When the Wachtell Memo Strikes

Wachtell Lipton isn’t involved in the latest showdown between billionaire investor Nelson Peltz, and Procter & Gamble, where he is seeking a board seat.

But that didn’t stop industry icon Marty Lipton from issuing a memo of lessons board rooms can take away from the saga.

Just last Friday, Peltz received a key endorsement from an influential shareholder advisory firm, Institutional Shareholder Services Inc. The vote of confidence, Bloomberg News reported, could give Peltz a crucial edge in persuading P&G’s biggest investors to vote him onto the board during its annual meeting on Oct. 10.

By Monday, Lipton and colleague Sabastian V. Niles were ready-to-go with a bullet point list of lessons for board rooms, including that the P&G board’s failure to consider external CEO candidates played a factor in the ISS report.

The memo, which included 10 such lessons, flooded the inboxes of Lipton’s enviable distribution list: a who’s who of top Wall Street executives, general counsel, and other business, finance and legal professionals.

So it goes with the Wachtell Memo.

Lipton, 86, has relinquished management duties at Wachtell, Lipton, Rosen & Katz, but there are some things that he won’t let go of: namely, advising corporate boards and writing and editing his firm’s beloved client memos.

“I look at most of them,” said Lipton, of the memos submitted by his firm’s lawyers. “Not for copy but for substance.”

The memos, which began as type-written notes to small brokerage investment banking firms in the 1960s, have become well-read in elite business and legal circles and sometimes make news.

“There are two types,” said Lipton of the memos, which have become his calling card.

“One is reporting on a case or a statute,” he explained. “And, every now and then, we sneak a thought piece in for propaganda, for things we believe.”

A toothy grin broke out across the lawyer’s face as he reached the word “propaganda” in a firm conference room. He met with me for several interviews at his firm’s unassuming New York office — the same building as CBS, without any visible Wachtell signage. Inside, the offices are old-fashioned, with a brown carpet, wooden cubicles and tasteful portraits of the firm’s founders on the walls.

Marty Lipton. Courtesy photo.
Marty Lipton. Courtesy photo.

His firm, the top corporate advisor to boards and companies being acquired, continues to remain active: Wachtell this year advised Whole Foods in its $13.7 billion acquisition by Amazon, and came to the aid of Chipotle Mexican Grill, when activist investors circled after a plummet in sales when customers got sick from its food.

Nonetheless, Lipton hasn’t used this as an excuse to dial things back.

Earlier this year, he advised industrial part maker Arconic in a proxy fight with Elliott Management, a major hedge fund. He still rises at 5 a.m. on many days, exercises for an hour and a half, eats breakfast, looks at newspapers and then rolls into work by 9 a.m. He concedes, however, that he rarely works in the office at night like he used to.

To work out, he does “four exercises and some light weights.”

“And I, nowadays, walk fast on the treadmill. I used to run outdoors and then age got me indoors and now I walk on the treadmill. I’m not running on it.”

Whatever his change of pace, his hands on the firm’s client memos aren’t going anywhere.

Regarding his latest memo, Lipton declined to provide an opinion on the Peltz, P&G proxy fight, but rather let the memo stand for itself: a list of lessons corporate executives could take away from the ISS report.

Other instances Lipton has unleashed the power of the memo include a 2013 debate with Harvard professor Lucien Bebchuk over shareholder activism, and, in 2015, when he called for the end of quarterly corporate earnings reports.

Lipton has long held the view that short-termism – whereby money managers try to effect change at companies to quickly raise their stock price – has no place in corporate America.

But in an era where the M&A landscape has fundamentally shifted away from hostile takeovers of whole companies, to more nuanced board room battles, Lipton has modified his view.

“Not every company is well managed and an activist prepared to make a long-term investment and help a company to be better managed should be encouraged,” said Lipton.

“But activists whose raison d’être is to pressure a company into financial engineering or anti-social or improper activity should be rejected and fought off. You shouldn’t put pressures on a company so that it lays off 2,000 employees because it needs to convince the street that it is improving its margins.”

Recipients of the memo say that this change in perspective has hit the corporate airwaves. And lawyers who write the memos remark how Lipton continues to be the driving force behind them.

“You write a draft client memo and try to channel your inner Lipton,” said John Savarese, a prominent litigation partner at Wachtell and a former federal prosecutor. “Before you send it out the door, you have to send it to Marty and he’ll either approve it or give you suggestions for how to improve it.”

Director of client relations Ari Finkel oversees what Savarese called “the machinery of making sure that it gets out smoothly and on time.”

But ultimately, it all ties back to Lipton.

“Not one of these memos goes out without his approval.”

Lipton explained the importance: For one thing, Lipton said he needs to make sure that lawyers don’t write anything that runs counter to the firm’s stance on representations. And for another thing, he said he worries about tone.

“I would say, nine out of ten, I just send back ‘OK’ and no changes or suggestions,” said Lipton. “One out of ten I will have a suggestion. One out of 100 I will say, ‘I’m not sure it’s a good idea for us to take this position.’”

But want to know the biggest thing that stirs terror into Lipton’s heart?

“The most significant thing to me, is that we are not tooting our own horn,” said Lipton. “When a case comes down that we won, I don’t want the memo to say, ‘Look at this case, we just won.’ We should not disclose that we were involved in the case or that we were involved in the deal. That, to me, is the most important thing.”

Wachtell, with 260 lawyers located in New York, has long held that it does not advertise its legal services. Unlike many of its competitors, Wachtell doesn’t take out advertisements in legal publications; it speaks sparingly to news reporters, and when it does, it is first and foremost about client matters, not its own business, which Lipton has found straight-up unseemly.

Yet to some competitors and alums, the memo seems to contradict the firm’s claim that it likes to stay beneath the radar.

“Do they pitch in beauty contests? Absolutely, so they definitely do that,” said Steve Fraidin, the Vice Chairman of Pershing Square Capital Management who is a former Kirkland & Ellis lawyer.

“Do they publish their views on legal issues and on cases? They do it all the time and better than anyone else is,” he said, from his Manhattan office this summer. “Do they do it solely because they want to express their views? I doubt it. To me, it doesn’t make it any less valuable to keep their name in front of national clients. I am pleading guilty to having done that myself.”

It’s worth noting that Fraidin is the right-hand man and top lawyer to Pershing’s CEO Bill Ackman, one of the biggest activist investors of them all.

 

Write to the reporter responsible for this story: Casey Sullivan at csullivan@bloomberglaw.com.

Contact the editor responsible for this story: Gabe Friedman at gabefriedman@outlook.com.