A Boardroom Lawyer
How Martin Lipton changed corporate law
Published in 2013 New York Metro Super Lawyers Magazine on September 25, 2013
For a man known for precision when it comes to plotting corporate legal strategies, Martin Lipton can be vague talking about himself.
“One thing led to another,” he says. “Things just went well,” he says.
About the only way to get Lipton, 82, to make a definitive statement about himself is to ask if he’s thinking about retirement. “People always ask, do you have a plan, do you have a strategy?” he says. “Actually, yes, I do have a plan. I plan on doing what I am doing until I can’t do it anymore. That’s my plan.”
For decades, Lipton, of Wachtell, Lipton, Rosen & Katz, has held an exalted position in the American legal landscape. He and his firm built a nonpareil brand in the practice of corporate law, which includes Lipton’s sweeping influence on corporate governance and the way mergers and acquisitions are conducted—or not conducted. He invented the “poison pill” defense to prevent corporate takeovers, which many experts consider one of the most significant legal developments in corporate law in the 20th century. And in a career that has not been without criticism (“I am not the most popular person among activist hedge funds and the corporate raider crowd,” he says), there is new appreciation for Lipton’s longtime disdain for managers and investors driven by the promise of short-term returns.
“I’m just basically an office lawyer,” says Lipton, elegantly dressed and reserved in manner, in his office above 52nd Street. “A boardroom lawyer is probably a more accurate description. Much of my life is going from boardroom to boardroom.”
Is that dull? “It’s the most fascinating thing in the world,” Lipton counters. “Everyone is different. The deals are different. People are different.”
Indeed, for someone who is seen as the legal face of faceless corporations, Lipton is known for his interest in people. When he helps extricate a client from a financial or legal quandary, he calls it “saving a life.”
An example from 1979: American Express was making a hostile bid for McGraw-Hill. At $830 million, it was, at the time, one of the largest takeover bids ever. Harold McGraw Jr., chairman of the publishing giant founded by his grandfather, wanted Martin Lipton and Wachtell Lipton to help rebuff the bid. His people called the firm. No, he was told, Mr. Lipton’s plate was full; he was not taking any new clients at that time. So McGraw showed up without an appointment at the Wachtell Lipton offices, then at 299 Park Avenue, and asked to see Lipton.
“Obviously, I saw him,” Lipton recalls. The two men sat and talked. Lipton explained that he was coming off several big deals and felt exhausted. Wachtell Lipton was relatively small. It still is. The firm wasn’t like one of its bigger rivals that could take every big case. But McGraw insisted that he needed the best.
“He said something I have never forgotten,” Lipton says. “He said, ‘You know, I just can’t stand the thought that after four generations, I would be the McGraw that lost the company.’” Lipton agreed to take the case. Ultimately he helped McGraw-Hill reject the takeover bid.
Lipton grew up during the Great Depression in Jersey City, where his father, an immigrant from Poland, worked in the lingerie business and his mother was a housewife. “We didn’t suffer,” he says. “We didn’t have any money but we didn’t suffer. My father was working all the time.”
He was a bookish kid who went off to the Wharton School of the University of Pennsylvania because his father wanted him to become a banker. But, he says, “There weren’t that many banker jobs open in 1952, and at the spur of the moment I decided to go to law school.” In his second year at NYU he made law review, where he met a couple of third-year students: Herbert Wachtell, Leonard Rosen and George Katz.
After graduation, Lipton worked for and studied under famed corporate law professor Adolf Berle at Columbia, then clerked for Southern District of New York Judge Edward Weinfeld before joining Seligson & Morris, a boutique firm headed by renowned bankruptcy specialist Charles Seligson. In 1958, Lipton also began teaching securities regulation and corporate law at NYU as an adjunct professor.
It was in late 1964 that he, Rosen and Katz, both of whom had joined him at Seligson, decided to strike out on their own. They got in touch with Wachtell, who had been a prosecutor in the U.S. Attorney’s Office before starting his own firm, and the four men went to look at office space on Lexington Avenue, then repaired to a nearby Automat—one of those long-gone places where customers put coins into windowed boxes and pulled out food. Over coffee, they talked about starting a firm. It wasn’t a long discussion. It didn’t seem like a business deal, Lipton says, and the four lawyers had no grand ambitious. They were just trying to work together and make a living. Since Wachtell already had a firm they put his name first, but none had any doubt about the leader. “His name is second,” Wachtell says today. “It’s always been a team effort, but we all know that Marty has always been first among equals.”
