Champion of management defense embraces responsibility for long term value
For the advocated views of both corporate and
investment management responsibilities for long term value recently
defined by Justice Strine, cited below as a "sometime sparring partner" of
the interviewee, see
Activism in the
long-term is bad for shareholders and for the economy as a
whole, says Martin Lipton, a founder of Wachtell, Lipton, Rosen
& Katz, at the Tulane Corporate Law Institute.
NEW ORLEANS — No discussion of shareholder activism can
happen without invoking the name Martin Lipton. He’s the lawyer who has
defended corporate America for decades.
Speaking at the Tulane Corporate Law Institute here on
Friday, the legendary deal maker held fast to his belief that companies’
boards should be protected so they can look out for the long-term interests
of shareholders.
For Mr. Lipton, who invented the poison pill defense against
activists and hostile bidders as a founder of Wachtell, Lipton, Rosen &
Katz, the duty of corporate directors is to transcend the short-term desires
of investors.
“My view of corporate governance is that the board of
directors should be responsive to the long-term interests of the
shareholders of the company,” he told his interlocutor, Andrew Ross Sorkin
of DealBook.
He recounted why he created the poison pill. Properly known
as a shareholder rights plan, the maneuver triggers a flood of shares if an
investor buys more than a certain amount of stock, diluting the aggressor’s
holdings.
“The poison pill was developed because of my frustration
with the inability of subjects of hostile takeovers to deal,” he said.
Still feisty at 82 years old, Mr. Lipton noted that hostile
takeovers aren’t always in the best interests of the company being pursued.
He pointed to the unsolicited bid by American Express for McGraw-Hill in
1979, worth nearly $2.6 billion in today’s dollars. Now, McGraw-Hill is
worth roughly $24 billion, counting the education division that it has sold
off.
Mr. Sorkin pressed the lawyer on the rise of “shareholder
democracy” in the United States, as boards have become more responsive to
their investors over time. That’s not necessarily because of activist
investors, but Mr. Lipton still identified that as a problem, with
investment managers, in general, looking at too short a time frame for their
investments.
But he praised people like Laurence D. Fink of BlackRock,
who called on companies to reinvest and not merely take on debt to buy back
stock — a phenomenon that Mr. Lipton attributed to short-termism.
That said, the deal maker isn’t completely opposed to
activists. When asked by Mr. Sorkin whom he liked, Mr. Lipton first said
that he respected, and perhaps sometimes even liked, the following
activists:
• Ralph V. Whitworth and David Batchelder of Relational
Investors
• Nelson Peltz and Peter May of Trian Partners
• Barry Rosenstein of Jana Partners
He was much more direct about some of the others.
“I don’t like Carl Icahn,” he said. “I don’t like Paul
Singer at Elliott; I don’t like Dan Loeb at Third Point; and I don’t like
Bill Ackman.”
Why? For Mr. Lipton, those hedge fund managers are out to
make a profit for themselves, and sometimes other investors, but potentially
at the expense of a company’s long-term interests.
Despite the early hour — 8 a.m., after what was, for many, a
long New Orleans night — many merger advisers still packed a conference room
to hear Mr. Lipton speak. Even Leo E. Strine Jr., Delaware’s newly minted
chief justice and a sometime sparring partner, made a surprise
roast-as-introduction for Mr. Lipton.
“Part of the reason why so many of us have so much respect
for him is his belief that the capitalist system should work for all,”
Justice Strine said.
He then presented Mr. Lipton with an honorary Delawarian
award, jokingly adding, “The best thing is, you get all the benefits of
being a Delawarian without living there.”
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