Martin Lipton is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy, and William Savitt is a partner at Wachtell, Lipton, Rosen & Katz. This post is based on their Wachtell memorandum. Related research from the Program on Corporate Governance includes Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here).
The stakes for responsible corporate stewardship have never been higher.
Corporations today account for a greater proportion of our collective productivity than ever before. Of the 100 largest economies in the world, 71 are corporations, and only 29 are countries. U.S. corporations alone generated profits of $2.3 trillion in 2018—the highest in history. Reflecting their unprecedented scale, U.S. corporations have been blamed for accelerating environmental degradation and aggravating disparities in income and wealth. Calls for the exercise of corporate social responsibility have become increasingly urgent. Recognizing this urgency, the Business Roundtable last month embraced broad stakeholder governance and urged corporate leaders to focus on sustainable value creation. Yet, as directors of U.S. corporations seek to answer these calls, they remain subject to countervailing market pressure to deliver outsized stockholder returns in compressed time horizons.
To allow directors to mediate this challenge, and to facilitate responsible long-term corporate decision making, we have long supported a stakeholder-centered model of corporate governance and cautioned against rote application of the entrenched shareholder-primacy model. Recognizing that investors, and the asset managers who represent them, share with the rest of society an interest in sustainable prosperity, we have sponsored The New Paradigm—a reconception of corporate governance as a collaboration among shareholders, managers, employees, customers, suppliers, and the communities in which corporations operate.
