Activist Bureaucrats Frivolously Sue Over "Microhoo"
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"The people of Alabama sued the state, which means that the people of Alabama — sued themselves..."
--Lewis Black
Government bureaucrats, posing as shareholder advocates, are suing Yahoo!'s* directors for having committed the sin of actually "directing" the company:
Directors are not elected by shareholders simply to fetch the highest bid for the company. They are paid to — wait for it — direct. Just because directors take an action with which you happen to disagree, that does not mean you get to sue over it.
On mundane operational matters, shareholders in fact never get to sue over it. That's called the business judgment rule and it reflects the uncontroversial notion that judges are not better equipped to run a company than the people who actually do run it.
On major strategic questions — including being bought out by another company — the legal analysis becomes a bit more complicated, but the common sense analysis really shouldn't. More should be required before shareholders are allowed into court than, "We disagree with the directors." So what?
If the directors are engaging in illegal conduct (e.g., authorizing bribes to politicians), then shareholders should have the right to try to stop it (and they do have that right). If the directors are (literally) looting the company, then shareholders should have the right to try to stop it (and they do have that right).
But this isn't that.
In the absence of bona fide malfeasance, the sole shareholder-based remedies to disagreeing with a corporate board should be: (1) sell your shares (complete with your 62% gain since the Microsoft offer was announced), or (2) launch a hostile bid to oust those directors (which — surprise — Microsoft is doing).
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Meanwhile, it's interesting that it is bureaucrats managing government employee pension funds who are suing. As I've mentioned previously, such activist shareholders often have their own conflicts of interest to address.
Isn't it ironic that government bureaucrats usually try to block major mergers, while here they're trying to compel it?
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As for the Lewis Black quote, suppose the directors and officers are held liable for some form of malfeasance. Will that vindicate the shareholders? No. The directors need not worry, since they will have so-called "D&O insurance" to insulate them. And guess who pays for a corporation's D&O insurance? That's right: the corporation itself, which means the stockholders pay for it. Go figure.
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*What somebody really needs to do is sue Yahoo! — and YUM! Brands — for putting exclamation points in their official corporate names. Do not want.
--Lewis Black
Government bureaucrats, posing as shareholder advocates, are suing Yahoo!'s* directors for having committed the sin of actually "directing" the company:
The lawsuit was filed in Delaware Chancery Court on Thursday by lawyers representing Detroit's police and fire retirement system and general retirement system, as well as "all other similarly situated public shareholders."Um, why not?
According to the lawsuit, Yahoo's board is pursuing "value-destructive" third-party deals in an effort to fight off Redmond, Wash.-based Microsoft, which on Feb. 1 announced a takeover bid of $31 per share in cash and stock, a 62 percent premium over Yahoo's previous day's closing price.
...
"Yahoo's directors cannot 'just say no' indefinitely to legitimate acquisition offers," the lawsuit reads.
Directors are not elected by shareholders simply to fetch the highest bid for the company. They are paid to — wait for it — direct. Just because directors take an action with which you happen to disagree, that does not mean you get to sue over it.
On mundane operational matters, shareholders in fact never get to sue over it. That's called the business judgment rule and it reflects the uncontroversial notion that judges are not better equipped to run a company than the people who actually do run it.
On major strategic questions — including being bought out by another company — the legal analysis becomes a bit more complicated, but the common sense analysis really shouldn't. More should be required before shareholders are allowed into court than, "We disagree with the directors." So what?
If the directors are engaging in illegal conduct (e.g., authorizing bribes to politicians), then shareholders should have the right to try to stop it (and they do have that right). If the directors are (literally) looting the company, then shareholders should have the right to try to stop it (and they do have that right).
But this isn't that.
In the absence of bona fide malfeasance, the sole shareholder-based remedies to disagreeing with a corporate board should be: (1) sell your shares (complete with your 62% gain since the Microsoft offer was announced), or (2) launch a hostile bid to oust those directors (which — surprise — Microsoft is doing).
---
Meanwhile, it's interesting that it is bureaucrats managing government employee pension funds who are suing. As I've mentioned previously, such activist shareholders often have their own conflicts of interest to address.
Isn't it ironic that government bureaucrats usually try to block major mergers, while here they're trying to compel it?
---
As for the Lewis Black quote, suppose the directors and officers are held liable for some form of malfeasance. Will that vindicate the shareholders? No. The directors need not worry, since they will have so-called "D&O insurance" to insulate them. And guess who pays for a corporation's D&O insurance? That's right: the corporation itself, which means the stockholders pay for it. Go figure.
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*What somebody really needs to do is sue Yahoo! — and YUM! Brands — for putting exclamation points in their official corporate names. Do not want.
Posted by Kip on
26 February 2008
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