Marty Lipton and the Challenges of a New Century

Implementing Good Governance to Preserve the Business Judgment Rule and Enhance Corporate Integrity

After the adoption of the NYSE corporate governance listing standards and the passage of the Sarbanes-Oxley Act, Lipton focused on advising boards on the importance of implementing best practices in governance.  With the conviction that widespread adoption and compliance were necessary to prevent further corporate crises and preempt additional regulatory intervention, he wrote prolifically to emphasize the importance of strong boards and promote sound governance.  Compared to prior decades, Lipton spent less time negotiating deals and more time advising clients in their efforts to effectuate good governance and defend against shareholder activism.  His advisory, strategy, and policy efforts — to shape the intellectual debate as well as provide guidance to market participants and regulators — were amplified by his public communications.²⁸⁶  

[P]ost-Enron regulations will be effective only if accompanied by fundamental changes in corporate culture.

In 2002-2003, Lipton formulated his thoughts in a speech and paper titled, “The Millennium Bubble and Its Aftermath:  Reforming Corporate America and Getting Back to Business”:

Lipton identified several Wall Street causes of the millennium bubble crisis, including the pressure of quarterly earnings reports, the credulity or complicity of research analysts, “excessively deferential boards and short-sighted compensation structures for senior management.”²⁸⁸  He believed that the reforms that had been adopted, if genuinely embraced by Wall Street, would suffice to revive the economy and restore investor confidence.  To that end, he made great efforts to advise clients to “share the goals embodied in the rules that they are obligated to follow.”²⁸⁹

In 2002, Lipton wrote client memos specifically encouraging directors to:

• formalize the role of the lead director, in order to strengthen the hand of independent directors and to blunt calls for separation of the roles of CEO and chairman of the board;²⁹⁰
• schedule longer board meetings and an annual two- to three-day board retreat with senior executives to undertake a full review of the company’s financial statements and disclosure policies, strategy and long-range plans, and current developments in corporate governance;²⁹¹
• annually review the competence of the key partners and managers of the accounting firm who were responsible for the audit as well as a formal policy of not hiring from the accounting firm any partner or manager who worked on the corporation’s account during the past three years;²⁹² and
• recognize that a “tectonic shift” in corporate power from management to the board and shareholders requires adherence by all participants in corporate America to the new SOX and NYSE corporate governance rules and, moreover, to “the highest ethical standards,” for the good of the national economy.²⁹³

Lipton also advocated for greater oversight of accounting firms.  Writing with Professor Jay Lorsch of the Harvard Business School, he proposed the legislative creation of an independent, self-regulatory organization to oversee accounting firms.  This solution, they wrote, “would leave accounting in the private sector with self-regulation, not government regulation, but would provide the government involvement that has now become critical to restore confidence.”²⁹⁴  Their recommendation, published in February 2002, was essentially fulfilled through the creation of the Public Company Accounting and Oversight Board by the Sarbanes-Oxley Act later that year.  On the company side, Lipton advised boards of directors “to review the practices and procedures of audit committees to improve their effectiveness and help restore investor confidence.”²⁹⁵

The business judgment rule is alive and well.

Beyond the objective of improving corporate performance, Lipton had two further aims in advocating for widespread adoption of good governance practices.  The first was to head off calls for further government regulation.  In the wake of WorldCom’s bankruptcy, Lipton was fighting a strong current.  Former SEC Chairman Richard Breeden, the court-appointed “Corporate Monitor” for the bankrupt WorldCom/MCI, generated a report containing seventy-eight corporate governance recommendations, prompting Lipton to make a strong case against imposing particularized oversight obligations on boards.  He called Breeden’s report “a case-specific set of recommendations seeking to right the wrongs committed by a most extreme example of corporate wrongdoing.”²⁹⁶  Lipton wrote:

Second, Lipton advocated that the widespread adoption of corporate governance standards would help to preserve the liability protections of the business judgment rule.  Although he perceived jurisprudential erosion of the business judgment rule to be a less likely risk than increased regulation, he nonetheless reminded clients at every opportunity that good governance protected directors.²⁹⁸  In a memo to clients regarding audit committee procedures, Lipton observed that directors could safely rely on external advisors so long as they had no reason to doubt the experts’ competence or loyalty.²⁹⁹  His recommended additional procedures for audit committees were intended — in addition to improving the quality of audit committee oversight — to ensure that the directors did not forfeit the protections of the business judgment rule by failing to do their diligence regarding the external auditors.  He also emphasized that the same principles applied beyond the context of the audit committee.  In a 2002 article in M&A Lawyer, Lipton and his colleague Laura A. McIntosh advised, with a note of warning:

Lipton worried that greater exposure to liability, in addition to burdensome responsibilities, would reduce the quality of directors willing to sit on public company boards.  At the end of 2002, he wondered aloud in a client memo:  “Now the issue is whether the new corporate governance requirements go too far and will result in discouraging competent people from serving as directors and deter management from taking appropriate entrepreneurial risks.”³⁰¹  Regarding two high-profile 2003 cases — Disney and Abbott Laboratories — in which directors were at risk of personal liability for failure of oversight, he wrote:

After the 2005 WorldCom settlement, in which the WorldCom directors were subject to $18 million in personal, out-of-pocket settlement payments, Lipton again assured directors that the protections of the business judgment rule remained robust, though he acknowledged that there was reason for concern:

The final 2005 Disney decision in the Delaware Chancery Court provided a welcome affirmation that, in Lipton’s oft-repeated phrase, “the business judgment rule is alive and well”:

As it became clear that public company directors had entered a new era of significantly increased burdens and potentially greater exposure, Lipton developed two quasi-annual client memos specifically for directors.  The first was a bullet-point, one-page format called “Key Issues for Directors,” the first of which was distributed in December 2003.  The second was a longer, advisory piece titled “Some Thoughts for Directors,” the first of which was sent to clients in January 2004.³⁰⁵

The Twentieth Anniversary of the Poison Pill:  University of Chicago Symposium

Though the poison pill was, by 2002, a firmly established feature of corporate law and governance, Lipton continued to defend it against academic attacks.  In advance of a University of Chicago Law School symposium on the pill’s twentieth anniversary that year, Lipton summarized his adversaries’ positions:

The well-settled legality of the pill was the unspoken assumption behind this generation of arguments, which were far removed from the existential challenges to the pill that were brought in the 1980s.  In his contribution to the symposium, Lipton summarized twenty years of argumentation, legislation, and litigation regarding the poison pill:  “[Over two decades] I have sought to preserve the ability of the board of directors of a target of a hostile takeover bid to control the target’s destiny and, on a properly informed basis, to conclude that the corporation remain independent.”³¹³  He observed that much of the academic criticism in the symposium centered around the theoretical ability of a board to resist a takeover indefinitely, when in reality dissatisfied shareholders had always had — and indeed, in some cases, had successfully wielded — the power to replace all or part of an unyielding board:

    Leading academics and jurists contributed pieces to the symposium, including:

Shareholder Activism and the Role of Institutional Investors

The two symposia reflected the significance of Lipton’s work over the prior decades.  It became clear, however, as the Aughts progressed, that larger market developments — in particular, the rapidly growing voting power of institutional investors and the impact of shareholder activism — were overtaking the importance of takeover defenses per se.  Institutional investors were using their influence to pressure boards to drop defenses such as pills and classified boards, at the same time that shareholder activism was increasing in intensity and ambition.  In Lipton’s 2002-2003 Millennium Bubble article, he had predicted the growth in shareholder activism that would occur during the first decade of the 2000s:

Lipton’s predictions regarding the direction of shareholder activism proved largely correct.  Shareholder activists pushed hard for proxy access in the early part of the 2000s.  In 2003, the SEC issued proposed amendments to the proxy rules that would permit shareholders to nominate director candidates in the company proxy statement.³³³  And along with proxy access, activists sought so-called majority voting — a term for turning a decision not to grant a proxy into a “no vote” by requiring that a director receive a majority, not a plurality, of votes, even if unopposed, in order for the director to remain in office.  Led by public and union pension funds and supported by mainstream mutual funds, activists proposed precatory proxy resolutions providing for majority vote requirements.  The SEC did not permit companies to exclude these precatory proposals, and Institutional Shareholder Services (ISS) expressed support for them.  The American Bar Association announced consideration of an amendment to the Model Business Corporation Act to require a majority, rather than a plurality, vote for directors.  Lipton made his views clear in a 2005 client memo:

