Herding the wind: 'good governance'? Or, empty pronouncements?

• Author: Kaback, Hoffer
• Position: QUIDDITIES

MY COLUMN "Ali vs. Frazier" (Second Quarter 2011) concerned the multi-decades rivalry between the great takeover lawyers Joseph H. Flom and Martin Lipton. These men -- and their law firms, Skadden Arps and Wachtell Lipton, respectively -- faced off countless times in the courtroom and across the negotiating table.

Flom died in February 2011. There can never be a replacement for him as an antagonist to Lipton. It is impossible. However, in part because Lipton has for years written about corporate governance policy matters as such (and not just to the extent that they affect his M&A practice), there have arisen certain players in the governance community who have put forth views antithetical to Lipton's and who, in that narrow way, can be considered quasi-successors to Flom.

One is Harvard Law School Professor Lucian A. liebchuk. He has championed ideas about corporate governance that Lipton and Wachtell colleagues (and others) consider entirely wrong-headed. A recent example of this clash:

In a March 21, 2012, memorandum, Lipton and three other Wachtell Lipton lawyers took to task Bebchuk and the Harvard Law School Shareholders Rights Project (SRP), a clinical program for law students of which Bebchuk is the director. The trigger for this was a press release that the SRP issued jointly with some institutional investors commending certain companies for "their responsiveness to shareholder concerns" in agreeing to include in their proxy materials management proposals for board declassification.

Wachtell asserted that there is "no persuasive evidence" that stockholder value is increased by undoing staggered boards and that, indeed, staggered boards assist companies in defending against low-ball bids.

The memo went on say that "It is surprising that [Harvard] would countenance the formation of a clinical program to advance a narrow agenda that would exacerbate the short-term pressures [on] American companies. ... The portrayal of such activity as furthering 'good governance' is unworthy of the robust debate one would expect from a major legal institution and its affiliated programs."

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Subsequently: The New York Times ran a piece summarizing the memo; the SRP issued an April 18 release in which it referred to its activities as having "already contributed to significant governance reforms"; and Bebchuk wrote an article for the Times in late April saying that "despite strong and expected criticism from the usual suspects...