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Shareholders Weigh Derivative Suits to Push Governance Change

Jaclyn Jaeger | May 15, 2012

A shareholder derivative lawsuit brought this month by the California State Teachers Retirement System—its first ever—is creating concern among companies that such suits could become more common.

Derivative suits are brought by shareholders on behalf of a company, typically against the company's directors or officers and often for alleged breaches of fiduciary duty. Such claims may also include allegations of misconduct, including excessive compensation and proxy violations. Any monetary award recovered is paid to the company—not the plaintiff—after the deduction of attorneys' fees.

Shareholders have been hesitant to bring derivative lawsuits in all but the most egregious cases due to concerns that the cost of the cases, and the damage they can inflict, harm the company more than they help it. 

The problem is that the vast majority of cases do not...

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