, based at the law school, is named for Ira Millstein, a Weil, Gotshal & Manges lawyer who was in fine form discussing his latest book, The Activist Director. By coincidence, a new memo hit my inbox the day previously from Martin Lipton, Steven Rosenblum and Karessa Cain of Wachtell, Lipton, Rosen & Katz.

Martin Lipton

Martin Lipton and Ira Millstein make for entertaining comparisons. Long time sparring partners (the latter’s words), each approaches issues of corporate governance and the long-term interests of corporations in different ways. To Lipton, shareholder activists are the root of all short-termism in business and “well-run corporations should be protected by their major shareholders from activist attacks, thereby giving these corporations the breathing room needed to make strategic investments and pursue long-term strategies.”

Millstein too sees many boards as “captive” not only to activist shareholders, but short-term mutual funds and even retail shareholders. Yet his approach is more geared to emboldening directors than protecting management. “This is America, we’re not going to stamp it out. We’re not going to pass a law against it,” he said Wednesday, in response to my question about whether shareholder activism is a force for good. Wachtell Lipton, with its support for the Brokaw Act, its invention of the poison pill and other tough stances on governance might beg to differ.

Millstein’s book offers up hefty criticisms of past boards, and by extension, those of today. Shareholder activists, the media, proxy advisers and other shareholders are dismissed as treating “shares of stock like casino chips.” But his chronicling of boards that did not know they could fire CEOs, as well as the evolution of the General Motors board of the late 1980s and early 1990s – to which Millstein was an adviser – and its gradually more proactive stance investigating issues of underperformance and subsequent dismissal of two CEOs in as many years, does not leave space for many simple fixes. He rues the DuPont board’s decision to fire CEO Ellen Kullman after successfully defeating Trian Partners in a proxy contest, while lionizing GM’s. Such differences are perhaps a matter of perspective.

Indeed, the answer Millstein offers up to the perceived short-termism of American business is thus: “No magic, just hard work and lots of people working on it.” He believes the job of directors – until recently, not really a job at all – can be learned, if not exactly taught.

After all, teaching it has been attempted frequently over the years – all the commonsense principles, shareholder-director exchanges and proxy fights are effectively just that. Whether it has made a difference is probably another matter of perspective.

Article by Activist Insight

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