By Evan Brown, Delaware Journal of Corporate Law Volume 48 Web Editor
On February 10, 2023, the Delaware Journal of Corporate Law of Widener University Delaware Law School presented the 37th Annual Francis G. Pileggi Distinguished Lecture in Law. Students, Faculty, and members of local bench and bar associations had the honor to learn from this year’s distinguished guest speaker, Lawrence A. Cunningham, Esq., who is a Henry St. George Tucker III Research Professor of Law Emeritus at George Washington University; Special Counsel for Mayer Brown LLP; and the Managing Partner of the Quality Shareholders Group. Among his extensive résumé, Professor Cunningham’s recent publications include The Essays of Warren Buffet (in collaboration with Warren Buffet) and The AIG Story (written with Hank Greenberg).
The lecture was a two-part series with the first presentation taking place at the Hotel DuPont in the du Berry Room, and the encore presentation at the Widener University Delaware Law School in the Ruby R. Vale Moot Courtroom. Both lectures detailed Professor Cunningham’s extensive knowledge on Quality Shareholders and why corporations need to care about them. Professor Cunningham presented an intricate analysis of who quality shareholders are and included a brief history behind shareholder typologies and why they are important.
Professor Cunningham did a brilliant job of engaging his audience, the Delaware bench, bar, and students, with his lecture. In fact, Professor Cunningham introduced his lecture by broadcasting a quote on the introductory slide, which read “to speak directly to those most responsible for setting policy on corporate law in the United States–the Delaware bench and bar.” Professor Cunningham was both intelligible and personable, with his demeanor and delivery of information behind Quality Shareholders. He regaled the audience with his personal stories of advising public companies and board of directors or his passion for Delaware Corporate Law.
As an introduction, Dean Alicia Kelly, the interim Dean of Widener University Delaware Law School, delivered introductory remarks by thanking the Pileggi family, while providing the audience perspective into the history and significance of The Annual Francis G. Pileggi Distinguished Lecture in Law. Dean Kelley made a brief remark about Professor Cunningham and his successes before passing the podium to Professor Bruce Grohsgal, the Helen S. Balick Professor in Business Bankruptcy Law, and Director of the Institute of Delaware Corporate & Business Law. Professor Grohsgal gave a warm introduction and after listing Professor Cunningham’s extensive list of accomplishments and publications, Professor Grohsgal welcomed Professor Cunningham with a final remark, stating “to call [Lawrence A. Cunningham, Esq.] prolific is an understatement.”
After taking the podium, Professor Cunningham gave a brief background of his Delaware roots as a native Delawarean, University of Delaware alumni, and his time at Skadden, Arps, Slate, Meagher & Flom LLP, as a messenger and paralegal in his youth. Subsequently, Professor Cunningham spent six years practicing Corporate Law at a New York law firm, Cravath, Swaine & Moore. Furthermore, as a known Public Company Director and Advisor, Mr. Cunningham mentioned recent work on Quality Shareholders.
Professor Cunningham started his lecture with the immediate takeaways the audience should walk away with knowing. Some of these takeaways included:
- Delaware’s flexible and principles-based approach to corporate law is a national treasure that is of unique and great value;
- Delaware’s choice, more than a century ago, when it decided to rival New Jersey in state corporate chartering, has proven correct: the made measure approach is strongly supported by America’s most patient and focused shareholders–whom Professor Cunningham called “Quality Shareholders”; and
- Contrary to these valuable traditions are trends favoring one-size-fits-all and intrusive governance, which should be greeted with great skepticism and related drastic proposals rejected completely.
Professor Cunningham captivated the audience by delivering a two-part trend with corporate law: (1) The Delaware Way, and (2) the Divergent Trend (in the recent years). As discussed, the Delaware way follows a hierarchy of shareholders, who elect a board, and then hire managers of the corporation. The Divergent Trend is the adoption of a “One-Size-Fits-All” approach where corporations follow a “everyone else is doing it, we should too” method of operation––almost a universal, formulaic recipe. Professor Cunningham further noted the infamous Business Judgment Rule under The Delaware Way trend; emphasizing that almost all board decisions receive deference from the Delaware bench. Lastly, there was attention brought to the fact that Delaware corporate law allows almost all corporate provisions to be altered in a way to tailor that specific company in ways best suited for the company.
As noted, Professor Cunningham defined shareholder typologies in a very innovative and comprehensive way, likening this typology to how restaurants attract their consumer demographic. Five-star restaurants attract Gourmands, fast food franchises attract eaters on the run, and buffets attract the tasters. Professor Cunningham gave utmost credit to Philip A. Fisher and his publication, Common Stocks and Uncommon Profits. Professor Cunningham elaborated further and took an excerpt out of his recent publication The Essays of Warren Buffett by quoting Warren Buffett, himself in 1983, stating “high-quality shareholders is no cinch…. [w]e want those who think of themselves as business owners and invest in companies with the intention of staying a long time.”
