Derivative Actions and Corporate Governance

This volume examines the circumstances in which a shareholder can bring an action on behalf of a company (a derivative action), exploring how this remedy may be used to ensure good corporate governance, and laying out a theoretical framework and practical guidance for future development of the law. Derivative actions are an important aspect of the continuing debate about corporate governance in the UK, the US and many other jurisdictions worldwide. This book offers a conceptually inclusive approach to thinking about derivative actions by providing a detailed and clear overview, commentary, and a theoretical explanation of the law governing derivative actions in the corporate governance context. Reisberg provides a fundamental reassessment of the nature and objectives of the derivative action, and conceptualizes a new model of the derivative action mechanism. He argues that action should be taken in three areas: (1) conceptual (adoption of a new framework- the 'Functional and Focused Model' set out in the book) (2) strategic (employment of appropriate incentives and fee rules which advance the premises behind the Model) (3) maintaining doctrinal consistency (clarification of the interaction between the derivative action and other remedies available to shareholders) This book offers practical guidance on solving current problems in many jurisdictions based on case law, and on substantive legal, economic, and comparative research. It also provides a comprehensive and detailed analysis and commentary on the regime governing derivative actions under Part 11 of the Companies Act 2006 in the UK.

PREFACE ; SUMMARY CONTENTS ; TABLE OF CONTENTS ; TABLE OF CASES ; TABLE OF STATUTES ; GLOSSARY OF TERMS ; A BIRD'S EYE VIEW OF THE FUNCTIONAL AND FOCUSED MODEL ; INTRODUCTION ; 0.1 BACKGROUND ; 0.2 THE PRIMARY OBJECTIVES OF THE BOOK ; 0.3 THE DERIVATIVE ACTION- A UNIQUE PROCEDURE? ; 0.4 PUBLIC AND PRIVATE COMPANIES ; 0.5 THE NEW PROPOSED FRAMEWORK ADVANCED BY THE BOOK ; 0.6 AN OVERVIEW OF THE BOOK ; PART I: THEORY AND PRACTICE ANALYSIS ; 1. SHAREHOLDER LITIGATION ; 1.1 INTRODUCTION ; 1.2 SHAREHOLDER LITIGATION AND CORPORATE GOVERNANCE ; 1.3 ALTERNATIVE DEVICES TO CONTROL AGENCY COSTS ; 1.4 DERIVATIVE ACTIONS VERSUS MARKET FORCES ; 1.5 CONCLUSION ; 2. THE CHOICE OF RATIONLES AND THE SOCIAL MEANNING OF DERIVATIVE ACTIONS ; 2.1 INTRODUCTION ; 2.2 MERITS AND DEMERITS OF DERIVATIVE ACTIONS ; 2.3 THE CHOICE OF RATIONALES: DETERRENT VERSUS COMPENSATION ; 2.4 UNDERSTANDING THE SOCIAL MEANING OF DERIVATIVE ACTIONS ; 2.5 CONCLUSION ; 3. THE DIFFICULTIES WITH CONFERRING RIGHTS ON SHAREHOLDERS TO LITIGATE ; 3.1 INTRODUCTION ; 3.2 CAN A SHAREHOLDER ADEQUATELY REPRESENT THE COMPANY? ; 3.3 THE COMMON LAW RESPONSE ; 3.4 POLICY EVALUATION: OLD MYTHS AND NEW REALITIES ; 3.5 CONCLUSION ; PART II: MAKING DERIVATIVE ACTIONS WORK ; 4. THE WAY TO REFORM AND A NEW STATUTORY DERIVATIVE ACTION: MUCH ADO ABOUT NOTHING? ; 4.1 INTRODUCTION ; 4.2 DEFICIENCIES IN THE PRESENT LAW AND THE APPROACH TO REFORM ; 4.3 A NEW STATUTORY DERIVATIVE ACTION (under the Companies Act 2006) ; 4.4 AN ASSESSMENT OF THE LIKELY IMPACT OF THE NEW REGIME ; 4.5 CONCLUSION ; 5. A PROPOSED MODEL FOR DERIVATIVE ACTIONS: THE FUNCTIONAL AND FOCUSED MODEL (FFM) ; PART I: THE FOUNDATIONS ; 5.1 INTRODUCTION ; 5.2 THE ROLE OF DERIVATIVE ACTIONS IN A CHANGING MENU OF GOVERNANCE ; 5.3 THE DERIVATIVE ACTION AS A CONSTRAINT ON MANAGEMENT MISCONDUCT ; 5.4 SYNTHESIS - THE FUNCTIONAL AND FOCUSED MODEL ; PART II: FFM - PROCEDURAL AND SUBSTANTIVE ASPECTS ; 5.5 CONCLUSION ; 6. FUNDING DERIVATIVE ACTIONS: COSTS AND FEES AS INCENTIVES TO COMMENCE LITIGATION ; 6.1 INTRODUCTION ; 6.2 THE ECONOMICS OF DERIVATIVE ACTION LITIGATION ; 6.3 A RE-EXAMINATION OF INDEMNITY COSTS ORDERS ; 6.4 CONCLUSION ; 7. PURSUING THE RESOLUTION OF THE FUNDING PROBLEM ; 7.1 INTRODUCTION ; 7.2 MENU OF OPTIONS: SOLUTIONS INVOLVING THE COMPANY AND THE SHAREHOLDER ; 7.3 SOLUTIONS INVOLVING THE PLAINTIFF'S ATTORNEY ; 7.4 INTRODUCING CONTINGENCY FEES FOR DERIVATIVE ACTIONS? ; 7.5 CONCLUSION ; 8. THE INTERRELATIONSHIP BETWEEN THE DERIVATIVE ACTION AND THE UNFAIR PREJUDICE REMEDY ; 8.1 INTRODUCTION ; 8.2 THE INTERRELATIONSHIP BETWEEN THE DERIVATIVE ACTION AND THE UNFAIR PREJUDICE REMEDY ; 8.3 THE CASE FOR RETAINING TWO SEPARATE REMEDIES ; 8.4 THE WAY FORWARD - PRACTICAL STEPS ; 8.5 CONCLUSION ; CONCLUSION AND FUTURE DIRECTIONS ; BIBLIOGRAPHY ; APPENDIX A: COMPANIES ACT 2006 PART 11 CHAPTER 1 ; INDEX