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Genuine question because I think I might be wrong on this one, or maybe misunderstanding what you're saying - aren't there cases of shareholders suing CEOs for

by klik99 1y ago

Genuine question because I think I might be wrong on this one, or maybe misunderstanding what you're saying - aren't there cases of shareholders suing CEOs for not acting in shareholders interest and winning? If there was no legal obligation to act on behalf of shareholders how could they win those cases? My understanding is those kind of cases aren't common because a) they are hard to prove, b) the people being sued if they actually have the money to make it worth suing them also have the money to fight it, and c) it's a really bad look for an investor to be suing a previous member of their portfolio and would a strong adverse affect on their deal flow Unless you're saying there is no explicit legal obligation / fiduciary duty in law, but it does emerge from civil court cases, which is how I understand it, but short paragraphs are not a good place for the amount of nuance so I just said "legal obligation" as a shorthand for something real but very complex.

duped 1y ago
I think Matt Levine coined this phrase: "everything is securities fraud." Activist investors will sue for anything alleging that executives broke securities law by doing anything that harmed their portfolio. It doesn't mean they win the cases, or that anyone is guilty. There's also something worth noting that even if there isn't a legal obligation for executives to act on their shareholders interests, they have a really strong incentive when their compensation is mostly stock grants and the shareholders can fire them.
sorcerer-mar 1y ago
As far as I know, no there has not been a CEO successfully sued in the US for failing to maximize shareholder value.
- deleted 1y ago
  [deleted]
- airstrike 1y ago
  Board not CEO but see https://en.wikipedia.org/wiki/Revlon_duties https://en.wikipedia.org/wiki/Revlon_duties For CEO see https://www.rgrdlaw.com/cases-in-re-dole-food-co-inc-stockholder-litig.html https://www.rgrdlaw.com/cases-in-re-dole-food-co-inc-stockho...
  - cycomanic 1y ago
    The first paragraph from the first source: > The Court declared that, in certain limited circumstances indicating that the "sale" or "break-up" of the company is inevitable, the fiduciary obligation of the directors of a target corporation are narrowed significantly, the singular responsibility of the board being to maximize immediate stockholder value by securing the highest price available. Seems to imply that under normal operation (i.e. no inevitable break-up) the fiduciary obligations are quite different though?
    - airstrike 1y ago
      Yes, under normal circumstances, the "business judgment rule" applies which is much more favorable to boards. Satisfying it requires only that directors: - act in good faith; - act in the best interests of the corporation; - act on an informed basis; - not be wasteful; - not involve self-interest (duty of loyalty concept plays a role here). https://en.wikipedia.org/wiki/Business_judgment_rule#Standard_of_review https://en.wikipedia.org/wiki/Business_judgment_rule#Standar...

by klik99 1y ago

duped 1y ago

I think Matt Levine coined this phrase: "everything is securities fraud." Activist investors will sue for anything alleging that executives broke securities law by doing anything that harmed their portfolio. It doesn't mean they win the cases, or that anyone is guilty. There's also something worth noting that even if there isn't a legal obligation for executives to act on their shareholders interests, they have a really strong incentive when their compensation is mostly stock grants and the shareholders can fire them.

sorcerer-mar 1y ago

As far as I know, no there has not been a CEO successfully sued in the US for failing to maximize shareholder value.

deleted 1y ago
[deleted]
airstrike 1y ago
Board not CEO but see https://en.wikipedia.org/wiki/Revlon_duties https://en.wikipedia.org/wiki/Revlon_duties For CEO see https://www.rgrdlaw.com/cases-in-re-dole-food-co-inc-stockholder-litig.html https://www.rgrdlaw.com/cases-in-re-dole-food-co-inc-stockho...
- cycomanic 1y ago
  The first paragraph from the first source: > The Court declared that, in certain limited circumstances indicating that the "sale" or "break-up" of the company is inevitable, the fiduciary obligation of the directors of a target corporation are narrowed significantly, the singular responsibility of the board being to maximize immediate stockholder value by securing the highest price available. Seems to imply that under normal operation (i.e. no inevitable break-up) the fiduciary obligations are quite different though?
  - airstrike 1y ago
    Yes, under normal circumstances, the "business judgment rule" applies which is much more favorable to boards. Satisfying it requires only that directors: - act in good faith; - act in the best interests of the corporation; - act on an informed basis; - not be wasteful; - not involve self-interest (duty of loyalty concept plays a role here). https://en.wikipedia.org/wiki/Business_judgment_rule#Standard_of_review https://en.wikipedia.org/wiki/Business_judgment_rule#Standar...