Wachtell Lipton’s Critique of Harvard Law School

Editor’s Note: Jeffrey Gordon is the Richard Paul Richman Professor of Law at Columbia Law School. This post relates to an earlier post by Martin Lipton and Theodore Mirvis, which is available here. Both this post and the Lipton-Mirvis post relate to the 2011-2012 work of the Harvard Law School Shareholder Rights Project, which is described in a post here.

The HLS Forum recently published a post by Martin Lipton and Theodore Mirvis titled “Harvard Shareholder Rights Project is Wrong.” The post was based on a memorandum issued by their law firm, Wachtell, Lipton, Rozen & Katz (“Wachtell”), and signed by the authors of the post and two other top partners at the firm. The memo and post offer a strongly worded critique of Harvard Law School for permitting the operation of the Shareholder Rights Project (SRP) clinical program. The objections were twofold: First, the results achieved by the clinic – agreements by 42 large public companies to propose charter amendments declassifying their boards – are undesirable as a public policy matter. Second, the clinic was wrong to represent public pension funds and charitable endowments because this representation went beyond “provid[ing] educational opportunities while benefiting impoverished or underprivileged segments of society for which legal services are not readily available.”

I think the Wachtell memo-writers’ strongly held belief about the virtue of classified boards as a governance feature of large public firms has spilled over into an unfair attack on the Harvard SRP clinic based on a straitjacketed conception of clinical legal education not followed by leading American law schools. Wachtell has, of course, long been known for its invention of the poison pill and its expertise in takeover defenses. Because staggered boards make poison pills more powerful and fortify takeover defenses, it is understandable that Wachtell, and some of the clients it serves, do not welcome large-scale declassification of boards. Whether such declassification would benefit shareholders and the American economy is a legitimate question for debate. However, criticizing Harvard Law School for permitting the SRP to operate should not be part of this debate.

Clinics at major American law schools commonly engage in cause-based representation of governmental and non-profit organizations. Take, for example, New York University School of Law, where Mr. Lipton serves on the Board of Trustees (he also chaired the Board of Trustees until he moved to his current position as the chairman of the Board of Trustees of New York University), and where another top Wachtell partner signing the memorandum, David Katz, has long served as an adjunct professor. According to the NYU Law School website, the school’s clinics include the Administrative and Regulatory State Clinic, which works with “non-governmental organizations that focus on improving environmental, public health, and consumer protection” (taught by Dean Revesz, a distinguished scholar with well-known policy views); the Brennan Center Public Policy Advocacy Clinic, where students have “helped promote campaign finance reform” and worked to “restore the vote to persons with felony convictions;” the Environmental Law Clinic, where students have recently worked on “environmental justice litigation;” and the Technology Law and Policy Clinic, where students work with the American Civil Liberties Union’s Speech, Privacy & Technology Project on issues including “[c]hallenging unconstitutional Internet filtering,” “[f]iling public records lawsuits to inform the public about government surveillance programs,” and “filing briefs…arguing that overzealous enforcement of copyright will censor independent and experimental video artists…” As worthwhile as these causes may be, they are all neither universally supported nor focused on the protection of the underprivileged or impoverished.

NYU School of Law is hardly unique in this respect. My own Columbia Law School has an Environmental Law Clinic that has represented community groups and national organizations on a host of environmental matters in court as well as before regulatory agencies, taking what I am sure many affected industry participants would regard as undesirable positions. Yale Law School has an environmental law clinic that engages in similar representations; a Capital Markets and Financial Instruments Regulation Clinic; a Media Freedom and Information Access Practicum, in which students are “picking up the fight against government secrecy “ by “taking on a pro se journalist’s appeal from a court order denying access to court records in a corporate whistleblower case;” and a Supreme Court Clinic, which recently “filed an amicus brief on behalf of electronic privacy advocates…on the issue of the government’s warrantless use of GPS tracking devices.” Consistent with the practice in other schools, Harvard Law School has long operated clinics other than the SRP that advance the agendas of clients who are not impoverished or underprivileged.

