The End of Shareholder Litigation? Allowing Shareholders to Customize Enforcement through Arbitration Provisions in Charters and Bylaws
Paul D. Weitzel
Davis Polk & Wardwell LLP
November 22, 2011
2013 BYU L. Rev. 65 (2013)
Shareholder litigation has been heavily criticized for its inability to compensate harmed shareholders or deter managerial misconduct. While some have suggested abolishing shareholder litigation altogether, this article takes a more moderate approach. I propose allowing shareholders to enforce charter and bylaw provisions that require arbitration of certain disputes. For example, an acquisitive company may require arbitration of merger-related suits, while allowing non-merger suits to proceed in court. Likewise, a company in an industry known for volatile stock prices could require a price drop of three or four standard deviations before the suit could be brought in court, rather than arbitration. Because enforcement would be customized on a company-by-company basis, shareholders could set a better balance between costs and benefits than the ham-fisted, one-size-fits-all regime functioning today. This proposal requires no legislative action; it requires only that the SEC bring its statutory interpretation in line with current Supreme Court precedent.
Number of Pages in PDF File: 55
Keywords: Arbitration, shareholder litigation, derivative suit, bylaws, charter, AT&T Mobility, class action, Delaware law, corporate governance
Date posted: November 23, 2011 ; Last revised: September 17, 2014
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