Shareholder Rights?

A recent decision of the federal District Court for the District of Massachusetts has ruled that I cannot serve as class representative in a securities-fraud class-action because, the court said, I am an “activist shareholder.”  The decision concludes:

“Both [John P.M.] Higgins and Monks are “shareholder activists” and, as such, subject to unique defenses.  Specifically, defendants aver, Higgins and Monks purchased shares of [the company] to “engag[e] in activist strategies [and] overcome existing corporate governance problems to enhance shareholder value.” In particular, defendants argue that Higgins and Monks purchased shares . . . on the theory that the company was poorly managed and that the stock price would likely decline; therefore, they could not have relied on any alleged misstatements.  They point to, inter alia, the following facts: (1) Higgins and Monks “had numerous communications with . . . directors and management”; (2) Monks had two friends “[who] were [directors], whom he regarded as sources of inside information”; and (3) Monks “published several books . . . which undermine any suggestion by plaintiffs’ counsel that Monks[ or] Higgins relied on any alleged misstatements by Defendants.”

While their status as “shareholder activists” does not, ipso facto, disqualify Higgins and Monks from serving as class representatives, in this case, the record suggests that they may be subject to unique defenses and therefore do not satisfy the “typicality” requirement.  Accordingly, I decline to name them class representatives.”

Over many years of active involvement in the governance of American corporations, I have come to the conclusion–documented in Corpocracy, to be published by Wiley this November–that shareholder rights are, in fact, a nullity.  It has often been observed that the only meaningful role for an American shareholder is as a plaintiff, particularly in class-action litigation.  There is, therefore, profound irony in the fact that someone characterized as an “activist shareholder” would, by virtue of that designation, be foreclosed from representing a class in securities-fraud suits.  The logical and linguistic torture of being excluded from the class–made all the more difficult by the fact that it was gratuitous, given that the court permitted another plaintiff to serve as class representative–simply because I am a “shareholder activist,” subject only to the assurance that this status is not an ipso facto disqualifier from serving as a representative, is less painful than the realization that, in the year 2007 in the Commonwealth of Massachusetts, one is literally powerless to have an impact in cases of acknowledged corporate fraud.

The district court’s Memorandum of Decision is available here.