More generally, Lipton was concerned to see that takeover defenses were being taken down in a large swath of the market in response to activist pressure, and he felt that the increase in activist hedge fund attacks had become a serious enough threat to the ability of corporations to concentrate on responsible, long-term growth to warrant serious preparation on the part of public companies.  In 2006, Lipton released a formal “Hedge Fund Attack Response Checklist,” much like the takeover defense checklists he had pioneered in the 1980s:³³⁵  “The current high level of hedge fund activism warrants the same kind of preparation as for a hostile takeover bid.  In fact, some of the attacks are designed to facilitate a takeover or to force a sale of the target.  Careful planning and a proactive approach are critical.”³³⁶  

During the 2006 proxy season, Lipton took aim at the positions espoused by Professor Bebchuk as epitomizing a misguided view of shareholder empowerment:

Bebchuk’s proposals included a mandatory amendment providing that the adoption of a poison pill would require a unanimous board vote and that any pill adopted could have a term of only one year.  Lipton criticized Bebchuk’s proposal on the grounds that it would substitute the judgment of a single director for the judgment of the full board, and that it would destroy the staggered board by empowering a single director, elected the first year in a contested election, to veto any attempted renewal of the poison pill.³³⁸ 

The key issue for American business is whether the institution of the corporate board of directors can cope with shareholder activism and survive as the governing organ of the public corporation.

In addition to engaging with Bebchuk and other academics as to theories of governance and impractical proposals for reform, Lipton’s primary focus became addressing the influence and behavior of shareholder activists such as ISS, the Council of Institutional Investors (CII), public pension funds, union pension funds, and activist hedge funds.  Activist favored-positions on corporate governance that put companies under immediate market pressures were quickly becoming mainstream; in 2006, both the Model Business Corporation Act and the Delaware General Corporation Law were amended to facilitate majority voting.  In 2007, Lipton wrote

Lipton feared that corporate governance measures that increased the prevalence of independent directors more beholden to institutional investors — which was originally intended to empower independent boards to improve the performance of troubled companies and to act as a bulwark against conflict of interests and possible overreaching, a la Enron, in the pursuit of pleasing the market — was being co-opted by influential interest groups more interested in short-term profit and their own accumulation of power than in sustainable growth for long-term investors, the consideration of the welfare of stakeholders, and the prosperity of the American economy.  He brought to clients’ attention a 2007 study by three leading academics indicating that the corporate governance indices touted by shareholder activists bore no relation to corporate performance.  The authors’ conclusion was one that Lipton had long championed:

There is no justification for revolutionizing corporate law and corporate practices so that shareholders replace directors as the fundamental arbiters of corporate policy.

The following year, Lipton alerted clients to another research study, the first to evaluate commercial governance ratings such as the Corporate Governance Quotient (CGQ) rating that had become an influential product of ISS (which for a brief time was renamed RiskMetrics).  The authors found that CGQ “exhibits virtually no predictive validity” with respect to either positive future firm performance or avoidance of undesirable outcomes such as accounting restatements or shareholder litigation.  Lipton summarized the findings thus:

Although Lipton long had encouraged companies to maintain open lines of communication with their largest shareholders,³⁴² he viewed with apprehension the creeping trend toward governance by constant referenda.  In 2007 he released a brief client memo bemoaning the announcement by Pfizer that its board of directors would invite its largest institutional shareholders to a meeting to give the shareholders the opportunity to comment on Pfizer’s governance, including executive compensation.  Lipton saw this as “another example of corporate governance run amuck.”³⁴³  He elaborated:

As shareholder activism became entwined with a push for direct democracy and ballot access, Lipton presciently warned:

Lipton warned that frequent shareholder intrusions into corporate governance — rather than having shareholders express their views primarily through the election process, in which an alternative slate of directors was properly presented for consideration — effectively could displace the board of directors as the governing organ of the public corporation and “overwhelm American business corporations.”³⁴⁶

Lipton also identified an extensive series of problems, the combined effect of which, in his view, threatened American entrepreneurship and productivity: 

• Pressure on boards from activist investors to manage for short-term share price performance rather than long-term value creation.
• Potential for embarrassment of directors from corporate scandals in which they had no active participation. 
• The shift in the board’s role from guiding strategy and advising management to ensuring compliance and performing due diligence.
• The corrosive impact on collegiality from the balkanization of the board into powerful committees of independent directors and from the overuse of executive sessions.
• The pressure to shift control of the company from the board to shareholders.
• The executive compensation dilemma [which involved tying top management pay to total stock return to encourage them to manage to the stock market, and increasingly severing their pay from any reasoned relationship to the pay of the rest of the workforce].
• The demand by public pension funds for direct meetings with independent directors.
• The publication of corporate governance ratings and report cards intended to embarrass directors.
• The continuing narrowing of the definition of director independence. 
• The constant cycle of new corporate governance proposals.
• The constantly increasing time demands of board service that restrict the ability of active senior business people to serve on boards.
• The unpleasantness of filling out extensive questionnaires to enable appropriate disclosures and qualification determinations.
• The demeaning effect of the parade of lawyers, accountants, consultants and auditors through board and committee meetings.
• The growth of shareholder litigation against directors as a big business and a type of extortion.
• Policies of politically motivated institutional shareholders to refuse to settle lawsuits against directors unless they contribute to the settlement from their personal funds.
• The proliferation of special investigation committees of independent directors, with their own independent counsel, to look into compliance and disclosure issues.³⁴⁷

His concerns grew more acute after the subprime mortgage crisis of 2008.³⁴⁸  He observed that decoupling of voting power and economic ownership was becoming more common, fueling activists’ ability to exert pressure and giving hedge funds control over more votes than their true ownership warranted.³⁴⁹ 

In 2009, in an op-ed collaboration with Jay Lorsch and Theodore Mirvis, Lipton took to the pages of the Wall Street Journal to oppose Senator Charles Schumer’s proposed legislation, the Shareholder Bill of Rights Act of 2009.  Although the stated goal of the bill was “to prioritize the long-term health of firms and their shareholders,” Lipton argued that its provisions would have the opposite effect:  “Excessive stockholder power is precisely what caused the short-term fixation that led to the current financial crisis.”³⁵⁰  Lipton warned that in the longer term, shareholders were not the only ones to pay the price of short-termism; as the financial crisis showed, employees, communities, suppliers, creditors, and other stakeholders were hard hit by corporate collapse.  Lipton wrote of these constituencies:  “They have a legitimate stake in this debate.”³⁵¹ 

During the Aughts, Lipton repeatedly emphasized the consequentiality of the debate over corporate governance control.  Of board-centric governance, he wrote: 

Lipton believed corporations to be not predominately as vehicles for short-term stockholder profit but as engines of sustainable, economic growth with a moral duty to society and an essential role in national prosperity and power.  The stakes, therefore, could not be higher, and Lipton understood the need to address the reality of unprecedented institutional investor power.  Many of the institutions thrived primarily because they held the capital of American working-class investors, whose interests required sustainable, socially responsible corporate governance.  Lipton therefore began to consider ways to align the behavior of institutional investors with the needs of their true stakeholders, including American workers.  His insights led him to develop a New Paradigm for corporate governance, which was to be fully articulated in the coming years.

Airgas and Its Aftermath:  The Poison Pill Lives in Law, But Declines in Relevance

In 2011, with predatory activism on the rise, the Delaware courts first directly faced the question whether a board of directors could stand behind a poison pill and “Just Say No” in the wake of the 1990 Time/Warner decision of the Delaware Supreme Court, which had strong dictum to that effect (including a non-too-subtle disavowal of Interco) but did not involve a pill.  In the intervening period, most hostile takeover disputes had been resolved in a less stark way than a ruling in court, either through a proxy contest leading to some resolution or the emergence of a higher bid from a different party.  In Airgas,³⁶² the pill issue was unavoidably presented.  Airgas, the target of an all-cash/all-shares bid, had both a staggered board and a poison pill, an indisputably independent board, a charismatic founder and CEO who held ten percent of the shares, and a management team that enjoyed strong support from most analysts and that had just put in place a long-term plan that promised significant growth based on a major investment in SAP.  Airgas was a mid-cap firm started some twenty years before, with a market capitalization of under $5 billion.  Fittingly, Airgas was represented by Wachtell Lipton.