Why do law schools operate such clinics? The clinics teach lawyering skills, expose students to areas of legal practice, and provide hands-on, practical experience, which could be useful to them in their future careers. Many of these careers will not involve impoverished or underprivileged segments of society. And interesting work in most areas of legal practice often involves working for clients whose agenda is contested by others in society.

By contrast to what the Wachtell memorandum seems to assume, the operation of such clinics within a law school in no way aligns the school with the agenda of the clinic’s clients. The views advanced by the clinics represent those of the clients. Faculty and students choosing to work in a particular clinic are also often sympathetic to the agenda of the clients the clinic serves. In all cases, however, it is generally understood that clinics do not speak for the law school and that any views expressed by a clinic should not be attributed to the law school where it operates.

In the interests of full disclosure, I am a graduate of Harvard Law School (Class of ‘75). I am also a member of the advisory board of the SRP. I am not paid for my service on this advisory board; my willingness to serve on this board pro bono reflects my view that it is a worthy project, even though my personal views about various corporate governance questions – the importance of board declassification, for example – differ from those of SRP director Lucian Bebchuk. In my opinion having such a clinic would be a credit and a benefit to any law school.

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  1. Walter Gangl
    Posted Wednesday, April 4, 2012 at 9:13 pm | Permalink

    Wachtell is right.
    The HLS program is wrong-headed in several respects.
    Pressing an agenda advanced by one segment of a shareholder base does not benefit all shareholders. If the rights and views of stakeholders are concern, why not press the unions to let the beneficiaries of their pension plans instruct the unions how to vote “their” shares? Why not press for better governance and transparency of unions? There’s a lot of opportunity for improvement there.
    And working against all governace measures that have “anti-takeover” effects is bad policy. Staggered boards benefit shareholders. ISS’s own research showed this years ago. Common sense and experience tells you that, with a board of independent, diligent directors, a staggered board with a poison pill will benefit shareholders in evaluating and negotiating takeover proposals.
    If staggered boards are inherently bad for governance, why not go after the US Senate? Or the Harvard Trustees or hundreds of other non-profits? Many institutions with respectable governance (excluding the Senate of course) have staggered boards for valid reasons – better continuity and enhancing performance evaluations are two.
    A better project, one that would provide real value to shareholders would be to press for companies to amend their charters to require arbitration of shareholder disputes. That would save companies and their shareholders an awful lot of money. Of course they would not get the coupons or other largely useless trinkets thrown off by shareholder class action litigation, but most shareholders would prefer the former if given the option.
    Corporate Governance by Scorecard has never and will never work. For over a decade, GM was held up to companies as the model of great governance. How did that work out for GM shareholders?
    Truly good corporate governance is like any other process. It takes thought, reflection and work over time. It takes an independent, diligent, knowledgeable and collegial board focused and working together. All this nonsense about declassifying, eliminating poison pills, etc. is harmful because it elevates trivial issues, consumes an enormous amount of time and distracts boards from a proper focus on what is working right within their firms and what needs to be improved. That’s a serious endeavor that firms’ governance committees need to have in focus. A perfect governance score based on the latest rating agency criteria does not do it. The bottom line is building shareholder value, not in following the latest GM model of governance into oblivion.

  2. Matt Powell
    Posted Wednesday, May 2, 2012 at 1:09 am | Permalink

    When shareholders are focused on their short term benefits, then generally in the long run, the organizations hedonistic focus detracts from the longer term greater good. Law school clinics are an excellent way to help educate young lawyers, and to give them exposure to areas of the law that they might otherwise not experience.

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  1. By Giving Shareholders a Voice - NYTimes.com on Thursday, April 19, 2012 at 2:30 pm

    […] not “impoverished or underprivileged.” However, as the Columbia law professor Jeffrey Gordon explained in a response to this claim, clinics that advance the contested agendas of clients who are neither impoverished […]