Wachtell, Lipton, Shareholder Access, and Diatribes in Place of Analysis

In the realm of shareholder access, one of the loudest voices against the approach has been the well known law firm, Wachtell Lipton.  The letter (signed only by Wachtell, Lipton, Rosen & Katz, apparently everyone in the firm either worked on it or agreed with the content) contained 16 pages of analysis (the actual letter was 32 pages because the firm was kind enough to attach a comment letter from a similar proposal written in 2003).   So what's in the letter?  Rather than dispassionate legal analysis, the letter is very much a diatribe.  Take this paragraph.

• For the past twenty years, the activist governance lobby, primarily made up of ISS-type advisors, short-term hedge fund "activists" and academics, and emboldened since 2002 by the Enron-WorldCom scandals and the legislative and regulatory aftermath, has been seeking to destroy the director-centric model of corporate governance. This lobby seeks to replace the director-centric model with a simplistic rule that the shareholders at any given moment own every thing and therefore have the power to decide everything in their own interests. The governance lobby uses the "shareholder as owner" refrain as an unspoken axiom to present shareholder power as an intrinsic right. 

Anomalous comments?  Not really.  Those favoring access are described in this fashion:

• The moving forces behind these attacks -for-profit corporate governance advisors and tenured academics -have no direct stake in the success or failure of American business or American capital markets.
• These activist groups are driven by their own rational self-interest.
• It is all about power - is all power in the hands of shareholders because they are the "owners" of the corporation, or is power to run the company to be entrusted to boards of director, subject to legal and real-world constraints?
• It is worth noting, also, how out of touch the agenda advanced by the corporate governance lobby is with the genuine problems facing American business.
• With this background, the governance lobby's campaign to allow activists to place dissident board nominees in a corporation's proxy statement can be understood as part of the broader campaign to usurp the traditional and legal prerogatives of directors and create more leverage for the activists to impose their will on public companies.

Is this diatribe really necessary?  Remember that the access proposal would do nothing more than allow shareholders to submit a bylaw to shareholders that if adopted would permit some shareholders to include nominees in the company's proxy statement.  Remember further that we have been operating under a legal regime that permits these bylaws for the last year.  The Second Circuit struck down the prohibition in AFSCME and for one proxy season they have been allowed.  The results?  Three have been voted upon, only one has been adopted.  Two companies have adopted them voluntarily. 

Yet the Wachtell Lipton letter (and presumably the entire firm) more or less brands those who favor access (out of a desire to increase director accountability) something akin to economic terrorists, seeking "to destroy the director-centric model of corporate governance."  But here is the greatest irony of all.  Perhaps the central argument for opposing access?  There have been a bevy of reforms that make access unnecessary.  According to the letter:

• A further irony of the governance lobby's campaign for proxy access is that shareholders today have more avenues than ever for communicating with boards and management, providing input into the nomination process, and even running their own proxy contests without use of the company's proxy statement. 

The irony is on Wachtell Lipton.  These reforms came about from the same group of people that the letter challenges as destroying corporate America.  

In ancient Sparta, the side that was the loudest would often carry the day.  That is no longer the case.  A letter that contained more dispassionate analysis and was less of a polemic would have been more convincing. 

Is this letter an anomaly?  Apparently not.  Take a look at the post on the M&A Law Prof Blog about "legal" memorandum issued by Wachtell.  As the post noted: 

• "The new generation at Wachtell is continuing to take the pro-board stances Marty Lipton has historically taken.  These memos often set out an ideological position on this side of the fence.  This is likely good business -- Wachtell is still the go-to law firm for takeover defense.  But, I'm not sure that the new generation is making their case in the same thoughtful manner.  Moreover, is Wachtell necessarily serving their clientele well by taking an ideological stance in a client memo and asserting it as truth to their clients?" 

Good question.