Corporate Governance & Mismanagement

What type of lawsuit is filed for corporate governance, mismanagement or takeover litigation?

The most common type of lawsuit for this type of wrongdoing is called a derivative action.

What is a derivative action?

Derivative actions are lawsuits filed by shareholders on behalf of the corporation to enforce a cause of action against the officers or directors of that company. It is often necessary for shareholders to institute a derivative action against officers and directors when the company does not take proper action against them for their wrongdoing.

Why participate in a derivative action?

Derivative lawsuits force the company’s executives to maximize shareholder value. These actions are critical to ensure proper corporate governance and increase transparency in the company. When shareholders do not file derivative lawsuits, the company suffers, and the price of the stock could dramatically decline. In fact, empirical studies have found that derivative lawsuits produce better corporate governance.

What types of claims are filed in a derivative lawsuit?

Derivative actions most often involve claims that officers and directors are wasting corporate assets or that a corporation’s management or board of directors breached fiduciary duties owed to shareholders by negligence, mismanagement or self-dealing.

How do shareholders benefit from derivative actions?

Any relief granted pursuant to a derivative action is a judgment against an officer or director requiring them to pay money to or make changes for the benefit of the corporation. If money is recovered as a result of a derivative action, it is paid back to the corporation.

May non-U.S. investors participate in U.S. shareholder derivative litigation?

Yes. With very limited exception, all shareholders of any U.S. corporation have standing to pursue derivative litigation on that corporation’s behalf.

Will I have to pay anything if I bring a derivative action?

No. All expenses are advanced by Kendall Law Group. Attorneys’ fees are paid only if a benefit is obtained for the corporation and the court approves attorneys’ fee.