Before they left the Automat that day, the four men shook hands. That was their partnership agreement. It still is. Wachtell Lipton has never had a written partnership agreement. The firm is also rare among major U.S. law firms for its reluctance to expand. In an age of global law firms with offices all over the world, Wachtell Lipton’s only office is in New York City, and the firm remains relatively small: 250 lawyers.
The firm’s finances are also unusual. Rather than rely primarily on hourly rates, Wachtell Lipton prefers to bill clients based on “the nature of the matter, the intensity of the work, what we’ve contributed to the success of the work,” Lipton says. As a result, profits per partner (nearly $4.5 million last year according to The American Lawyer) are always among the top in the profession. Both partners and associates are paid in lockstep with their years of experience, and the firm’s starting salaries for first-year associates are among the highest in the country. It has never laid off staff for economic reasons—not even during the 2008-2009 recession.
“We try to treat the staff the same way the partners are treated,” he says. “If we do well, the staff does well. If things go down, everybody else may go down a bit, but the partners absorb most of the downturn. That’s our philosophy.”
Since that handshake in the Automat, Lipton says, the firm’s credo has been simple. “We don’t look for clients,” he says. “If you do a really terrific job, clients will come to you. We believed that, and it’s been true throughout my entire career.”
While Lipton is often associated with takeover defense work, he and the firm have represented many companies initiating mergers and acquisitions, too, going back to the case that put Wachtell Lipton on the map. The firm represented the Loews Corporation in several routine mergers, then in its hostile takeover of the CNA Insurance Co., which created headlines. The battle, and ensuing good result for Loews, captured the attention of Wall Street and triggered a number of other high-profile takeovers, many of them involving Wachtell Lipton on one side or the other. Particularly for corporations under attack, Lipton was the guy who could save your company from being bought, stripped of value and sold off piecemeal.
Lipton’s reputation grew further when he defended Phillips Petroleum against takeover bids by Carl Icahn and T. Boone Pickens. Then he represented Phillips in a number of other deals, including a merger with Conoco to create the third-largest oil company in the country.
In some ways, Lipton’s writing on corporate governance and M&A procedures has been as influential as his work on actual cases. In 1976, his article, “Corporate Takeovers: Tender Offers and Freezeouts,” for an American Bar Association publication, which eventually grew into a multiple-volume publication, cemented his reputation as the U.S. legal authority on M&A. Even more influential was his 1979 “Takeover Bids in the Target’s Boardroom,” which argued that boards of directors have both the right and the responsibility to consider the interests of all constituencies, not merely shareholders. That “constituency” argument—requiring directors to weigh the interests of employees, customers, suppliers and the community at large—has been embraced by legislatures in more than 30 states.
A few years later, Lipton invented the poison pill strategy, formally known as the “Shareholder Rights Plan,” which has been adopted in some form by many publicly held companies. The strategy grew out of two 1982 hostile takeover bids in Texas. In the first, T. Boone Pickens attempted to gain control of General American Oil Co. Lipton advised the oil company to issue vast amounts of new shares in order to dilute Pickens’ holdings. The board refused, and sold the company to Phillips Petroleum. In the other case, the El Paso Corp., was being targeted by Burlington Northern Inc. El Paso went along with Lipton’s recommendations, and ended up negotiating Burlington Northern’s purchase of half El Paso’s common stock and its preferred stock investment in the company from a much stronger position.
In effect, the poison pill allows boards of directors to defend hostile takeovers by requiring the corporate raider to negotiate the sale directly with the board instead of buying shares from stockholders to amass a controlling interest. Typically, the poison pill is triggered when one shareholder’s holdings reach a certain percentage of the total shares (often 15 percent); the board is then authorized to issue more shares at a discount, flooding the market and dramatically increasing the cost of a majority shareholding.
Critics say the poison pill makes it too difficult to remove bad board members and bad management, but Lipton is unapologetic. “I’m proud of it,” he says. “You can understand when companies are mismanaged and shareholders want to correct that. But when some company is doing quite well and somebody comes along because they want it for one reason or another—they think they can liquidate it for a profit, and so on—you end up saying ‘What is this? Is this right?’”
