The Bebchuk Syllogism

Mon, 26 Aug 2013 16:32:26 +0000

Posted by Martin Lipton, Wachtell, Lipton, Rosen & Katz, on Monday, August 26, 2013

Editor's Note:

Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton, Steven A. Rosenblum, Eric S. Robinson, Karessa L. Cain, and Sabastian V. Niles. This post focuses on a recent study by Lucian Bebchuk, Alon Brav, and Wei Jiang, The Long-Term Effects of Hedge Fund Activism, available here, and discussed in a post by the authors here. An earlier post by Martin Lipton including a criticism of this study is available here. A related article by Lucian Bebchuk, The Myth that Insulating Boards Serves Long-Term Value, is discussed on the Forum here.

Empirical studies show that attacks on companies by activist hedge funds benefit, and do not have an adverse effect on, the targets over the five-year period following the attack.

Only anecdotal evidence and claimed real-world experience show that attacks on companies by activist hedge funds have an adverse effect on the targets and other companies that adjust management strategy to avoid attacks.

Empirical studies are better than anecdotal evidence and real-world experience.

Therefore, attacks by activist hedge funds should not be restrained but should be encouraged.

Harvard Law School Professor Lucian A. Bebchuk is now touting this syllogism and his obsession with shareholder-centric corporate governance in an article entitled, “The Long-Term Effects of Hedge Fund Activism” (previously discussed here). In evaluating Professor Bebchuk’s article, it should be noted that:

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The Harvard Law School Forum on Corporate Governance

The Bebchuk Syllogism