So shareholders lose again. Changes Proposed Despite the growing influence of large, fiduciary institutional investors in corporate governance over the past decade, they have been unable to address the abuses in securities litigation. For example, even the involvement of three of the largest institutional investors, with literally hundreds of millions of dollars invested in the company, could not prevent the settlement of the Occidental Petroleum suit described above. The litigation reform bill passed by the House would require courts to establish plaintiffs steering committees to make sure that the people who have the greatest interest in the company are the ones who determine the course of the litigation. The House bill also includes a safe harbor provision to limit the potential liability for good faith efforts to provide investors with a companys best estimate for the future.
Investors know that predictions of future performance are by their very nature speculative.
Unless a shareholder can prove that a corporate official who made a statement to the press or a public filing deliberately provided misleading information or knowingly withheld relevant information, the shareholder should not be able to prevail. The law should not encourage shareholders with microscopic stakes to file dozens, even hundreds, of nuisance suits and settle on terms that benefit the plaintiffs a little, their lawyers a lot, and their fellow shareholders not at all. Unfortunately, that is the current system. The law should encourage shareholders with a meaningful stake to file lawsuits to enforce limits on corporate directors and managers who have neglected or abused their obligation to be candid about the companys current status and prospects. Fortunately, the passage of the House bill and the seeming commitment by the Senate to enact similar reforms is a promising step in the right direction.