Empiricism and Experience; Activism and Short-Termism; the Real World of Business

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2013-10-28


Editor's Note: Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton that replies to a post published by Professor Lucian Bebchuk, available here, which in turn responds to two Wachtell Lipton memoranda posted by Martin Lipton, available on the Forum here and here. These memoranda criticize the recently-issued empirical study by Bebchuk, Brav, and Jiang on the long-term effects of hedge fund activism. The study is available here, and its results are summarized in a Forum post and in a Wall Street Journal op-ed article.

Harvard Law School Professor Lucian Bebchuk believes that shareholders should be able to control the material decisions of the companies they invest in. Over the years, he has written numerous articles expressing this view, including a 2005 article urging that shareholders should have the power to initiate a shareholder referendum on material corporate business decisions. In addition to his writings and speeches, Prof. Bebchuk has established and directs the Shareholder Rights Project at Harvard Law School for the purpose of managing efforts to dismantle classified boards and do away with other charter or bylaw provisions that restrain or moderate shareholder control of corporations (see “Harvard’s Shareholder Rights Project is Wrong” and “Harvard’s Shareholder Rights Project is Still Wrong”). In addition, Prof. Bebchuk has been at the forefront in arguing to the SEC that, despite the specific action of Congress in 2010 to empower the SEC to adopt a rule to require fair and prompt public disclosure of accumulations of shares by activist hedge funds and other blockholders, the SEC should not do so because it would limit the ability of activist hedge funds to attack corporations. In short, Prof. Bebchuk believes that shareholders should have the power to control the fundamental decisions of corporations—even those shareholders who bought their shares only a few days or weeks before they sought to assert their power, and regardless of whether their investment objective is short-term trading gains instead of long-term value creation.

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Martin Lipton, Wachtell, Lipton, Rosen & Katz,

Date tagged:

10/28/2013, 09:50

Date published:

10/28/2013, 09:40