Marty Lipton has waged many battles against activist investors. He speaks to Brunswick about the latest trends in that war
For half a century Marty Lipton has been the defender of choice for companies under attack by an activist investor. That has been his specialty since he graduated from the New York University School of Law in 1955. The inventor of the “poison pill” strategy for thwarting hostile takeovers, he published a landmark article in 1979 on the responsibility of board members to stakeholders other than shareholders. A 1992 article he co-authored, “A modest proposal for improved corporate governance,” became the template for basic corporate governance principles that were adopted in the 1990s.
Far from slowing down at 86, he has become an important adviser to lawyers and board members in Europe, where activism recently has taken root. From the Midtown New York offices of the law firm he founded in 1965, Wachtell, Lipton, Rosen & Katz, Lipton reiterated his long-standing arguments against activism, while noting that the battle has taken some recent turns. What follows are the thoughts he expressed in that interview along with select excerpts from previous conversations with Brunswick.
Have activists become an ordinary and less acrimonious part of the corporate landscape?
Yes and no. Certainly the acrimony has increased with activists like Paul Singer and Bill Ackman, and the number of activists has increased. Most institutional investors are not terribly affected by acrimony. But some of the activists feel that acrimony is essential to achieve their efforts. It’s hard to generalize. There are 15 or so major activists and another 100 or so more. They have different targets and different strategies. Some activists who had a very aggressive strategy have changed and are much more cooperative. I think probably the single most significant development has been that some of the major activists have essentially shifted so they no longer promote financial engineering or short-term changes. Some are basically looking to invest to help a company change its strategy. Sometimes to improve it. And they’ve had quite a bit of success doing it. It’s sort of like an old-fashioned merchant bank having a significant investment in a company and trying to help it on a long-term basis. I call them pro-bono management consultants.
Are boards open to that or resisting it?
The P&G board resisted it with Trian last year. But some boards have encouraged it or at least accepted it.
I’m guessing your advice would depend on the case?
Depends on the case. Unless a company is quite comfortable that it could win, it’s usually a mistake to go into a proxy fight. Even if it’s won, a close vote sets up a situation where any downturn, any problem, could result in a change of leadership. It’s not helpful to management to have a proxy fight that comes out, even if you win it, you know, 52-48, something like that. That just shows that 48 percent of the shareholders are not satisfied with the way the company is being managed.
Unless a company is comfortable that it’s going to win a proxy fight by a large margin, it should not undertake one. It’s better to settle the matter and put one or two new directors on the board.
In other cases where the activist is promoting something that’s untenable, or something the company feels runs contrary to the best interests of shareholders, then the company is basically forced to defend a proxy fight and should do so, but always keeping in mind that a close win is the equivalent of a loss.
The most important thing is that the company has a very good IR effort and a real understanding of what its principal shareholders are thinking. What is their evaluation of the company? What is their opinion of management? On the basis of that information, the company can make the right decision as to whether to settle or to fight.
Are you more often recommending that boards negotiate with activists?
Not really. About the same. I have one message: activism is a disaster for the economy. And unless that gets played back, we are condemning ourselves to low growth – or no growth.
Is demand for your and your firm’s counsel as strong as ever?
I’d say it’s as high as it’s ever been, maybe even a little higher.
As activism spreads across Europe, is your counsel in demand there?
Europe hadn’t experienced activism, and now there’s a sharp increase in it not just in Europe but around the world. Publicly traded stocks on stock exchanges everywhere are subject to activism.
I would say the trajectory for activism outside the United States is at a higher rate than the growth of activism in the US. While we don’t operate in other countries, we’ve had a significant number of situations where companies outside the US have come to us for help in dealing with an activist situation in their country.