Nathan the sensible: a thoughtful commentator on 'truly good corporate governance.'.

• Author: Kaback, Hoffer
• Position: QUIDDITIES

I HAVE HAD OCCASION, in this space, to discuss Joseph Flom and Martin Lipton. Flom (of Skadden Arps) and Lipton (of Wachtell Lipton) were multi-decade adversaries in a huge number of takeover and proxy contests. In addition, Lipton (who has outlived Flom) has long espoused strongly voiced views on critical governance policy matters.

One-half generation behind Flom and Lipton in the M&A arena is Charles Nathan. Nathan started out at the Cleary Gottlieb law firm, segued into investment banking, then returned to practicing law. He is currently with Latham & Watkins.

Like Lipton, Nathan has been a thoughtful commentator on governance issues. As part of the source materials at Practising Law Institute's Tenth Annual Directors' Institute on Corporate Governance (held in September 2012 in New York City), Nathan provided a May 2011 memorandum titled, "A 12-Step Program to Truly Good Corporate Governance."

I consider below several of the key points made in it.

1. "All the analogies in the corporate governance arena to political models remain analogies, not statements of inherent right or wrong. ... To say that shareholders 'own the company and therefore have certain rights is to misstate [their] relationship to the legal entity that constitutes the corporation and to confuse the discussion, rather than provide useful answers.... An overly simplistic analogy is characterizing directors as 'agents' of shareholders. The relationship of directors to shareholders is different from, and more complicated than, that of legal agent and principal. ... Academic literature, which fails to evaluate proposed corporate governance policies in light of their ultimate impact, but only in the context of lessening or preventing agency cost, is neither sensible nor helpful."

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   Comment: Just so, in several respects. First, the entire notion of shareholder democracy, invoking as it does sunny visions of Athens as the best of all possible worlds, is--not to put too fine a point on it--nonsense. Second, and a core principle of American corporate law, is that directors are not agents of the shareholders (who are, in turn, not their principals). Third, if one craves a political analogy, not at all inapposite is this one: Directors are to shareholders as United States Senators are to their constituents. Neither directors nor Senators are agents of principals; instead, each member of these groups is elected to exercise his best, independent, non-snap...