Lipton on Shareholder Primacy

Thom Lambert —  27 June 2008

It should be no surprise that the inventor of the poison pill is pro-director, but Marty Lipton’s remarks at a June 25 conference at the University of Minnesota Law School left no doubt that he truly believes in his heart of hearts that we’re better off with strong, unencumbered boards. According to the WSJ’s deals blog (quoted in today’s print edition), Lipton wondered aloud whether the move to shareholder-centric governance will “simply overwhelm American business corporations.” He also remarked:

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 the future prosperity of our nation.

Thom Lambert


I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.

One response to Lipton on Shareholder Primacy


    I think Lipton’s history-based assertion that board-centric governance is best is his weaker argument (although I happen to agree with it). We don’t know what shareholder democracy would have looked like over the last 70 years, and can’t re-run history as if those reforms were in place.

    His appeal to conservatism is a little more convincing, i.e., if greater shareholder input is so wonderful, why haven’t we seen more of those corporate forms winning in the market?

    But some people aren’t convinced by conservatism. They think they know better, and are prepared to impose their “common sense” reforms on the entire public market. I’d prefer to impose on the reformers the burden of proof that it’s worth shutting down choice of law for public company investors. I’d like to know what economic theory justifies one-size-fits all corporate governance that looks like North Dakota’s default rules. I’d rather take my chances on shareholders being free (with full disclosure) to buy into whatever governance structure appears to be working, just as they can buy into whatever management team or corporate strategy seems to be working.