Tag Archives: Martin Lipton

The Future of ESG: Thoughts for Boards and Management in 2024

by Martin Lipton, Steven A. Rosenblum, Adam. O. Emmerich, Karessa L. Cain, Kevin S. Schwartz, and Carmen X. W. Lu

Top left to right: Martin Lipton, Steven A. Rosenblum, and Adam. O. Emmerich.
Bottom left to right: Karessa L. Cain, Kevin S. Schwartz, and Carmen X. W. Lu. (Photos courtesy of Wachtell, Lipton, Rosen & Katz).

The term “ESG” has steadily faded from the investor and corporate lexicon over the past year in the wake of cultural and political clashes over its meaning and purpose. “Anti-ESG” legislation adopted by several states has created legal and financial hurdles around the term. Institutional investors have gone quiet on ESG amid public criticism and congressional subpoenas. BlackRock has publicly disavowed the term for having become too politicized. The use of “ESG” in earnings calls has dropped precipitously. 

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Thoughts for Boards: Key Issues in Corporate Governance for 2024

by Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, and Carmen X. W. Lu

From left to right: Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, and Carmen X. W. Lu (Photos courtesy of Wachtell, Lipton, Rosen & Katz)

Over the past year, expectations for directors have continued to evolve, bringing new challenges and responsibilities to the boardroom.  The remarkable speed, volume and proliferation of channels through which information travels today continue to place more scrutiny on boards and heighten expectations regarding transparency and accountability.  Director reputations that have been carefully built over decades are not immune from such pressures, particularly as activist investors hunt for underperformers and revisit former targets.  The business environment has also become more complex:  macroeconomic uncertainty, geopolitical tensions, regulatory unpredictability, political polarization, culture wars, cybersecurity threats, the growth of generative AI, and energy transition are among the issues that boards are now expected to navigate.  

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DEI Initiatives Post-SFFA: Considerations for Boards and Management

by Martin Lipton, John F. Savarese, Adam J. Shapiro, Erica E. Bonnett, Noah B. Yavitz, and Carmen X. W. Lu

Photos of the authors

Top left to right: Martin Lipton, John F. Savarese, and Adam J. Shapiro.
Bottom left to right: Erica E. Bonnett, Noah B. Yavitz, and Carmen X. W. Lu
(Photos courtesy of Wachtell, Lipton, Rosen & Katz)

It is no secret that American corporations face vigorous — and often conflicting — demands concerning diversity, equity and inclusion (DEI) initiatives.  Over the past year, DEI initiatives and commitments have come under pressure in the face of macroeconomic headwinds, political scrutiny and legal challenges.  That pressure has only grown following the Supreme Court’s recent decision against affirmative action in SFFA v. Harvard (as discussed in our prior memo), after which Attorneys General from both red and blue states sent conflicting letters to Fortune 100 companies on what the SFFA decision meant for corporate DEI initiatives. 

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Revisiting The New Paradigm

by Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, Elina Tetelbaum, and Carmen X. W. Lu

Photos of the authors

Left to right: Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, Elina Tetelbaum, and Carmen X. W. Lu (photos courtesy of Wachtell, Lipton, Rosen & Katz)

In view of the attacks on “woke” corporations, ongoing legislative opposition to the consideration by investors and corporations of environmental, social and governance (ESG) issues, legal challenges to elements of ESG itself (notably, initiatives designed to further diversity, equity and inclusion), and the attendant political polarization, we undertook to revisit The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth that we prepared for the International Business Council of the World Economic Forum in September 2016.  

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Thoughts for Boards: Key Issues in Corporate Governance for 2023

by Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, and Hannah Clark

Photos of the authors

From left to right, Martin Lipton, Steven A. Rosenblum, Karessa L. Cain, and Hannah Clark

While the world recovers from the worst of the pandemic, the economic, political and social repercussions will continue to play out in ways that, while unpredictable, are in some respects characterized by observable patterns of cause-and-effect and cyclicality. The pendulum has been swinging back as, for example, the Federal Reserve has been ratcheting up interest rates and tightening liquidity, activist activity is once again on the rise, Republicans have taken control of the House, and back-to-office policies have been eased into effect. In this environment, stasis is the exception rather than the norm, and boards must continue to be nimble and open-minded in navigating the pitfalls and opportunities of this systemic recalibration.