The hostile bid came from Air Products, a primary competitor of Airgas.  Air Products’ initial public bid was announced on February 4, 2010, at $60/share.  After Airgas’s board rejected that bid, Air Products raised its bid three times while mounting a proxy contest at Airgas’s 2010 annual meeting (to be held in September 2010) to seat three new independent directors.  Air Products also proposed a bylaw that would have required Airgas to hold its next “annual” meeting in January 2011, four months later.  

The three Air Products nominees won election, and the stockholders also approved the “annual” meeting bylaw.  Airgas challenged the bylaw as inconsistent with Delaware’s classified board statute (DGCL § 141(d)).  The Court of Chancery upheld the bylaw, but the Supreme Court held it invalid, and required that annual meetings must be spread “approximately” one year apart.³⁶³  

The poison pill lives.

When the three Air Products nominees joined the Airgas board, they hired their own legal advisors, and, at their request, a new financial advisor was engaged to take a fresh look at the valuation issues.   The Air Products nominees ultimately joined the other directors in rejecting Air Products’ newly increased “best and final” bid of $70/share, even as the board stated its willingness to negotiate with Air Products for a sale of the company were it to raise its bid to $78/share.  That set the stage for a second trial on Air Products’ request that the Court of Chancery order Airgas’s board to pull the pill.  (A previous trial had been held on Air Products’ pull-the-pill request as to its then-$65.50/share offer, but no decision was rendered while the parties litigated the validity of Air Products’ proposed bylaw to require a second “annual” meeting in January 2011, which could have given Air Products’ nominees two-thirds of the Airgas board in relatively short order.)

The Airgas board’s position was stark.  It did not contend that there was a need for additional time for stockholders to be informed.  It did not claim a need to search for alternative bids or implement new business strategies.  It did not assert that it had any confidential information that indicated any hidden value.  It did not doubt the ability of Air Products to consummate its offer.  It did not argue that independence was better for the employees or any other non-stockholder constituency.  Chancellor William B. Chandler III opened his post-trial opinion by framing the issue presented, and his conclusion, as follows:

In the course of his opinion, Chancellor Chandler repeatedly noted that he felt “constrained”³⁶⁶ and “bound”³⁶⁷ by the Delaware Supreme Court precedents in Time/Warner and other cases, while expressly his “personal” view that the Airgas pill had exhausted its purpose.  The Chancellor expressed considerable admiration for Chancellor Allen’s analysis in Interco some thirteen years before, but held that Time/Warner and other precedents permitted the Airgas board to block the Air Products bid if it had a reasonable belief that the offer was too low and there was a real risk that the stockholders (in the event, arbitrageurs) would tender regardless of their views as to the inadequacy of the price offered).

In a crucial footnote, Chancellor Chandler said this about where Delaware law was in reality about a board’s ability to use a pill and how it should be summarized:

Not surprisingly, Lipton’s scholarship and advocacy, and the contrary views it elicited from the academics, were featured in Chancellor Chandler’s opinion.  The Chancellor indeed placed the issue he was obliged to decide squarely within the Lipton-academy debate:

Interestingly, in his closing argument, Air Products’ counsel pressed the accurate (but anachronistic) point that Lipton’s original writings on the pill, such as his 1979 Takeover Bids in the Target’s Boardroom, had not claimed a right for a board to block a tender offer based solely on price.  Counsel argued that “Marty Lipton himself has argued that takeovers of the type here are not abusive and the decisions about whether to accept them should be decisions of the stockholders.”³⁷²  Counsel played a video clip to the Court in which Lipton, being interviewed about his invention of the pill, described the early 1980s as a period characterized by ten-day tender offers that generated huge pressure on shareholders and management to respond, which led to his probing to find something that would be useful — not in preventing hostile takeovers — but giving the board of directors of the target company an opportunity to level the playing field and have time to make a rational business judgment decision as to how to deal with a takeover.³⁷³  Counsel further sought to rely on Lipton for Air Products’ position by pointing to Lipton’s early writings that focused on the financing and timing abuses in tender offers of that period, and later writings in which Lipton had proposed that pills and other structural devices should be eliminated if timing and other tender offer abuses were eliminated by requiring all offers to be fully financed and open for 120 calendar days, and only shareholders who held shares for 60 days prior to the tender offer were allowed to vote.³⁷⁴  As to Takeover Bids in the Target’s Boardroom, counsel’s argument, somewhat quixotically given the Supreme Court’s strong dictum in Time/Warner, was that Lipton’s central argument — that the board of directors should be permitted to exercise its business judgment to determine what offers are and are not in the corporation’s best interests — had been rejected by the Delaware courts, and that the pill’s legitimate purpose was limited to dealing with the pressures of coercive two-tier tender offers made on very short time frames.³⁷⁵

Air Products abandoned its bid within hours of losing in the Court of Chancery — precluding, as in Interco, the Delaware Supreme Court from itself addressing the issue.  

Lipton and his colleagues applauded Chancellor Chandler’s opinion in a client memo issued the next day, entitled “Delaware Court Reaffirms the Poison Pill and Directors’ Powers to Block Inadequate Offers.”  The memo’s conclusion:  “The poison pill lives.”³⁷⁶  Lipton wrote:

Lipton’s memo, while justifiably triumphant in part, reflected the potentially narrow scope of the Airgas ruling.  What Lipton called “the special danger” of large purchases by arbitrageurs, focused on trading profits and not long-term value, indeed appears to have been a key, if not decisive, factor in the Airgas ruling.  The opinion carefully noted the unusual circumstance that, as both sides agreed, nearly a majority of the Airgas shares were held by arbitrageurs and those who bought below $70/share would tender “regardless of the potential long-term value”; it described the “articulated risk” that “arbitrageurs with no long-term horizon in Airgas will tender, whether or not they believe [with] the board that $70 clearly undervalues Airgas.”³⁷⁸   As the Chancellor noted:  “In this scenario, therefore, even the analysis urged by [Professors] Gilson and Kraakman would seem to support the board’s use of the pill.”³⁷⁹ 

Airgas was also unusual in that its management proved its case in the real world.  When the Air Products $70 “best and final” bid was withdrawn, Airgas’s stock price soared in the market.  The stock price exceeded $70/share consistently within weeks, and exceeded $80/share within months.  Ultimately, Airgas was sold in September 2016 to Air Liquide, for $143/share — double the “best and final” Air Products bid.

Airgas’s pill ruling led, perhaps ironically, to the near demise of the staggered board and also to a sharp decline in poison pills themselves.  Buoyed by institutional investors’ willingness to use their power to vote for precatory resolutions to get rid of staggered boards, the “Harvard Law School Shareholder Rights Project” led a campaign to propose such resolutions across Corporate America.  The push was led by Professor Lucian Bebchuk at the Harvard Law School, who had long argued that the combination of the pill and a classified board was unfairly preclusive of stockholders’ right to accept attractive bids — a proposition Lipton continued to controvert.   In 2010, 146 of the S&P 500 had staggered boards.  By 2012, only 89 did.  By 2020, the number had dropped to 55.³⁸⁰  Lipton decried the Harvard Law School Shareholder Rights Project.  In a March 21, 2012 client memo entitled “Harvard’s Shareholder Rights Project is Wrong,” Lipton wrote:

In a follow-up on November 28, 2012, entitled “Harvard’s Shareholders Rights Project is Still Wrong,” Lipton continued his criticism, arguing that the support of ISS and the activist bloc threatened an “exercise in corporate deconstruction” that is “detrimental to the economy and society at large”:

At the same time, in the wake of Airgas, institutional investors continued to press boards to drop their pills or at least promise that they would not use a pill beyond a constrained time period.  As a result, the incidence of pills also dropped sharply.³⁸³  At present, with most companies not having a classified board, pills are mostly used to deter coercive bids and to allow a board to engender competitive bids or other economic alternatives, negotiate for a higher price, and tell its story for a limited period before the next annual meeting.  But the holding of Airgas and its reasoning remain a strong basis for relying on a pill to block an inadequate offer when market conditions make that course viable.

