At the request of the World Economic Forum, together with a team of my Wachtell Lipton colleagues, I prepared "The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth," which was issued in September 2016.
The new paradigm conceives of corporate governance as a voluntary collaboration among corporations, shareholders, and other stakeholders to achieve sustainable long-term value and resist short-termism. It provides a roadmap for boards to demonstrate that they are providing thoughtful, engaged oversight and that management is diligently pursuing credible, long-term business strategies.
As part of that project, I sought to create a foundation for broad-based consensus and, accordingly, in the drafting stage I tested the new paradigm with a number of major corporations and incorporated the feedback we received. In addition, we took into account the published stewardship and engagement policies of the major index funds and institutional investors.
The new paradigm is attuned to the significant influence and role of asset managers and institutional investors, and urges them to embrace stewardship principles, reject activists, and provide the support and patience needed for companies to pursue long-term sustainable strategies. It posits that, while sometimes there may be differences of opinion and changes may be warranted, corporations and shareholders are almost always better served by working together on a collaborative basis than by doing battle or allowing an activist to interpose itself.
Since the time that I initially proposed the new paradigm, a number of developments have prompted me to reassess and revise this framework, with a view to further tailoring it as a middle-of-the-road approach and enhancing its usefulness as a private-sector solution to combat short-termism, while hopefully warding off a new round of politically driven and potentially misdirected governmental intervention.
We have now updated the new paradigm and my colleagues and I have prepared a new version outside the auspices of the World Economic Forum.
We have been mindful of the ever-expanding assortment of corporate governance frameworks, codes, and principles for boards and investors to consider, and have accordingly sought to integrate these frameworks with a view to offering the new paradigm as a comprehensive roadmap that could be adopted by all of the...