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Sunday, November 2, 2014

Shareholders, Disarmed by a Delaware Court

Today's post was shared by Take Justice Back and comes from

Who will hold corporate executives and directors accountable for wrongdoing?
Normally, regulators and prosecutors would be leading the charge. And while they have extracted big-dollar settlements from banks in the aftermath of the financial crisis, these supposed enforcers have been remarkably reluctant when it comes to pursuing high-level miscreants.
Hoping to achieve greater accountability wronged investors have filed many cases against top corporate officials, accusing them of breaching fiduciary duties and of other misdeeds. But even this enforcement mechanism is under attack, thanks to a recent decision by the Delaware Supreme Court.
In a proceeding last May, the court ruled that a company can adopt, without shareholder approval, bylaws requiring investors who file lawsuits against it to pay the company’s legal fees if the suit is unsuccessful. The court went so far as to say that a company’s “intent to deter litigation” might be a proper purpose for shifting legal fees to a plaintiff.
Because most companies are incorporated in Delaware, the state Supreme Court’s blessing of fee-shifting will result in fewer shareholder actions and less accountability, legal experts say.
“This is a nuclear weapon against shareholders,” said Jay Brown, a law professor at the University of Denver. “Delaware has already made it extraordinarily difficult to file successful lawsuits for breach of fiduciary duty. Now, in addition to a high...
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