Fighting Shareholder Lawsuits
from March/April 2003
Plaintiffs’ attorney William S. Lerach looks pretty scary, even without the baseball bat he’s holding on our cover. At 56, the Milberg Weiss Bershad Hynes & Lerach partner and longtime scourge of corporate America has won between $25 billion and $30 billion in shareholder suits over the past 25 years, and now leads the legal attack on Enron and its board. He’s likely to be around for some time, and many assume that the Sarbanes-Oxley Act and various other reforms will add more clients (and scalps) to his crowded roster.
Lerach calls the Securities and Exchange Commission’s neutering of some proposed reforms—including a requirement that outside law firms, in certain circumstances, should turn in their clients to regulators—”an undermining of the spirit of Sarbanes-Oxley.” But, he adds, directors “ought not take any comfort that what the SEC has done gives you more running room. You still don’t know whether a decision you make in the boardroom will lead to a mega-case—something that will put you on the front page, above the fold.” Or in his sights.
Defense attorneys, meanwhile, point out that other reforms still have teeth, and sharp ones at that. Bruce G. Vanyo, a partner at Wilson Sonsini Goodrich & Rosati, notes that Sarbanes-Oxley clears the way for more people to sign on as plaintiffs—and makes directors and corporate officers increasingly vulnerable. Vanyo was one of many top lawyers who spoke at the “Fighting Shareholder Suits” conference hosted by Corporate Board Member in New York City last fall and co-sponsored by Skadden Arps Slate Meagher & Flom, Wilson Sonsini, Latham & Watkins, Standard & Poor’s, and Kroll Inc. The proceedings form the basis of this cover package.
The increased liability comes when shareholder litigation already occupies huge chunks of time for many boards. Often, though, the perception is worse than the reality. Despite the giant settlements—Cendant paid the most, over $3 billion—the majority of cases in the past seven years have been settled for less than $10 million, according to Cornerstone Research vice president John Gould, who also spoke at the conference. The number of suits fell from a peak of 488 in 2001 to 261 in 2002. The majority involved IPOs.
To find out how directors are faring in the legal minefield, Corporate Board Member surveyed some 8,000 by e-mail shortly before the conference. See the following pages for highlights from their responses. Some will surely change once new laws galvanize the plaintiffs’ bar—or when the front page, above the fold, looks uncomfortably close.
