Shareholders' Remedies: The Choice of Objectives and the Social Meaning of Derivative Actions
The purpose of this article is to offer a wide-ranging consideration of the policy objectives underlying the derivative action. More specifically, it inquires into an indefinite, but fundamental, question that has received inadequate attention in the literature on corporate law theory in European and English law: what rationale or rationales justify the use of derivative actions? First, an initial analysis of the merits and demerits of the derivative action is presented. The article then analyses the role derivative actions may assume in enforcing corporate accountability. The question addressed is whether its purpose is primarily to deter misconduct or simply to compensate the company for the wrongdoing. The possible benefits and limitations of these rationales are explored. The article then examines the public image, or expressive value, of the derivative action. The purpose is to determine if some of the features inherent in the derivative action procedure enhance or detract from derivative actions being understood as a positive social force. Finally, it briefly considers strategies that can be pursued to reverse the negative effects of those forces that weaken the social meaning of derivative actions so that the action is more likely to be viewed as an instrument that affirms desirable norms in the corporate setting.
Key Words: derivative actions: costs and benefits; social meaning of; public role of corporate governance; shareholder litigation; shareholders' remedies; deterrence; compensation.
a Pembroke College, Oxford; Visiting Lecturer, Faculty of Laws, University College London. I am grateful to Dan Prentice for his very helpful comments on an earlier draft. The usual disclaimer applies.