Corporate Purpose Re-emerges as a Salient Topic in the Twenty-First Century

Throughout his career, Lipton had been interested in understanding, describing, and shaping the “objectives” of corporations and of corporate governance.  He had embraced a sweeping view of corporate purpose as early as the 1970s, when he wrote in Takeover Bids in the Target’s Boardroom:  “Rather than forcing directors to consider only the short-term interests of certain shareholders, national policy requires that directors also consider the long-term interests of the shareholders and the company as a business enterprise with all of its constituencies in addition to the short-term and institutional shareholders.”⁴¹²  In his later Quinquennial article, Lipton wrote that “the ultimate goal of corporate governance is the creation of a healthy economy through the development of business operations that operate for the long term and compete successfully in the world economy.”⁴¹³  In 2019, Lipton’s views were embraced in an important step toward the establishment of stakeholder governance as central to corporate America’s understanding of corporate purpose.  Under the leadership of its chairman, JPM Chase chief executive Jamie Dimon, the Business Roundtable — which had endorsed principles of shareholder primacy since 1997 — revised its statement of corporate purpose to embrace sustainable wealth creation and recognition of the vital role of businesses in the nation’s economic and societal well-being.  The statement read, in part:  “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.  We commit to: . . .  Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.”⁴¹⁴

Lipton applauded the BRT’s high-profile announcement.⁴¹⁵  And he expressed frustration when the Council of Institutional Investors (CII) immediately issued a statement criticizing the BRT:

Lipton took the opportunity of the BRT-CII debate to make the point that the New Paradigm was far more practical from the company standpoint, and more conducive to broad implementation, than mandatory government regulation would be.  Citing the work of Yale Law School Professor Roberta Romano, Lipton observed that corporations “operate in a dynamic environment,” whereas legislative mandates are static prescriptions “lack[ing] the capacity for adaptation necessary to enable a dynamic economy.”⁴¹⁷  Lipton also argued that, when it came to incorporating competing imperatives into a board’s decision-making process, business judgment — not government fiat — was the adaptable, flexible tool that would enable companies to successfully balance a range of interests, risks, and considerations.⁴¹⁸   

Lipton’s longtime sparring partner, Professor Bebchuk, expressed strong disagreement with the intellectual and economic underpinnings of the New Paradigm and the BRT’s statement of corporate purpose.  In 2020, he and his  Harvard Law School colleague Roberto Tallarita published a paper titled “The Illusory Promise of Stakeholder Governance,” in which the authors argued that the pursuit of stakeholderism would impose substantial costs not only on shareholders, but also on stakeholders and society as a whole:  “To assess the merits of stakeholderism, we conduct . . .  an economic, empirical, and conceptual analysis of stakeholderism, its expected consequences, and the claims made by its supporters.  Our analysis indicates that stakeholderism should be expected to produce only illusory benefits as well as seriously detrimental effects.”⁴¹⁹  Lipton responded promptly, touting the prominent institutions allied on the side of the New Paradigm:

Bebchuk and Tallarita’s paper received thoughtful criticism from Professor Colin Mayer of Oxford University, who contended that the authors took an insufficiently imaginative approach.  Beyond describing the system as it was, Mayer suggested, the authors should consider “the potential for change and the fact that there are alternative systems around the world that promote different types of corporate conduct and balances of interest in companies. . . .   By making corporate values explicit and measurable on their own terms, corporate purpose makes management accountable for its delivery in a way in which shareholder value cannot.”⁴²¹  Mayer had argued elsewhere that the corporation was due for reinvention in the 21st century:  “It should be reconceived as a means of commitment to the promotion of the interests of its customers and communities as well as enhancing the wealth of its investors.  This requires a careful reconsideration of the purpose of the corporation and its associated forms of ownership and governance.”⁴²²

The New Paradigm, as articulated over a number of memos, articles, and speeches, represented Lipton’s summation of corporate governance in the 21st century.⁴²³  Consistent with the beliefs he had espoused since the 1970s, and consonant with market realities in the 2010s, the New Paradigm can be understood as the culmination of what Delaware jurists William T. Allen and Leo E. Strine, Jr. had called Lipton’s “Institutionalist View,” in which corporation law is

In the wake of the Covid-19 pandemic and other disruptive societal events in 2020, Lipton used the occasion of the fiftieth anniversary of Milton Friedman’s influential essay to reflect on the state of corporate America and the need — as he saw it, greater than ever, and yet no different in kind — for a national commitment to stakeholder governance.  In a lengthy, summative reflection, he wrote:

For my part, I have supported stakeholder governance for over 40 years — first, to empower boards of directors to reject opportunistic takeover bids by corporate raiders, and later to combat short-termism and ensure that directors maintain the flexibility to invest for sustainable long-term growth and innovation.

