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Shareholders in the Jury Box: A Populist Check Against Corporate Mismanagement

56 Pages Posted: 8 Mar 2010  

Ann M. Scarlett

Saint Louis University - School of Law

Date Written: 2009

Abstract

The recent subprime mortgage disaster exposed corporate officers and directors who mismanaged their corporations, failed to exercise proper oversight, and acted in their self-interest. Two previous waves of corporate scandals in this decade revealed similar misconduct. After the initial scandals, Congress and the Securities and Exchange Commission attempted to prevent the next crisis in corporate governance through legislative and regulatory actions such as the Sarbanes-Oxley Act of 2002. Those attempts failed. Shareholder derivative litigation has also failed because judges accord corporate executives great deference and thus rarely impose liability for breaches of fiduciary duties.

To prevent the next crisis in corporate governance, the answer is not to enact more laws but to change the enforcer of the current laws. That enforcer already exists - the civil jury. Most states, however, deny any right to jury trial for shareholder derivative litigation. In these states, shareholders largely fail in their attempts to hold corporate executives liable for breaching their fiduciary duties. Extending a jury trial right to all states would reinvigorate shareholder derivative litigation and offer a populist check against corporate executives’ misconduct. This simple change would coerce corporate executives to properly oversee their companies and fulfill their fiduciary duties because they would know that their misconduct would be adjudicated by a jury of average Americans - similar to their shareholders. Empowering the civil jury would also help restore shareholders’ trust in corporate management, which could rebuild confidence in the stock markets.

Keywords: Corporate, Corporation, Shareholder Derivative, Jury Trial

JEL Classification: K00, K20, K41, K42

Suggested Citation

Scarlett, Ann M., Shareholders in the Jury Box: A Populist Check Against Corporate Mismanagement (2009). University of Cincinnati Law Review, Vol. 78, pp. 127-181, 2009; Saint Louis U. Legal Studies Research Paper No. 2009-11. Available at SSRN: https://ssrn.com/abstract=1566968

Ann M. Scarlett (Contact Author)

Saint Louis University - School of Law ( email )

100 N. Tucker Blvd.
St. Louis, MO 63101
United States

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