Law Firms Issue Opposing Memos on Board and Shareholder Interaction

Holly J. Gregory and Ira Millstein of Weil, Gotshal & Manges this week announced the release of an annual memo by the firm that identifies areas for focus by corporate governance participants in the coming year.

In the memo, titled Rethinking Board and Shareholder Engagement in 2008, Millstein, Gregory, and colleague Rebecca C. Graspas, said they predict and encourage increased efforts by boards to engage shareholders in less combative, more cooperative interaction and communication this year.

And while the firm says it supports shareholders’ intent to rebalance corporate power, it cautions that “the forces for change should abate once an appropriate balance is achieved, or a new imbalance will result.”

"Gone are the days when shareholders can broadly claim that boards are inactive, inattentive, and intractable or captives of management. The new reality is that boards are already engaged in an unprecedented level of dialogue with shareholders, and many show real interest in finding ways to further such communication." -- Memo from Weil, Gotshal & Manges

“Boards are well-advised to be open to shareholder communications on topics that bear on board quality and attention to shareholder value,” the memo explains, “communications that are likely to improve mutual understanding and avoid needless confrontation.”

"Gone are the days when shareholders can broadly claim that boards are inactive, inattentive, and intractable or captives of management," the memo continues. "The new reality is that boards are already engaged in an unprecedented level of dialogue with shareholders, and many show real interest in finding ways to further such communication."

The notice comes not long after a similar year-ahead memo was released last month by Martin Lipton, co-founder of Wachtell, Lipton, Rosen & Katz. His note suggested that “limits on executive compensation, splitting the role of chairman and CEO, and efforts to impose shareholder referenda on maters that have been province of boards should be resisted.”

The recent memo by Weil, Gotshal and Manges urges more of an open dialogue with shareholders and a more balanced approach to corporate governance on the part of boards and investors.

Lipton also suggested that boards should resist the trend of “having the audit committee or a special committee of independent directors investigate almost all whistle-blowing complaints, recognizing how disruptive such investigations are, and being judicious in deciding what really warrants investigation.” (Lipton's views on corporate governance were the topic of a recent Directorship cover-story. See "Bebchuk Vs. Lipton, December/January.)

Gregory says the Weil Gotshal memo, which is an annual exercise, is in no way intended as a response or a counterpoint to the Lipton memo. "Our piece is designed to focus directors on key issues for the coming year. Cleary this year our piece does reflect a view that is different than Marty's. It's the product of different experiences and philosophies about governance."