---

²⁸⁶ Lipton also paid attention to international trends in corporate governance.  He cited approvingly the UK’s Higgs Report regarding the role of independent directors, describing it to clients as “a major addition not just to the Cadbury, Greenbury and Hampel Reports, which preceded it, but to the Anglo-American reports and literature on corporate governance of the past decade.”  Lipton viewed the Higgs Report as validation of the recent U.S. governance reforms, observing that they largely paralleled the NYSE corporate governance listing standards.  Memo:  Corporate Governance – The Higgs Report (Jan. 20, 2003).
²⁸⁷ Memo:  The Millennium Bubble and Its Aftermath:  Reforming Corporate America and Getting Back to Business (June 15, 2003), at 1. (updated from Martin Lipton, Address at the Commercial Club of Chicago, Illinois (Nov. 2002)
²⁸⁸ Millennium Bubble, at 4. 
²⁸⁹ Millennium Bubble, at 1.
²⁹⁰ Memo: Corporate Governance: Some Lessons from Enron (Feb. 11, 2002).
²⁹¹ Memo: A Post-Enron Paradigm for Board Meetings (June 2, 2002).
²⁹² Memo: Audit Committee Alert: Some Additional Procedures (Jan. 14, 2002).
²⁹³ Memo: The Tectonic Shift in Corporate Power (Sept. 29, 2002).
²⁹⁴ Martin Lipton & Jay Lorsch, A Modest Proposal for Dealing with the Enron Crisis, 10 Corp. Gov’t Advisor, May-June 2002, at 2.
²⁹⁵ Memo: Audit Committee Charters in the Post-Enron World (Feb. 6, 2002); see also Memo: Enron/Andersen (Jan. 28, 2002); Memo: Audit Committees: The Views of the Chief Accountant of the SEC (Mar. 12, 2002); Memo: Selecting and Approving the Auditor (Mar. 28, 2002). Lipton acknowledged that “neither the board nor the audit committee is a guarantor and neither has an obligation to assure perfect accounting or perfect disclosure. Their obligation is to use reasonable efforts to ensure that management and the auditors are discharging their obligations.” Lipton & Lorsch, 10 Corp. Gov’t Advisor, at 7-8.
²⁹⁶ Memo: “Restoring Trust” or Losing Perspective? (Aug. 27, 2003), at 3.
²⁹⁷ Memo: “Restoring Trust” or Losing Perspective? (Aug. 27, 2003), at 2, 3.
²⁹⁸ See, e.g., Memo: Enron/Andersen (Jan. 28, 2002).
²⁹⁹ Memo: Audit Committee Alert: Some Additional Procedures (Jan. 14, 2002).
³⁰⁰ Martin Lipton & Laura A. McIntosh, Corporate Governance in Light of Sarbanes-Oxley and the NYSE Rules, 6 M&A Law. (Sept. 2002).
³⁰¹ Memo: Some Random Thoughts About Corporate Governance After the Bubble (Dec. 27, 2002), at 2.
³⁰² Memo: The Business Judgment Rule Is Alive and Well (June 17, 2003), at 2.
³⁰³ Memo: The WorldCom Settlement and Director Liability (Jan. 7, 2005), at 1, 2.
³⁰⁴ Memo: Some Thoughts for Boards of Directors in 2005; Revised for Recent Developments (Sept. 6, 2005), at 1.
³⁰⁵ For a chronological compilation of these annual messages to directors, see [hyperlink].
³⁰⁶ In a memo to clients in January 2000, Lipton observed: “Worldwide merger activity in 1999 increased by more than 25%, from $2.7 trillion to $3.4 trillion. Among the more noteworthy developments were the dramatic increase in hostile deals in Europe, the major restructuring of the Japanese banks and the increase in high-tech mergers.” Memo: More Mergers (Jan. 3, 2000).
³⁰⁷ Memo: More Mergers (Jan. 3, 2000) (emphasis added).
³⁰⁸ Memo: Mergers: Past, Present, and Future (Jan. 10, 2001).
³⁰⁹ See, e.g., Memo: Cash Deal Without An Auction (Mar. 14, 2001) (highlighting a 2001 case in which a company successfully avoided Revlon duties in a cash deal without an auction); Memo: Merger of Equals (Dec. 5, 2001), at 1 (discussing “mergers of equals,” which he believed could be a welcome boost to M&A activity: “[I]f there were a deemphasis on the premiums paid in acquisitions and no criticism of managements that enter into no-premium mergers, there could be a significant increase in mergers generally to the benefit of all shareholders and the economy as a whole.”).
³¹⁰ Memo: A New EU Takeover Directive? (Jan. 14, 2002).
³¹¹ As the century proceeded, a growing number of EU nations opted out of the regime in order to shield their domestic companies from the non-frustration requirement. See, e.g., Scott V. Simpson & Lorenzo Corte, Takeover Defences in Europe — The Debate on Board Passivity Is Moot, in The International Comparative Legal Guide to: Mergers & Acquisitions 4 (10th ed. 2017); Tobias Buck, More EU Member States Opt for ‘Poison Pill,’ FT Adviser, Mar. 1, 2006.
³¹² Memo: Pills, Polls and Professors (Jan. 28, 2002).
³¹³ Martin Lipton, Pills, Polls, and Professors Redux, 69 U. Chi. L. Rev. 1037, 1039 (2002
³¹⁴ Lipton, 69 U. Chi. L. Rev. at 1054 (2002).
³¹⁵ Lucian Bebchuk, The Case Against Board Veto in Corporate Takeovers (Nat’l Bureau of Econ. Res., Working Paper No. 9078 2002), https://www.nber.org/system/files/working_papers/w9078/w9078.pdf.
³¹⁶ Marcel Kahan & Edward Rock, How I Learned to Stop Worrying and Love the Pill: Adaptive Responses to Takeover Law, 69 U. Chi. L. Rev. 871, 872 (2002), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=310019.
³¹⁷ Jennifer Arlen, Designing Mechanisms to Govern Takeover Defenses: Private Contracting, Legal Intervention, and Unforeseen Contingencies, 69 U. Chi. L. Rev. 917 (2002), https://chicagounbound.uchicago.edu
/cgi/viewcontent.cgi?article=5186&context=uclrev.
³¹⁸ William T. Allen, Jack B. Jacobs & Leo E. Strine, Jr., The Great Takeover Debate: A Meditation on Bridging the Conceptual Divide, 69 U. Chi. L. Rev. 1067, 1071 (2002), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2528679.
³¹⁹ Martin Lipton, Twenty-Five Years After Takeover Bids in the Target’s Boardroom: Old Battles, New Attacks and the Continuing War, 60 Bus. Law. 1369, 1369 (2005). .
³²⁰ Lipton, 60 Bus. Law. at 1372.
³²¹ Lipton, 60 Bus. Law. at 1374.
³²² Lipton, 60 Bus. Law. at 1375-76, 1378 (referring to Lucian Bebchuk, The Case for Increasing Shareholder Power, 118 Harv. L. Rev. 833 (2005)).
³²³ William T. Allen & Leo E. Strine, Jr., When the Existing Economic Order Deserves a Champion: The Enduring Relevance of Martin Lipton’s Vision of the Corporate Law, 60 Bus. Law. 1383, 1384, 1385 (2005), https://www-jstor-org.i.ezproxy.nypl.org/stable/40688314.
³²⁴ See, e.g., Martin A. Lipton & Jay W. Lorsch, A Modest Proposal for Improved Corporate Governance, 48 Bus. Law. 59 (1992).
³²⁵ Allen & Strine, 60 Bus. Law. at 1391-92.
³²⁶ Ron Gilson & Reinier Kraakman, Takeovers in the Boardroom: Burke Versus Schumpeter, 60 Bus. Law. 1419, 1419-20 (2005), https://www.jstor.org/stable/40688316.
³²⁷ Gilson & Kraakman, 60 Bus. Law. at 1423.
³²⁸ Gilson & Kraakman, 60 Bus. Law. at 1425, 1431.
³²⁹ Lynn A. Stout, Takeovers in the Ivory Tower: How Academics Are Learning Martin Lipton May Be Right, 60 Bus. Law. 1435 (2005), https://www.jstor.org/stable/40688317.
³³⁰ Stout, 60 Bus. Law. at 1437.
³³¹ R. Franklin Balotti, Gregory Varallo, & Brock Czeschin, UNOCAL Revisited: Lipton’s Influence on Bedrock Takeover Jurisprudence, 60 Bus. Law. 1399, 1415, 1417 (2005), https://www-jstor-org.i.ezproxy.nypl.org/stable/40688315.
³³² Memo: The Millennium Bubble and Its Aftermath: Reforming Corporate America and Getting Back to Business (June 15, 2003), at 11-12.
³³³ Lipton and his colleague Steven A. Rosenblum opposed this development. See Martin Lipton & Steven A. Rosenblum, Election Contests in the Company’s Proxy: An Idea Whose Time Has Not Come, 60 Bus. Law. 67 (2003); see also Memo: Access to the Company Proxy for Shareholder Nominees to the Board, (Apr. 23, 2003). Lipton and Rosenblum noted that, though their Quinquennial article in 1991 had contemplated an element of proxy access, it had been part of a broader proposal in which directors stood for election every five years, not annually.
