T. Baker,Ensuring Corporate Misconduct. How Liability Insurance Undermines Shareholder Litigation Chicago:University of Chicago Press ,2011 9780226035154 (original) (raw)

The New Look of Shareholder Litigation: Acquisition-Oriented Class Actions

SSRN Electronic Journal, 2000

Shareholder litigation is the most frequently maligned legal check on managerial misconduct within corporations. Derivative lawsuits and federal securities class actions are portrayed as slackers in debates over how best to control the managerial agency costs created by the separation of ownership and control in the modern corporation. In each instance, early hopes these suits would effectively monitor managerial misconduct have been replaced with concerns about the size of the litigation agency costs of such representative litigation, which can arise when a self-selected plaintiff's attorney and her client that are appointed to pursue the claims of an entire class of shareholders have interests that may differ from those of the class.

Shareholder Litigation: Reexamining the Balance Between Litigation Agency Costs and Management Agency Costs

SSRN Electronic Journal, 2000

Shareholder lawsuits are a principal legal means to control management agency costs in corporations, yet they generate their own agency costs from the attorneys who bring representative litigation. The key policy question, and one that is central to good corporate governance, has long been how to properly balance the positive management agency reductions from shareholder litigation against the often-maligned litigation agency costs.

Shareholder Liability: A New (Old) Way of Thinking About Financial Regulation

SSRN Electronic Journal, 2000

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Shareholder Litigation by Contract

SSRN Electronic Journal, 2015

This Article is about the future of shareholder litigation. Calibrating the amount and form of shareholder litigation is one of the most vexing problems in corporate and securities litigation. An emerging-and controversialapproach is to limit shareholder litigation through terms in corporate charters and bylaws. This Article provides a much-needed framework for courts and legislatures to evaluate these provisions. It develops a theory of corporate contract procedure that looks to the structure and content of substantive corporate law to define the reach of procedural terms. The Article concludes first that state corporate law lends itself to the type of tailored procedure proposed here because substantive corporate law is structured primarily as a set of default rules. Tailored procedure would mirror this enabling structure. At the same time, substantive corporate law provides the (few) mandatory provisions that would limit procedural contracting under this framework. One implication of connecting procedure and substance is that limits depend on the area of law at issue. The connection provides a rationale for the greater use of procedural provisions in disputes over the internal affairs governed by state corporate law. In legal areas characterized by mandatory terms, however, including securities litigation, the framework provides a basis for resisting their use. Delaware non-stock corporation in ATP Tour, Inc. v. Deutscher Tennis Bund 8 ("ATP Tour"). This decision prompted litigation, lobbying, and proposed legislation. 9 Advocates characterized intracorporate fee-shifting provisions as the cure for an "inefficient epidemic of questionable shareholder lawsuits" 10 and a response to a "serious litigation crisis in American corporate law." 11 Critics denounced such fee-shifting provisions as a tool for "render[ing] boards unaccountable for their actions" 12 and one that would "effectively close the courthouse doors to investors." 13 The controversy was provoked in part by aspects of these particular litigation provisions. Boards adopted many of these provisions unilaterally, without shareholder approval. 14 The bylaws themselves were one-sided, with only the plaintiff having to pay. 15 Instead of "loser pays" they were "losingplaintiff pays." Moreover, many of the fee-shifting bylaws that emerged after ATP Tour had features that would effectively shut down shareholder litigation. Some of the bylaws would shift fees if the suing shareholder did "not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought." 16 Even a winning plaintiff could accordingly be liable 8 91 A.3d 554 (Del. 2014).

Are All Risks Created Equal? Rethinking The Distinction Between Legal and Business Risk in Corporate Law

SSRN Electronic Journal, 2021

Should corporate legal risk be treated similarly to corporate business risk? Currently, the law draws a clear-cut distinction between the two sources of risk, permitting the latter and banning the former. As a result, fiduciaries are shielded from personal liability in the case of business risk and are entirely exposed to civil and criminal liability that arises from legal risk-taking. As corporate law theorists have underscored, the differential treatment of business and legal risk is highly problematic from the perspective of firms and shareholders. To begin with, legal risk cannot be completely averted or eliminated. More importantly, decisions involving negligible levels of legal risk might yield significant profits for firms. Thus, the outright ban on legal risktaking harms shareholders, who would have favored a more nuanced regime to optimize legal risk. In this Article we make two novel contributions to corporate law scholarship, one descriptive and one normative. Descriptively, we offer a novel justification for the differential treatment of business and legal risk. We argue that because board members are exposed to personal liability for losses resulting from legal risk, they will veto all policies and decisions implicating legal risk, minimal though they may be. Aware of this disposition, managers-whose compensation is often tied to performance and who are therefore more risk-seeking-will prefer not to raise policies and decisions that implicate legal risk to board discussion. This preference, however, works to the detriment of shareholders who are deprived of the protective mechanism of board overview with respect to legal risk. Legal risks, therefore, largely escape board scrutiny. While the

The Shareholder Derivative Suits: Disfunction and Remedies Against a "Paradoxal" Inactivity

Corporate Ownership and Control

The derivative action exerted by shareholders (rectius, by a single shareholder or by a minority of them) falls within the wider topic of the defence of shareholder minorities. Considered as one of the pillars of corporate governance, the above-mentioned subject tends to be a control tool as to the accurate execution of the managerial task. Some empirical studies show that, in spite of corporate fraud by managers, in listed companies there are no such lawsuits. This “physiological paradox” – under which the others’ indifference enables a few organised individuals to control the company – has urged the need for a deep re-examination of control power over management. According to the European Directive on the Cross-border Exercise of Shareholders’ Rights, effective shareholder control is a prerequisite to sound corporate governance and should, therefore, be facilitated and encouraged. But control power over management is usually based on “empty” procedures and frequently false meeting...