Gretchen Morgenson Has Eaten Her Wheaties, and Tears into Marty Lipton...

Marty Lipton has driven the New York Times's Gretchen Morgenson into shrillness:

Memo to Shareholders: Shut Up - New York Times: TO all those public company shareholders who are trying to make directors more accountable to owners and more watchful over executives: Cheer up. Your efforts seem to be gaining genuine traction. How do we know? Martin Lipton told us so... founding partner of Wachtell, Lipton, Rosen & Katz... invented the poison pill.... More recently, Mr. Lipton has become the apologist for embattled chief executives who don't like shareholders sounding off on excessive pay and cozy boards.

Last week, he sounded a grave warning at the 25th annual Institute on Federal Securities in Miami. "Today shareholder activism is ripping through the boardrooms of public corporations and threatening the future of American business."... Directors are under siege, he averred, thanks to shareholder activists.... Finally, Mr. Lipton thundered: "We cannot afford continuing attacks on the board of directors. It is time to recognize the threat to our economy and reverse the trend."... Mr. Lipton also asked such fundamental questions as whether qualified people would agree to serve as directors in the current environment and whether directors would become so risk-averse that their companies would suffer.

Those are both worthwhile topics for a reasoned, probing discussion. But the sheer desperation in Mr. Lipton's speech... may have been the best proof yet that shareholders' rightful demands to make directors more accountable are getting results. Mr. Lipton did not return a phone call seeking comment....

"It's almost like listening to a small boy who has lost his favorite toy--in this case the poison pill"... said Herbert A. Denton, president of Providence Capital in New York... adviser to minority shareholders....

If the public corporation is an endangered species, as Mr. Lipton argued, it is not because of shareholders. Those who owned stock in Enron, WorldCom, Adelphia and Tyco did not create the scandals that rocked those companies and sowed mistrust among others. Selfish managers and passive directors did that work handily. Almost everyone gets nostalgic, of course. And Mr. Lipton may pine for the days when the poison pill reigned supreme, his chief-executive clients were safe and boards resided quietly in their Amen corner...

Comments

[jm]

Dang shareholders -- acting like they think they own the company!

[howard]

the thing that most amazed me is lipton's assertion that "qualified" people are now becoming directors, which, on the evidence, is completely untrue.

unless, of course, "qualified" means "qualified" not to rock the boat....

[Justin]

Lipton is right--agitating shareholders are getting too powerful in the boardroom and making boards more risk advers. Shareholders do not "own" the corporation in the traditional sense of the word. If they don't like how the corporation is being run, they can sell their stock.

[David Lloyd-Jones]

I find this stuff great fun because I and my children have recently become major shareholders in two companies where the divergence of management's and shareholders's interests are particularly sharp.

Justin, above, speaks for some people who cut and run for the exits when things get interesting; the fact that there are chickens out there means that interesting investments occasionally become very cheap. Color me vulture. We eat dead chickens.

An interesting economic sidelight: the profits of vulture capitalists may be thought of as the monetization of the value of the tax write-off on an apparently bad investment. The Justins cut and run, getting paid back by the taxpayer; people who can stand the heat enter the kitchen and pick up the goodies. Think of it as rounding off the meal with just desserts.:-)

[anne]

Precisely, David; agitation in the boardroom please :)

[Justin]

David, what are you talking about? I'm not sure how your comment is relevant here. If you think that your time is well spent being an activist shareholder, more power to you. But, I'm not sure that I want large shareholders (like you) empowered by the government to direct the business and affairs of public corporations.

[howard]

Justin, what do you mean "empowered by the government?" shareholders do "own" the corporation in any sense you'd care to mention, and insofar as they are "empowered by the government," it's because ownership, in this society, has its privileges.