³³⁴ Memo: Majority Vote To Elect Directors (Mar. 13, 2005). Lipton foresaw majority voting and related proxy issues intensifying in the 2006 and 2007 proxy seasons. Accordingly, the firm developed model forms of corporate governance guidelines that included a model majority vote guideline. See Memo: Majority Vote to Elect Directors (June 28, 2005). And, after the Delaware legislature adopted amendments relating to majority voting and director resignation in 2006, the firm advised clients to “seriously consider” adopting a “majority voting and director qualification by-law” along the lines of a Wachtell Lipton model. Memo: Delaware Adopts Majority Voting Amendments (July 7, 2006).
³³⁵ Memo: Discussion Checklist re: Takeovers (Apr. 15, 1981); Memo: Discussion Checklist re: Takeovers (Mar. 5, 1982); Memo: Takeover Response Checklist (June 27. 1983); Memo: Takeover Response Checklist (June 3, 1987); Memo: Takeover Response Checklist (Aug. 12, 1987); Memo: Takeover Response Checklist (Jan. 6, 1988); Memo: Takeover Response Checklist (Nov. 23, 1988);Memo: Takeover Response Checklist (Mar. 28, 1989); Memo: Takeover Response Checklist (June 12, 1989); Memo: Takeover Response Checklist (May 8, 1990); Memo: Takeover Response Checklist (Mar. 18, 1994); Memo: Takeover Response Checklist (Feb. 1, 1995); Memo: Takeover Response Checklist (Mar. 1, 1995); Memo: Takeover Response Checklist (May 1, 1996); Memo: Takeover Response Checklist (May 1, 1997); Memo: Takeover Response Checklist (Apr. 10, 1998); Memo: Takeover Response Checklist (July 6, 1998); Memo: Takeover Response Checklist (Jan. 1, 1999); Memo: Takeover Response Checklist (Nov. 1, 1999); Memo: Takeover Response Checklist (Feb. 15, 2000); Memo: Takeover Response Checklist (Jan. 15, 2001); Memo: Takeover Response Checklist (May 25, 2001); Memo: Takeover Response Checklist (Nov. 1, 2001); Memo: Takeover Response Checklist (May 1, 2002).
³³⁶ Memo: Attacks by Activist Hedge Funds (Mar. 7, 20).
³³⁷ Memo: Deconstructing American Business (Apr. 10, 2006), at 1, 2.
³³⁸ Memo: Deconstructing American Business (Apr. 10, 2006). In conjunction with his work on proxy proposals, Bebchuk published a proposal for a novel electoral scheme designed to encourage contested elections, The Myth of the Shareholder Franchise, 93 Va. L. Rev. 675 (2007), which Lipton and his colleague William Savitt described as “the most recent salvo in [his] twenty-year campaign to recast the corporate law of Delaware in the image of his own writings.” Martin Lipton & William Savitt, The Many Myths of Lucian Bebchuk, 93 Va. L. Rev. 733 (2007).
³³⁹ Martin Lipton, Down with Shareholder Activism: Give Power Back to the Directors, The Conference Board Review at 36 (May/June 2007).
³⁴⁰ Memo: There Is No Connection Between Corporate Governance and Corporate Performance (Dec. 20, 2007) (citing Sanjai Bhagat, Brian Bolton & Roberta Romano, The Promise and Peril of Corporate Governance Indices (ECGI-Law, Working Paper No. 89/2007), https://papers.ssrn.com/sol3
/papers.cfm?abstract_id=1019921).
³⁴¹ Memo: Corporate Governance Ratings Debunked (July 24, 2008) (citing Robert Daines, Ian Gow & David Larcker, Rating the Ratings: How Good Are Commercial Governance Ratings, 98 J. Fin. Econ. 439 (2010), https://doi.org/10.1016/j.jfineco.2010.06.005).
³⁴² See, e.g., Memo: Board of Directors Guidelines on Corporate Governance Issues (June 7, 1994).
³⁴³ Memo: Directors Face-to-Face Meetings with Institutional Investors on Corporate Governance Policies and Practices (June 28, 2007).
³⁴⁴ Memo: Directors Face-to-Face Meetings with Institutional Investors on Corporate Governance Policies and Practices (June 28, 2007).
³⁴⁵ Memo: Some Thoughts for Boards of Directors in 2007 (Dec. 1, 2006), at 1.
³⁴⁶ Memo: Deconstructing American Business II (Nov. 1, 2006), at 1, 4-5 (“Directors of large public corporations bear the weight of tremendous responsibility. The situations they face and the decisions they must make are complex and nuanced and require the willingness to take risk, all the while knowing that failure may have devastating consequences for shareholders, employees, retirees, communities and even the economy as a whole. We cannot afford continuing attacks on the board of directors. It is time to recognize the threat to our economy and reverse the trend.”).
³⁴⁷ See Memo: Deconstructing American Business II (Nov. 1, 2006 ). .
³⁴⁸ See Martin Lipton, Keynote Address at Univ. of Minn. L. Sch.: Shareholder Activism and “The Eclipse of the Public Corporation.” Is the Current Wave of Activism Causing Another Tectonic Shift in the American Corporate World? (June 25, 2008).
³⁴⁹ Lipton was equally critical of the converse: hedge funds’ emerging practice of using derivatives to accumulate substantial economic stakes without triggering 13(d) disclosure requirements. See Lipton, Shareholder Activism and the “Eclipse of the Public Corporation.”
³⁵⁰ Martin Lipton, Jay W. Lorsch & Theodore N. Mirvis, Schumer’s Shareholder Bill Misses the Mark, Wall St. J., May 12, 2009.
³⁵¹ Lipton, Lorsch & Mirvis, Schumer’s Shareholder Bill Misses the Mark. 352 Lipton, Shareholder Activism and the “Eclipse of the Public Corporation.” at 12.
³⁵³ Memo: Current Thoughts About Activism, Revisited (Apr. 7, 2014), at 2-3.
³⁵⁴ Lipton continued to urge boards to be active and engaged, and he cited European efforts to improve corporate governance along the lines of U.S. reforms. See Memo: Qualifications and Evaluations of Directors and Boards (Apr. 8 2011).
³⁵⁵ Memo: Corporate Governance Adrift (Mar. 16, 2011), at 1.
³⁵⁶ Memo: The ISS Hewlett-Packard Decision: Another Form-Over-Substance Decision and Another Effort to Promote the Idea that the Principal Function of the Board is to Monitor the CEO (Mar. 11, 2011).
³⁵⁷ Memo: Comments on the SEC’s Proxy Plumbing Concept Release (Oct. 19, 2010), at 6, 9 (attaching SEC Comment Letter), https://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.18008.10.pdf.
³⁵⁸ Memo: Some Thoughts for Boards of Directors in 2011 (Dec. 8, 2010), at 2.
³⁵⁹ Memo: Some Thoughts for Boards of Directors in 2011 (Dec. 8, 2010), at 2.
³⁶⁰ Memo: Beneficial Ownership of Equity Derivatives and Short Positions–A Modest Proposal to Bring the 13D Reporting System into the 21st Century (Mar. 3, 2008), at 1, https://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.15395.08.pdf.
³⁶¹ Memo: Call for Modernization of the Section 13 Beneficial Ownership Reporting Rules (Mar. 7, 2011) (attaching Wachtell Lipton rulemaking petition), https://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.18403.11.pdf.
³⁶² Air Prods. & Chems., Inc. v. Airgas, Inc., 16 A.3d 48 (Del. Ch. 2011).
³⁶³ Airgas Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182 (Del. 2010), rev’g 2010 WL 3960599 (Del. Ch. Oct. 8, 2010).
³⁶⁴ Airgas, 16 A.3d at 54-55 (quoting TW Servs., Inc. v. SWT Acquisition Corp., 1989 WL 20290, at *8 (Del. Ch. Mar. 2, 1989).
³⁶⁵ Airgas, 16 A.3d at 55.
³⁶⁶ Airgas, 16 A.3d at 58.
³⁶⁷ Airgas, 16 A.3d at 112 n.430.
³⁶⁸ Airgas, 16 A.3d at 122 n.480.
³⁶⁹ Airgas, 16 A.3d at 126 n.504.
³⁷⁰ Airgas, 16 A.3d at 126-27; Martin Lipton, Pills, Polls, & Professors Redux, 69 U. Chi. L. Rev. 1037, 1065 (2002) (emphasis added).
³⁷¹ Airgas, 16 A.3d at 126-127.
