The court would determine the amount of the bond. A plaintiff s attorney could agree to hold the plaintiff harmless against any liability imposed by the initiative. They point to a pattern of securities litigation filed within days of minor drops in stock price. Some suits may be boiler plate complaints that contain little evidence, but may have the effect of pushing companies into settling out of court to avoid long and expensive trials. If so, they benefit primarily the attorneys who file them.
Evidence is mixed as to whether a growing number of lawsuits are without merit.
But a recent study showed 93 percent of lawsuits resulted in compensation for an average of just 6 percent of the losses that were claimed. Proponents claim that this suggests the suits were essentially groundless. Since the amount of the bond required by the initiative would be determined by the defendant s estimated legal costs, there could be an incentive for the defendant to inflate those costs beyond what the plaintiff can afford to pay. Critics contend that a fundamental problem of corporate law is how to make management accountable to the shareholders on whose behalf they exercise power. The essential legal tool for making managers accountable to shareholders is the derivative suit.