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Shareholder derivative suits may result in financial awards

On Behalf of | Oct 11, 2021 | Business Litigation

Aggrieved and frustrated stockholders may file lawsuits against the corporations in which they hold stocks. As reported by Chron.com, outcomes of a shareholder derivative lawsuit may include settling unresolved disputes with a company’s governing managers.

Investors may have brought up issues regarding a management team that failed to execute a corporate action as promised. When shareholders’ concerns remain ignored, a lawsuit may help hold the officers and directors accountable.

Corporate officers and directors hold fiduciary duties

As noted by the Harvard Law School Forum on Corporate Governance, managers owe shareholders a duty of care and a duty of loyalty. A duty of care typically requires exercising prudence on behalf of shareholders when making corporate decisions.

A duty of loyalty generally means managers set aside their personal interests and act to benefit the corporation. Generating outcomes that result in improving shareholders’ equity demonstrates loyalty.

A breach of duty may result in a legal action

Shareholders may find managers deviating from their corporate duties. This may lead to a request to modify their behavior before it causes further harm to shareholders’ equity. When changes do not take place, shareholders may file a legal action to seek relief for financial damages.

As described by the American Bar Association, shareholders have a right to voice their concerns. Their actions may also help bring public attention to a corporation’s poor management practices. The court may review the evidence to determine how a breach of duty resulted in harm to the company’s value.

When mismanagement leads to losses, investors may file a shareholders’ derivative lawsuit. Holding managers accountable for breaching their fiduciary duty may result in remedies. The court may order a financial award or mandate changing a poor decision-making process.