³⁷² Tr. of Suppl. Evidentiary Hr’g Closing Args. at 27, Air Prods. & Chem., Inc. v. Airgas, Inc., C.A. No. 5249-CC (Del. Ch. Feb. 8, 2011).
³⁷³ Tr. of Suppl. Evidentiary Hr’g Closing Args. at 66-67, Air Prods. & Chem., Inc. v. Airgas, Inc., C.A. No. 5249-CC (Del. Ch. Feb. 8, 2011).
³⁷⁴ Tr. of Suppl. Evidentiary Hr’g Closing Args. at 68-69, Air Prods. & Chem., Inc. v. Airgas, Inc., C.A. No. 5249-CC (Del. Ch. Feb. 8, 2011), citing Lipton, Corporate Governance in the Age of Finance Corporatism, 36 U. Penn. L. Rev. 1 (1987).
³⁷⁵ Tr. of Suppl. Evidentiary Hr’g Closing Args. at 65-66, Air Prods. & Chem. Inc. v. Airgas, Inc., C.A. No. 5249-CC (Del. Ch. Feb. 8, 2011). In response, Airgas’s counsel commended all of Lipton’s writings to the Court, and reviewed the context of Lipton’s various reshaping proposals and the various elements Lipton had proposed to change in order to make pills unnecessary, see Tr. of Suppl. Evidentiary Hr’g Closing Args. at 255-58, Air Products & Chem. Inc. v. Airgas, Inc., C.A. No. 5249-CC (Del. Ch. Feb. 8, 2011).
³⁷⁶ Memo: Delaware Court Reaffirms the Poison Pill and Directors’ Power to Block Inadequate Offers (Feb. 16, 2011).
³⁷⁷ Memo: Delaware Court Reaffirms the Poison Pill and Directors’ Power to Block Inadequate Offers (Feb. 16, 2011).
³⁷⁸ Airgas, 16 A.3d at 109 n.414, 111.
³⁷⁹ Airgas, 16 A.3d at 110 n.419.
³⁸⁰ S&P 500 Classified Board Trend Analysis, FactSet. Staggered boards were more prevalent in the 1990s; according to Investor Responsibility Research Center (IRRC) reports, the number of S&P 500 companies with staggered boards in the second half of the 1990s hovered around 300. See Jason D. Montgomery, IRRC Corporate Governance Service 1998 Background Report C: Classified Boards, IRRC, Mar. 3, 1998; Russell Reynolds Assocs. & The Inv. Responsibility Res. Ctr., The Structure of Boards at S&P 1500 Companies, 7 Corp. Governance 92 (1999).
³⁸¹ Memo: Harvard’s Shareholder Rights Project is Wrong (Mar. 21, 2012).
³⁸² Memo: Harvard’s Shareholder Rights Project is Still Wrong (Nov. 28, 2012).
³⁸³ In 2010, 65 companies in the S&P 500 had poison pills in force. That number dropped to 20 in 2015 and to 8 in 2020. S&P 500 Poison Pills in Force at Year End, FactSet. In fact, the adoption of poison pills had reached its high-water mark in the mid-1990s. According to Investor Responsibility Research Center (IRRC) reports, 333 companies in the S&P 500 had poison pills in place in 1994; by 2000, this number had fallen slightly to 300. See Patrick S. McGurn, Corporate Governance Service, 1995 Background Report: Poison Pills, IRRC, Jan. 3, 1995; Grant A. Gartman, Corporate Governance Service, 2000 Background Report E: Poison Pills, IRRC, Mar. 6, 2000. The marked drop after the turn of the millennium was due at least in part to the recognition around that time that poison pills could be drafted and available for quick, easy adoption by the board if the need arose. See, e.g., John C. Coates, IV, Takeover Defenses in the Shadow of the Pill: A Critique of the Scientific Evidence, 79 Tex. L. Rev. 271, 286-87 (2000).
³⁸⁴ Memo: Disintermediating the Proxy Advisory Firms: BlackRock Takes the Lead (Jan. 19, 2012).
³⁸⁵ K. J. Martijn Cremers, Lubomir P. Litov & Simone M. Sepe, Staggered Boards and Firm Value, Revisited, 126 J. Fin. Econ. 422 (2017); Memo: New Empirical Studies Support Director-Centric Governance (Dec. 8, 2013).
³⁸⁶ Lynn Stout, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public, Introduction (2012).
³⁸⁷ See, e.g., Memo: The Bebchuk Syllogism (Aug. 26, 2013); Memo: A New Paradigm for Corporate Governance (Sept. 18, 2015).
³⁸⁸ See, e.g., Lucian Bebchuk, Alon Brav & Wei Jiang, The Long-Term Effects of Hedge Fund Activism, 115 Colum. L. Rev. 1085 (2015); Lucian Bebchuk, Alon Brav & Wei Jiang, Don’t Run Away from the Evidence: A Reply to Wachtell Lipton, H.L.S. F. on Corp. Gov. (Sept. 17, 2013), https://corpgov.law.harvard.edu/2012/06/26/the-shareholder-value-myth/.
³⁸⁹ See Ronald J. Gilson & Jeffrey N. Gordon, The Agency Costs of Agency Capitalism: Activist Investors & the Revaluation of Governance Rights, 113 Colum. L. Rev. 863, 867 (2013) (“In this analysis, the activist shareholders are governance intermediaries: They function to monitor company performance and then to present to companies and institutional shareholders concrete proposals for business strategy through mechanisms less drastic than takeovers. These activists gain their power not because of their equity stakes, which are not controlling, but because of their capacity to present convincing plans to institutional shareholders, who ultimately will decide whether the activists’ proposed plan should be followed.”).
³⁹⁰ See Memo: Empiricism and Experience; Activism and Short-Termism; the Real World of Business (Oct. 25, 2013) (hereinafter “Empiricism and Experience”). Lipton cited, for example, Philip H. Dybvig & Mitch Warachka, Tobin’s Q Does Not Measure Firm Performance: Theory, Empirics, and Alternative Measures (Mar. 2015), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1562444; Jonathan Macey & Elaine Buckberg, Report on Effects of Proposed SEC Rule 14a-11 on Efficiency, Competitiveness and Capital Formation, NERA Economic Consulting (Aug. 17, 2009), https://www.nera.com/upload/Buckberg_Macey_Report_FINAL.pdf; David Ikenberry & Josef Lakonishok, Corporate Governance Through the Proxy Contest, 66 J. Bus. 405 (1993); Michael J. Fleming, New Evidence on the Effectiveness of the Proxy Mechanism, Fed. Res. Bank of N.Y. (Mar. 1995), https://www.newyorkfed.org/medialibrary/media/research/staff_reports/research_papers/9503.pdf; Lisa F. Borstadt & Thomas J. Zwirlein, The Efficient Monitoring Role of Proxy Contests: An Empirical Analysis of Post-Contest Control Changes and Firm Performance, 21 Fin. Mgmt. 22 (1992); Robin Greenwood & Michael Schor, Investor Activism & Takeovers, 92 J. Fin. Econ. 362 (2009); Sunil Wahal, Pension Fund Activism & Firm Performance, J. Fin. & Quantitative Analysis (Mar. 1996); Joao Dos Santos & Chen Song, Analysis of the Wealth Effects of Shareholder Proposals -Vol. II, U.S. Chamber of Commerce & Navigant Consulting (May 18, 2009), https://www.uschamber.com/sites/default/files/documents/files/analysis_wealth_effects_volume2.pdf; Allan T. Ingraham & Anna Koyfman, Analysis of the Wealth Effects of Shareholder Proposals, Vol. III, U.S. Chamber of Commerce & Navigant Consulting (May 2, 2013), http://op.bna.com.s3.amazonaws.com/dlrcases.nsf/r%3FOpen%3dmroe-97btgd; Andrew Prevost & Ramesh P. Rao, Of What Value Are Shareholder Proposals Sponsored by Public Pension Funds?, 73 J. Bus. 177 (2000), https://www.jstor.org/stable/10.1086/209639?seq=1#metadata_info_tab_contents; and Jonathan M. Karpoff, Paul H. Malatesta & Ralph A. Walkling, Corporate Governance and Shareholder Initiatives: Empirical Evidence, J. Fin. Econ. (1996).
³⁹¹ Memo: Important Questions About Activist Hedge Funds (Mar. 8, 2013), at 1 (“The boot-strap, bust-up, junk-bond takeovers of the 70’s and early 80’s proceeded unchecked and laid waste to the future of many great companies, all cheered on by the academics and aided by do-nothing regulators. The new incarnation of sacrificing the future for a quick buck is at least as dangerous. It requires new thinking to address the new threat.”).
³⁹² Although Lipton was opposed to any form of governance by referendum, he had been careful to make it clear that he did not view all forms of investor engagement as harmful:

