The Public and Private Faces of Derivative Lawsuits

Are shareholder derivative suits at death's door? Once described as "the most important procedure the law has yet developed to police the internal affairs of corporations,"' derivative suits are today regularly portrayed as nuisance suits whose "principal beneficiaries ... are attorneys." Even if these critics are wrong, there may now be less need for derivative suits, as other forms of representative suits have grown up that do much of their work. Federal securities fraud class actions increasingly address legal claims that raise issues about management care, and fiduciary duty class actions under state law are the principal litigation vehicle to remedy management misconduct in merger and acquisition settings. At the same time, American stock exchanges now require more independent directors for larger public companies, a change that will make it more difficult for derivative suits to survive procedural challenges under existing legal rules.