Sonsini Addresses Luncheon Honoring New Life Members and 50-Year Members

Called a “legal changemaker” by ALI President Roberta Cooper Ramo, IMG_7920new life member Larry Sonsini was a member of the NYSE board of directors from 2001 to 2003, chaired the NYSE’s Regulation, Enforcement, and Listing Standards Committee until 2008, and is Chairman of Wilson Sonsini Goodrich & Rosati. He also took Civil Procedure from new 50-year member Geoffrey Hazard.
Sonsini’s remarks centered on the theme of corporate governance.  He opened by addressing a number of trends:  the shift from a director-centric to a shareholder-centric model, the need to respond to increased (and increasingly successful) activism on the part of well-funded shareholders, the rise of the institutional shareholder and synthetic securities, changes in how shares are held, and the growth (and growing influence) of proxy advisory firms.  He also addressed the politicization of board members, the trend toward majority voting, and contextual board member independence.
Turning to the question of whether these trends are good – or bad — for corporate America, Sonsini indicated they may actually be both good and bad.  On the positive side, there has been an increased (albeit forced) focus on the business plan.  On the negative side, these influences may also increase the kind of “short-termism” that stifles innovation.  As evidence of this trend, Sonsini pointed to increased stock buybacks and decreased expenditures on R&D.
Sonsini also provided some specific advice as to how boards can and should respond to these trends:
  • Understand the activist agenda, and make sure to focus on the business plan;
  • Expect and accept greater tension in the board room, but still manage to long-term gain and avoid the lure of “short-termism”;
  • Emphasize shareholder communication;
  • Understand the role of defensive measures (such as poison pills);
  • Think about the obligations of board members differently, understanding the importance of process, making sure to be well-informed, deliberate, and independent (yet still collegial), and understanding the difference between the board’s role and the role of management; and
  • Don’t lose the willingness and desire to take risks.
Sonsini closed his remarks by reminding the assembled group that the United States has capital markets that are indeed the envy of the rest of the world, and challenging us to protect and maintain the entrepreneurial spirit that built this market.