In recent cases, Lipton represented Airgas Inc., in fending off a bid by Air Products & Chemicals Inc. He also led Wachtell Lipton’s team in advising the Hess Corp. on a compromise with an activist shareholder bid by a hedge fund to put directors on the Hess board. Timothy Goodell, Hess’ senior vice president and general counsel, says that Lipton’s performance was incredible during the negotiations over the board seats. “I’d wake up to emails from him,” Goodell says. “He had lots of young lawyers with him but he didn’t delegate much. He did it himself.”
Lipton, on the other hand, says most of the firm’s success is based on teamwork.
Ted Mirvis, a longtime Wachtell Lipton partner, calls Lipton “one of the supreme mentors of all time.” He adds that most people meet two or three people in their lifetime who combine Lipton’s intellect, creative thinking and ability to teach. Josh Cammaker, another partner, says Wachtell Lipton strategy meetings are often lengthy, spirited debates about complicated issues, with people talking over each other—until Martin Lipton indicates he’d like to speak. Then, he says, “The room falls silent. I especially enjoy his unique style of delivering advice in situations of great legal, economic and political complexity. His ability to cut to the heart of an issue, discern what is most important and advise on how best to effect a result, is unrivaled.”
Intimidating? At first. Scott Hoffman, managing director and general counsel for the Lazard Group, the largest independent M&A adviser, recalls one of his first assignments when he joined the firm 20 years ago. It was a knotty issue, and his boss told him, “Find out what Marty thinks.” Hoffman says: “I was quite intimidated at the idea of calling a legend, but he took my call immediately. … He treated me as if I were the attorney general of the United States.”
The firm’s pro bono efforts involve some of the most precipitous moments in the recent history of the city and the country. In 1975, Watchtell, Lipton helped financier Felix Rohatyn rescue New York City from the brink of bankruptcy. “We represented the city in the negotiation and the execution and consummation with the banks to roll over the debt,” Lipton says. Twenty-six years later, on Sept. 12, 2001, Larry Silverstein, who had recently purchased the World Trade Center, asked for help. Lipton and his firm oversaw most of the litigation and negotiations that resulted in the rebuilding of the World Trade Center. In 2008, Wachtell Lipton was involved in virtually all the major post-meltdown bank mergers, and the firm devoted huge resources—again, pro bono—to help the Treasury Department sort out the conservatorship for the troubled Fannie Mae and Freddie Mac programs.
“Martin Lipton is one of the greatest lawyers in the world,” says John Sexton, president at NYU, where Lipton has been a trustee for nearly 40 years and has served as chairman of the board of trustees since 1998. “His goal has always been to use the instrument of law to make the world a better place.”
No one is going to confuse Lipton with an Occupy Wall Street sympathizer. But his recent battles over the concept of shareholder democracy, conducted by activist shareholders who are intent on short-term profits, are welcomed by so-called “slow money” proponents who want corporations to operate with a long-term view.
Even Andrew Ross Sorkin, a New York Times columnist who once called Lipton’s board-friendly opinions “dangerous” and “wrongheaded,” now concedes that Lipton, in denouncing activist shareholders trying to get Apple to return billions in cash, “has a point worth considering.”
Lipton shrugs off suggestions in the legal and financial press—there were several when he turned 80—that he has lost a step. Outwardly, the only significant concession to age seems to be that he no longer heads the Wachtell Lipton executive committee. But he still sits on it. “My work has been the same for 50 years,” he says.
He starts his day—every day, unless he has an early flight—on the treadmill in his home gym, putting in a few miles while watching CNBC. “And occasionally Bloomberg,” he says. “But Bloomberg’s numbers are smaller on the screen than CNBC’s.” He offers a small smile. “I’ve told them that time and again, but they don’t listen to me.”
His wife, Susan, says he is working harder than ever, but Lipton shakes his head when asked about his family or leisure time. He doesn’t discuss his personal life. John Vogelstein, a senior adviser and managing director at the private equity firm Warburg Pincus and a close friend for 40 years, says Lipton’s idea of relaxing is to go out for dinner and conversation. “He doesn’t hang out much,” Vogelstein says. “He spends a lot of his free time thinking, studying.” But not writing—at least not his memoirs. Lipton vows he will never write a book.
“It’s not my story,” he says. “It’s the client’s story.”