When Governance Fails: Naming Directors in Class Action Lawsuits

41 Pages Posted: 18 Jan 2014

Date Written: January 16, 2014

Abstract

This paper examines one type of failure in the governance system, the case where directors do not protect shareholders from securities fraud. We study the breakdown of the agency relationship in which shareholders not only sue the company, but also name the directors. We find that naming directors in a class action lawsuit based on securities fraud leads to significant changes in both the directors' and CEOs' compensation structure. Additionally, naming directors results in a greater change in board composition. When a financial institution is the lead plaintiff in the lawsuit, these changes are magnified.

Suggested Citation

Crutchley, Claire E. and Minnick, Kristina and Schorno, Patrick J., When Governance Fails: Naming Directors in Class Action Lawsuits (January 16, 2014). Available at SSRN: https://ssrn.com/abstract=2380136 or http://dx.doi.org/10.2139/ssrn.2380136

Claire E. Crutchley

Auburn University ( email )

415 West Magnolia Avenue
303 Lowder Business Building
Auburn, AL 36849
United States
334-844-3002 (Phone)
334-844-4960 (Fax)

Kristina Minnick (Contact Author)

Bentley University ( email )

175 Forest Street
Waltham, MA 02154
United States

HOME PAGE: http://www.profminnick.com/

Patrick J. Schorno

KPMG, USA ( email )

United States

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