Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
The motivation for this diary seems to be the risk that "good management" might find itself subject to a lawsuit by the shareholders on the basis of the "fiduciary responsibility to maximise shareholder value".
That is, the creation of large external benefits at a small cost would sometimes be a defence against shareholder lawsuits claiming a violation of fiduciary responsibilities. ...

To summarise: With the soft reform option, a director or manager taking a decision that is overwhelmingly beneficial to shareholders would be protected from lawsuits (and principled scorn), even if the effect on the corporation's share value is negative.

I was a little puzzled by this so I went googling, and uncovered the following:

Institutional Shareholder Services: Europeans Take a More Active Role in U.S. Cases (December 04, 2006)

More European investors are realizing that it makes sense to participate in U.S. securities class-action cases by serving as lead plaintiffs, or by filing claims for their share of billions of dollars in settlements.


... the Parmalat Finanziara class action. ...

... a securities lawsuit against Royal Dutch Shell. The lawsuit, which is pending in federal court in New Jersey, was filed separately from the consolidated class action that was brought earlier ... the Nortel Networks litigation...

European and other international investors also have joined in derivative lawsuits that seek corporate governance changes. In October 2005, U.K. and Dutch pension funds were part of an international coalition of institutions that sued News Corp. in Delaware court over the company's decision to extend its "poison pill" defense without seeking shareholder approval. After surviving a motion to dismiss, the investors reached a settlement with the media company in April.

In addition, AP7, a Swedish pension fund, is serving as a lead plaintiff in a derivative lawsuit by Viacom investors that seeks to recover compensation paid to top executives, according to Keith Johnson, a Wisconsin-based lawyer who advises foreign pension funds.

What is going on here? are these good or bad lawsuits? Your wikipedia link to Shareholder rights contains the following quotation right after the bit you quote:
In most countries, including the United States, boards of directors and company managers have a fiduciary responsibility to run the company in the interests of its stockholders. Nonetheless, as Martin Whitman writes:
"...it can safely be stated that there does not exist any publicly traded company where management works exclusively in the best interests of OPMI [Outside Passive Minority Investor] stockholders. Instead, there are both "communities of interest" and "conflicts of interest" between stockholders (principal) and management (agent). This conflict is referred to as the principal/agent problem. It would be naive to think that any management would forego management compensation, and management entrenchment, just because some of these management privileges might be perceived as giving rise to a conflict of interest with OPMIs." [Whitman, 2004, 5]
But that was written 2 years ago. This is 2006, and we seem to be weeing the principal/agent problem being brought to court. More from the same article quoted above:
Willis said the interest by European institutions has increased after those investors realized that serving as a lead plaintiff may be necessary to ensure they are treated fairly in U.S. settlements involving European companies. A lead plaintiff plays a key role in defining the class, determining the settlement distribution ratio, negotiating any governance improvements, and deciding whether a proposed accord is sufficient, Willis said. In addition to Parmalat and Shell, a number of major European firms have faced U.S. class-action cases. In 2004, a record 29 foreign issuers were hit with securities class actions in U.S. courts, according to a report by PricewaterhouseCoopers.
I clearly have not been paying attention...
... the $120 million Deutsche Telekom settlement, where the class was defined narrowly to include only those shareholders who bought their shares on American exchanges. ... The excluded European investors had to file a multitude of separate claims in Germany. ...

... the Elan, DaimlerChrysler, and Lernout & Hauspie settlements, ... The larger group of investors who bought their shares through Easdaq (Nasdaq's former European technology market) since have filed a separate class action in the United States ...

As the Parmalat case illustrates, American courts "have been quite willing to appoint Europeans either as co-lead plaintiffs or sole lead plaintiffs in U.S. class actions," as long as the Europeans can show that a U.S. court has jurisdiction over their claims ...

... a U.S. shareholder lawsuit against BP's board over problems at the company's Prudhoe Bay oilfield in Alaska ...


While no U.K. courts have held that pension fund trustees have a legal obligation to file claims, fund trustees do have an obligation to derive value for their fund, and filing settlement claims is an "obvious way to derive value after a loss has been incurred," Owens said during a SCAS Web cast in September.

"There are many hundreds, perhaps thousands, of institutions right across the U.K. and Europe already putting procedures in place to ensure that this particular part of their investment protection is covered," Owens said. Otherwise, they may face "difficult questions [from beneficiaries] if nothing at all has been done."

Those whom the Gods wish to destroy They first make mad. -- Euripides
by Migeru (migeru at eurotrib dot com) on Sat Dec 23rd, 2006 at 02:47:39 PM EST
Most US exports may be suffering, but the export of US law is working very well, or perhaps I should say, very effectively.

You missed the latest news, though -- pension fund trustees now not only "have a legal obligation to file claims", but a legal obligation to file any and all claims for which the expected settlement value is greater than the expected litigation cost, presuming that the most effective means of twisting the facts and law are employed against the weakest targets. Failure to do so will of course make them subject to similar litigation.... Ooops, I was mistaken. That isn't news, it merely seems like the next logical step.

Words and ideas I offer here may be used freely and without attribution.

by technopolitical on Sat Dec 23rd, 2006 at 06:15:13 PM EST
[ Parent ]


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