Research Handbook on Representative Shareholder Litigation
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Research Handbook on Representative Shareholder Litigation

Edited by Sean Griffith, Jessica Erickson, David H. Webber and Verity Winship

Written by leading scholars and judges in the field, the Research Handbook on Representative Shareholder Litigation is a modern-day survey of the state of shareholder litigation. Its chapters cover securities class actions, merger litigation, derivative suits, and appraisal litigation, as well as other forms of shareholder litigation. Through in-depth analysis of these different forms of litigation, the book explores the agency costs inherent in representative litigation, the challenges of multijurisdictional litigation and disclosure-only settlements, and the rise of institutional investors. It explores how related issues are addressed across the globe, with examinations of shareholder litigation in the United States, Canada, the United Kingdom, the European Union, Israel, and China. This Research Handbook will be an invaluable resource on this important topic for scholars, practitioners, judges and legislators.
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Chapter 6: Illegality and the business judgment rule

Charles R. Korsmo

Abstract

The chapter addresses derivative claims that seek to hold corporate officers and directors liable for causing the company to commit illegal acts. The author argues that corporate law should not subject defendants to greater judicial scrutiny in stockholder suits simply because they have caused the company to violate the criminal or civil law. Corporations that violate the law may well face financial penalties and other legal repercussions, and individuals personally involved may also face sanctions of their own. It is less clear, however, whether directors violate their fiduciary duties by approving illegal acts, especially where those acts do not harm the corporation. Many corporations today have made violating, and ultimately changing, the law part of their business model. Corporate lawbreaking under this model may be both profitable and socially beneficial. As a result, stockholder litigation seeking director liability for illegal actions threatens to be a formidable obstacle to progress.

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