Memo: Empiricism and Experience; Activism and Short-Termism; the Real World of Business (Oct. 25, 2013), at 15-16 (citing The Kay Review of UK Equity Markets and Long-Term Decision Making – Final Report (July 2012), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/253454/bis-12-917-kay-review-of-equity-markets-final-report.pdf). (hyperlink?)
³⁹³ Memo: Some Lessons from BlackRock, Vanguard and DuPont — A New Paradigm for Governance (June 29, 2015).
³⁹⁴ Memo: A New Paradigm for Corporate Governance (Sept. 18, 2015) (citing Catan & Marcel Kahan, The Law and Finance of Anti-Takeover Statutes, Oct. 2014; Yvan Allaire & François Dauphin, The Game of ‘Activist’ Hedge Funds: Cui Bono?,” 13 Int’l J. Disclosure Gov. 279 (Nov. 9, 2015); and John C. Coffee & Darius Palia, The Wolf at the Door: The Impact of Hedge Fund Activism on Corporate Governance (Colum. L. & Econ., Working Paper No. 521, 2015).
³⁹⁵ Memo: Will a New Paradigm for Corporate Governance Bring Peace to the Thirty Years’ War? (Oct. 2, 2015), at 10 (citing Leo E. Strine, Jr., Can We Do Better by Ordinary Investors? A Pragmatic Reaction to the Dueling Ideological Mythologists of Corporate Law, 114 Colum. L. Rev. 449 (2014)).
³⁹⁶ See, e.g., Memos: The New Paradigm for Corporate Governance (Feb. 1 & Mar. 7, 2016).
³⁹⁷ See, e.g., Coffee & Palia, supra note 109, at 106 (“[W]e must observe that the case for strengthening shareholder power on the premise that any such shift will always enhance economic efficiency is far from self-evident. A generation of legal academics has too quickly equated optimal corporate governance with maximizing shareholder power.”) & n. 262 (“For a largely unqualified endorsement of shifting the balance of power towards shareholders, see Lucian A. Bebchuk, The Case for Increasing Shareholder Power, 118 Harv. L. Rev. 833 (2005).”), https://ssrn.com/abstract=2636325.
³⁹⁸ Professor Stout argued that board control was essential in order for public companies to promote long-term investment, secular economic growth, and intergenerational equity and efficiency: Without board control, public corporations become delicate creatures. All it takes is a stock market that temporarily undervalues the company’s shares, and some short-term shareholders may pressure the board to abandon its long-term plans and instead pursue strategies calculated to produce immediate share price gains. Short-term investors, like activist hedge funds, may even target the company and acquire its shares in order to push for such strategies. If the company’s board is not insulated from such pressures, it is likely to abandon its long-term plans. Indeed, anticipating short-term shareholders’ demands, boards that are too vulnerable to shareholder influence will not attempt long-term investments in the first place.
Lynn Stout, The Corporation as Time Machine, H.L.S. F. on Corp. Gov. (Mar. 25, 2015), https://corpgov.law.harvard.edu/2015/03/25/the-corporation-as-time-machine/ (article based on Lynn Stout, The Corporation as Time Machine: Intergenerational Equity, Intergenerational Efficiency, and the Corporate Form, 38 Seattle U. L. Rev. 685 (2015).
³⁹⁹ Memo: Succeeding in the New Paradigm for Corporate Governance (Mar. 14, 2016), at 1.
⁴⁰⁰ Memo: Succeeding in the New Paradigm for Corporate Governance (Mar. 14, 2016), at 1.
⁴⁰¹ Memo: The New Paradigm for Corporate Governance (Feb. 1, 2016) (emphasis omitted).
⁴⁰² Martin Lipton, The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, International Business Council of the World Economic Forum, Sept. 2, 2016.
⁴⁰³ Lipton had continued to highlight for clients any significant international developments that coincided with his views, such as a U.K. report issued by leading British institutional investors detailing their plans for curbing short-termism and encouraging long-term investment (see Memo: An Important British Version of a New Paradigm for Corporate Governance (Mar. 14, 2016) (citing Supporting U.K. Productivity with Long-Term Investment, The Inv. Assoc.))) and a speech by then-incoming Prime Minister Theresa May on the importance of long-term-oriented stakeholder governance (see Memo: Corporate Governance — A New Paradigm from the U.K. (July 11, 2016)). A new Dutch Corporate Governance Code, issued in 2016, emphasized long-term value creation, transparency, and stakeholder interests (see Memo: The Dutch Corporate Governance Code and The New Paradigm (Dec. 12, 2016)). Lipton also cited with approval a U.K. paper describing directors’ duties that promoted consideration of stakeholder interests, suggesting that the United States would be well served by a similar set of core principles (see Memo: Corporate Governance: Stakeholders (Sept. 29, 2017) (citing The Stakeholder Voice in Board Decision Making, The Inv. Assoc. (2017)).
⁴⁰⁴ See, e.g., Memo: Corporate Governance — The New Paradigm (Aug. 31, 2017); Memo: BlackRock Supports Stakeholder Governance (Jan. 16, 2018).
⁴⁰⁵ Memo: Corporate Governance — The New Paradigm — A Better Way Than Federalization (Aug. 17, 2018).
⁴⁰⁶ Memo: Capitalism at an Inflection Point (Feb. 14, 2019).
⁴⁰⁷ Memo: Corporate Governance (Apr. 18, 2017), at 3. Lipton endorsed state law action such as Pennsylvania’s constituency statute, but he regarded that path as less effective than broad acceptance of the principles of stakeholder governance in the private sector (“While wider adoption and strengthening of laws like the Pennsylvania statute would provide some more ability to boards of directors to temper short-termism and resist attacks by activist hedge funds, voting control of corporations will remain in the hands of the major institutional investors and asset managers.”). Memo: Corporate Governance (Apr. 18, 2017), at 3.
⁴⁰⁸ Memo: A Synthesized Paradigm for Corporate Governance, Investor Stewardship, and Engagement (Apr. 4, 2017).
⁴⁰⁹ The original and updated versions of Commonsense Principles of Corporate Governance are available at www.governanceprinciples.org. Lipton also took note of the Business Roundtable’s Principles of Corporate Governance, the Investor Stewardship Group’s Stewardship Principles and Corporate Governance Principles, and BlackRock’s Engagement Priorities for 2017-2018.
⁴¹⁰ Memo: A Synthesized Paradigm for Corporate Governance, Investor Stewardship, and Engagement (Apr. 4, 2017).
⁴¹¹ Memo: Corporate Governance (Apr. 18, 2017) (citing Joseph L. Bower & Lynn S. Paine, The Error at the Heart of Corporate Leadership, Harv. Bus. Rev. (May-June 2017), https://hbr.org/2017/05/the-error-at-the-heart-of-corporate-leadership).
⁴¹² Martin Lipton, Takeover Bids in the Target’s Boardroom, 35 Bus. Law. 101, 115 (1979).
⁴¹³ Martin Lipton & Steven A. Rosenblum, A New System of Corporate Governance: The Quinquennial Election of Directors, 58 U. Chi. L. Rev. 187, 189 (1991).
⁴¹⁴ Statement of Business Roundtable, Business Roundtable Redefines the Purpose of a Corporation to Promote “An Economy that Serves All Americans” (Aug. 19, 2019), https://www.businessroundtable.org
/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans.
⁴¹⁵ Memo: Business Roundtable Embraces Stakeholder Corporate Governance (Aug. 19, 2019).
⁴¹⁶ Memo: Stakeholder Corporate Governance: Business Roundtable and Council of Institutional Investors (Aug. 20, 2019).
⁴¹⁷ Memo: Stakeholder Governance — Issues and Answers (Oct. 24, 2019), at 3 (referencing Roberta Romano, Less is More: Making Institutional Shareholder Activism a Valuable Mechanism of Corporate Governance, 18 Yale J. Reg. (2001).
⁴¹⁸ Memo: A Framework for Management and Board of Directors Consideration of ESG and Stakeholder Governance (June 3, 2020). .
⁴¹⁹ Lucian Bebchuk & Roberto Tallarita, The Illusory Promise of Stakeholder Governance, 106 Cornell L. Rev. 91, 95-96 (2020), https://cornelllawreview.org/2020/12/01/the-illusory-promise-of-stakeholder-governance-2/.
⁴²⁰ Memo: Professor Bebchuk’s Errant Attack on Stakeholder Governance (Mar. 3, 2020), at 1. In answering Professor Bebchuk, Lipton observed that, insofar as shareholders were concerned, they were in fact the beneficiaries in a governance system that took broader interests into account: Memo: Purpose, Stakeholders, ESG and Sustainable Long-Term Investment (Dec. 23, 2019), at 3.
⁴²¹ Colin Mayer, Shareholderism Versus Stakeholderism – a Misconceived Contradiction. A Comment on “The Illusory Promise of Stakeholder Governance” by Lucian Bebchuk and Roberto Tallarita, H. L.S. F. on Corp. Gov. (Feb. 17, 2021), https://corpgov.law.harvard.edu/2021/02/17/shareholderism-versus-stakeholderism-a-misconceived-contradiction-a-comment-on-the-illusory-promise-of-stakeholder-governance-by-lucian-bebchuk-and-roberto-tallarita/ (based on Colin Mayer, Shareholderism Versus Stakeholderism – a Misconceived Contradiction. A Comment on “The Illusory Promise of Stakeholder Governance” by Lucian Bebchuk and Roberto Tallarita (Eur. Corp. Gov. Inst., Law Working Paper No. 522, 2020), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3617847.
⁴²² Colin Mayer, Reinventing the Corporation, 4 J. Brit. Acad. 53, 53 (2016), https://www.thebritishacademy.ac.uk/documents/1613/03_Mayer_1825.pdf.
⁴²³ See Memo: The Purpose of the Corporation (Apr. 10, 2018) (an important memo on corporate purpose reflecting this history).
⁴²⁴ William T. Allen & Leo E. Strine, Jr., When the Existing Economic Order Deserves a Champion: The Enduring Relevance of Martin Lipton’s Vision of the Corporate Law, 60 Bus. Law. 1383, 1385 (2005).
⁴²⁵ Quoting Alison Taylor & Dina Medland, The Illusion of Reasoning, H.L.S. F. on Corp. Gov. (Sept. 6, 2020), https://corpgov.law.harvard.edu/2020/09/06/the-illusion-of-reasoning/.
⁴²⁶ Memo: The Friedman Essay and the True Purpose of the Business Corporation (Revised) (Sept. 17, 2020).