Shareholders invest in companies to guide their operations and acquire returns on their investments. Typically, shareholders have the right to financial disclosures to track the company’s performance. They attend regular meetings and vote on certain matters. They can also receive dividends when the company is profitable.
Unfortunately, the executives operating publicly-traded companies do not always uphold their fiduciary duty to the organization and its shareholders. They may make incompetent decisions about resource management or may engage in overt misconduct, such as self-dealing.
Do shareholders have the authority to take legal action when executives make choices that diminish a company’s profitability and overall stability?
Shareholders may have several legal options
When shareholders worry about the performance of specific executives, they can use internal systems within the organization to reprimand or remove the executive. Other times, they may need to consider taking legal action.
Shareholders have the right to file civil lawsuits against executives directly in some cases. Other times, they can initiate derivative actions against the company itself. The nature of the issue with the executive’s conduct and other details about the situation largely influence which option is the best.
Litigation can help prevent unfavorable transactions or even reverse prior transactions. In some cases, the courts may issue injunctions preventing certain conduct. Shareholders can even potentially seek financial compensation from organizations or executives in certain scenarios.
Pursuing business litigation in response to an executive’s misconduct or incompetence can help shareholders protect the organization in which they have invested. Frustrated shareholders may need help reviewing what occurred and how they can address the matter most effectively, and that’s okay.