Professor Cunningham went on to list some of the participants into the Quality Shareholder outlook by listing some CEOs of corporations, and academic scholars who paved the way. To name a few, those individuals were Warren Buffett (Berkshire), Robert Goizueta (Coca-Cola), Michael Porter (Bishop William Lawrence University Professor at Harvard Business School), and Martijn Cremers (Martin J. Gillen Dean and the Bernard J. Hank Professor of Finance at the University of Notre Dame’s Mendoza College of Business).
Throughout his lecture, Professor Cunningham referenced several indexes he created to express the perspective of his theories. The first index he introduced had two axes: the Investment Horizon axis, and the Investment Conviction axis. The Investment horizon axis was broken into a shorter and longer category and the Investment Conviction axis was broken into lower and higher categories. Professor Cunningham believes that Quality Shareholders fall into the cross-section of the longer investment horizon and higher investment category. As noted, Professor Cunningham believes that recent economic trends see more “activist shareholders,” which lie on the shorter investment horizon and higher investment conviction category.
Professor Cunningham detailed a pie-chart with four shareholder categories: Indexers, Transients, Activists, Quality. Professor Cunningham pointed to the majority, at a 40% share, being Indexers with known names, such as Vanguard and BlackRock. Furthermore, he hinted that only 10% of the chart was the Quality Shareholders with known names, such as Berkshire Hathaway and The Capital Group.
Later in the lecture, Professor Cunningham introduced two quotes surrounding the cautions of corporate governance; specifically, “I wish I could credit myself with these quotes.” However, he credited Irving S. Shapiro again by listing his statement, “[patent] formulas should be viewed with great skepticism, on the grounds that what fits one corporation may not be suited to another.”
With a brilliant transition, Professor Cunningham compared BlackRock, an Indexer, to the Delaware General Corporation Law (DGCL). There was a vast difference between the two. Among other things, BlackRock believes the CEO should not be the board chairman, all directors should face term limits, and no company should use cumulative voting in director elections. On the other hand, the DGCL is flexible and can be tailored in any way that fits the specific needs of said company. Within minutes, Professor Cunningham switched the focus and compared BlackRock with the Quality Shareholder approach. That transition allowed his audience to discover the undeniable similarities Quality Shareholders have with the DGCL. Mainly, Quality Shareholders focus on the context and not necessarily the restricted limits BlackRock advances.
The lecture then transitioned onto the environmental and social aspects of environmental, social, and governance investing (ESG). Using quotes from a document released in the previous months from BlackRock, Professor Cunningham pointed to key phrases that highlight BlackRock’s efforts to have a patent formula surrounding Climate Risk, Key Shareholders, and Human Capital—believing that every corporation should share the same values as BlackRock. Professor Cunningham quickly shared three Delaware cases: Brehm v. Eisner, Stone v. Ritter, and Revlon, highlighting BlackRock’s “one-size-fits-all” approach does not lie in the realm of good faith and reasonableness—especially from a Delaware judicial perspective in conjunction with the business judgment rule. Professor Cunningham ended the Environmental segment with some of the SEC proposals for how corporations should run their business—hinting at a formulated approach, like so many indexers follow.
The lecture moved onto the social aspect of ESG with Professor Cunningham presenting opening remarks on Larry Fink’s Open Letters to CEOs. Those remarks from 2018 to 2022 highlighted the importance of a company’s mission statements discussing social issues and CEOs need to share their stance with shareholders. However, Professor Cunningham made it clear to the audience, “nothing obligates boards to speak out on any social issue.” Larry Fink’s Open Letters to CEOs used the affirmative words “must” and “disclose” throughout, looking to promote an agenda. Who would Professor Cunningham be to tell the audience that this movement is incorrect without giving an example? He did not disappoint. Professor Cunningham introduced his own framework on how CEOs should react to public comment—splitting it into four categories: CEO discretion (green), hot topics within the company’s business (yellow), hot topics outside the company’s business (yellow), and off limits (red).
Professor Cunningham proceeded to show company mission statements, ending with “the most famous” and a clear-cut example, Johnson & Johnson. Its mission statement creates a hierarchy of their constituents with customers in the first paragraph, employees in the second, community in the third, and you guessed it, shareholders in the fourth.
The lecture ended with one more quote from Irving S. Shapiro from his publication America’s Third revolution: Public Interest and the Private Role. The quote stated the following,
“The chief reason that Delaware is a popular place to be incorporated…is that Delaware has a legal code that is modern and fair, and that is kept up to date … Delaware judges [inspire] confidence in the stability and wisdom of the Delaware courts. What Delaware does not do to or for corporations, however, is to use charters as instruments for telling companies who ought to be on their boards or what the qualifications for directors should be. Nor does the state seek to use charters as weapons for regulating companies in new ways.”