Importantly, the infrastructure of corporate governance – namely, the structure and allocation of responsibilities and decision-making authority, and related principles, policies and information flows to facilitate such functioning – continues to serve as the anchoring framework for the board’s oversight of dynamic business conditions. Despite the complexity and range of issues that boards today must grapple with, the basic principles of governance continue to provide the best guideposts: engaged oversight, informed decision-making, conflict-free business judgments, and balancing of competing interests to promote the overall best interests of the business and sustainable long-term growth in value.

Below are the key trends and developments that boards should bear in mind in the coming year:
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Understanding the Role of ESG and Stakeholder Governance Within the Framework of Fiduciary Duties

by Martin Lipton, Adam O. Emmerich, Kevin S. Schwartz, Sabastian V. Niles, and Anna M. D’Ginto.

Over the past decade, investors, companies, and commentators have increasingly accepted and adopted stakeholder governance as the way to pursue the proper purpose of the corporation and have embraced consideration of environmental, social and governance (ESG) issues in corporate decision-making toward that end. But an emerging movement opposed to any consideration, at all, of ESG factors threatens to erase the gains that have been made over the past ten years and revert to the outdated view that the purpose of a company is solely to maximize short-term shareholder profits.

This debate is playing out very publicly, with politicians at the highest levels of state and federal government publicly staking out positions on ESG and the extent to which it should (or should not) be considered by asset managers; through regulation and law; and in boardrooms across the country and around the world. At one extreme, critics of ESG are dismissing any consideration of the long-term impact of environmental or social risk on a company as “woke” capitalism, to be condemned, if not outlawed. (See Bloomberg, Populist House Republicans Picking a Fight With US Business Over ‘Woke Capitalism’ (Nov. 27, 2022).) At the same time, attacks from the other end of the spectrum condemn board consideration of ESG in a stakeholder governance model as insufficiently prescriptive. Yet neither view, attempting to politicize the role of companies and their boards, grapples adequately with the real meaning of ESG and stakeholder governance and the role of these concepts in the decision-making process of corporate boards and management.
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Spotlight on Boards

by Martin Lipton, Steven Rosenblum, Karessa Cain, and Hannah Clark 

The ever-evolving challenges facing corporate boards prompt periodic updates to a snapshot of what is expected from the board of directors of a public company—not just the legal rules, or the principles published by institutional investors and various corporate and investor associations, but also the aspirational “best practices” that have come to have equivalent influence on board and company behavior. The ongoing coronavirus pandemic and resulting economic and social turbulence, combined with the wide embrace of ESG, stakeholder governance and sustainable long-term investment strategies, are propelling a decisive inflection point in the responsibilities of boards of directors. The 2016 and 2020 statements of corporate purpose by the World Economic Forum and the 2019 embrace of stakeholder capitalism by the Business Roundtable, together with current statements of policy by most of the leading corporations, institutional investors, asset managers and their organizations, as well as governments and regulators in and outside the United States, lead us to summarize the purpose of the corporation:

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Director Liability—“Caremark Protection”

by Martin Lipton and William Savitt

Since the 1996 Caremark (PDF: 1.16 MB) decision, authored by the revered late Chancellor William Allen of the Delaware Court of Chancery, we have called the case to the attention of boards of directors to ease concern about personal liability resulting from derivative litigation claiming a board was negligent in failing to prevent a defective product or otherwise causing or failing to prevent the corporation to be liable for damages to a third party.

 Caremark held that a board would be protected by the business judgment rule so long as it had implemented and monitored a system designed to identify risks and then deal with them.  Emphasizing that it was a doctrine that would only rarely be invoked, Caremark, and cases following it, held that directors could face exposure only if their company “utterly failed” to implement a system for risk identification or if they intentionally “ignored a red flag”—that is, declined to deal with an identified risk. Continue reading →