Activist Holders: Security Threat

Corporate lawyer Marty Lipton, widely credited with inventing the "poison pill" takeover defense in 1982, has never cared much for activist investors or other threats to the sanctity of the boardroom. Time has largely washed his viewpoint away. Courts, Congress, regulators and boards themselves all are giving holders more power. In an address June 25 at the University of Minnesota School of Law, he wondered aloud whether the move to shareholder-centric governance will "simply overwhelm American business corporations." For Mr. Lipton, this has adverse effects: Boards' ability to recruit quality directors, greater isolation of CEOs, nettlesome regulatory duties. But the most provocative threat of all: "The board-centric model of governance is premised on the notion that boards merit the vote of confidence of shareholders and the public markets, and notwithstanding the strong current of distrust that runs through many corporate-governance reforms, history has proven this vote of confidence to be well-deserved. I believe it is the only way to assure that public corporations will be able to compete with the state corporatism that is transforming the economies of China, Russia and other rapidly industrializing countries, cope with the demands for short-term (and shortsighted) stock gains by activist hedge funds and make the long-term investments in the future of their businesses that are essential for future prosperity of our nation."