While regulators and prosecutors have extracted big-dollar settlements from banks in the aftermath of the financial crisis, these enforcers have been remarkably reluctant when it comes to pursuing high-level miscreants, according to an analysis in Saturday’s New York Times. Hoping to achieve greater accountability, wronged investors have filed many cases against top corporate officials, accusing them of breaching fiduciary duties and of other misdeeds, but even this enforcement mechanism is under attack, thanks to a recent decision by the Delaware Supreme Court. The court ruled that a company can adopt, without shareholder approval, bylaws requiring investors who file lawsuits against it to pay the company’s legal fees if the suit is unsuccessful. The court further stated that a company’s “intent to deter litigation” might be a proper purpose for shifting legal fees to a plaintiff. Levying legal fees on unsuccessful plaintiffs could have one benefit: reducing the number of frivolous lawsuits filed. Since the ruling, more than two dozen companies have added fee-shifting language to their governing documents. Some have adopted new bylaws requiring that shareholders pay legal costs; others have simply disclosed the fee-shifting requirement in initial public offering statements.