Professor Cunningham, at the conclusion of the lectures, answered the audience’s questions in a detailed and thoughtful manner. Professor Cunningham has the utmost confidence that the Delaware bench and bar will make the right decision with what comes on the docket. The Delaware bench has a DGCL approach to business principles and how they are set up. Any business that comes on the docket will be met with great deference.
It was an honor to host Professor Lawrence A. Cunningham for the 37th Annual Francis G. Pileggi Distinguished Lecture in Law.
The Delaware Journal of Corporate Law endeavors forward to carry on the legacy of our predecessors and realize the cautions of having a patent formula for corporate governance. That is what makes Delaware corporate law a world-renowned concept—which future members of The Journal, Delaware bench, and Delaware bar must protect.
History–The Francis G. Pileggi Distinguished Lecture in Law Series
In 1985, Francis G.X. Pileggi, the then Volume 11, Internal Managing Editor for the Delaware Journal of Corporate Law, envisioned a forum whereby practitioners, judges, and academics, distinguished in the area of corporate law, could speak directly to those most responsible for setting policy on corporate law in the United States, the Delaware bench and bar. Through Francis G.X. Pileggi’s tireless efforts and the generosity of his father, Francis G. Pileggi, a founding attorney of Pileggi & Pileggi, P.C., the idea quickly turned into reality.
In 1986, the first Pileggi speaker, Robert W. Hamilton, Benno C. Schmidt Professor of Business Law, The University of Texas at Austin School of Law, spoke to a gathering of approximately 70 people at the Rodney Square Club. Mr. Hamilton’s topic was “The State of State Corporation Law: 1986,” which was later published in 11 Del. J. Corp. L. 3 (1986). Since that first speech in 1986, the Pileggi Lecture Series has attracted many renowned, well-respected speakers and has continued to build on the enormous success of that first lecture. The efforts of many members of the Delaware Journal of Corporate Law and the continued generosity of the Pileggi family have contributed to the Pileggi Lecture’s continued success.
When I was an editor on the Del. J. Corp. L. many years ago and noticed that other law reviews around the country hosted annual lectures as a means, among other things, of attracting quality law review articles, I thought it was also a way to hear leading scholars, in addition to the professors at our own law school, provide insights on cutting edge topics that we might not otherwise have a chance to hear. It was also good public relations for the law school, and an opportunity for the students to network with the local Bench and Bar. So, with the funding from my father, and the support of the law school, we launched the first Annual F.G. Pileggi Distinguished Lecture in Law. I didn’t expect that almost three decades later, I would be attending the [37th] Annual F.G. Pileggi Distinguished Lecture in Law.
– Francis G.X. Pileggi, Esq. – Delaware Journal of Corporate Law Volume 11, Internal Managing Editor
Delaware Journal of Corporate Law, along with members of the Delaware bench and bar, are immensely grateful for the continued support by the Pileggi family, ensuring that the Annual Lecture is a success.
 Lawrence A. Cunningham, Who Are Quality Shareholders and Why You Should Care, Harvard Law School Forum on Corporate Governance(Feb. 11, 2023), https://corpgov.law.harvard.edu/2023/02/11/who-are-quality-shareholders-and-why-you-should-care/. For a more in-depth analysis of Professor Cunningham’s Lecture please refer to this citation. All information from this article was obtained through Professor Cunningham’s lecture and supplemented with a PowerPoint slide that was presented at our Annual Pileggi Lecture.
 Warren Buffet & Lawrence A. Cunningham, The Essays of Warren Buffett: Lessons for Corporate America (8th ed. 2023).
 Maurice R. Greenberg & Lawrence A. Cunningham, The AIG Story (January 9, 2013).
 See Lawrence A. Cunningham, Quality Shareholders: How the Best Managers Attract and Keep Them (2020).
 Philip A. Fisher, Common Stocks and Uncommon Profits (2003).
 Lawrence A. Cunningham, Who Are Quality Shareholders and Why You Should Care, Harvard Law School Forum on Corporate Governance(Feb. 11, 2023), https://corpgov.law.harvard.edu/2023/02/11/who-are-quality-shareholders-and-why-you-should-care/.
 Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (concluding “Delaware has pleading rules and an extensive judicial gloss on those rules that must be met in order for a stockholder to pursue the derivative remedy”).
 Stone v. Ritter, 2006 WL 302558 (Del. Ch. Jan. 26, 2006), aff’d sub nom. Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362 (Del. 2006).
 Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).
 Irving S. Shapiro & Carl B. Kaufmann, America’s Third REVOLUTION: Public Interest and the Private Role (1st ed. 1984).
 Clifford R. Wood, Jr. & Evan Brown, Professor J.S. Nelson Delivers 36th Annual Francis G. Pileggi Distinguished Lecture in Corporate Law, Delaware Journal of Corporate Law (Apr. 28, 2022). The entire history section was taken from this citation.