This post comes to us from David H. Webber, an Associate Professor of Law at Boston University. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.
Transactional class and derivative actions have long been controversial in both the popular and the academic literatures. Some commentators have argued that every deal faces litigation, that the overwhelming majority of such cases are frivolous, that the only people who benefit from them are the lawyers, and that the costs of these suits outweigh their benefits to shareholders. Others have taken the opposite view, that the litigation costs are overblown and that shareholders benefit from such suits. Yet, the debate over this litigation has so far neglected to consider a change in legal technology, adopted in Delaware a decade ago, favoring selection of institutional investors as lead plaintiffs. My article, “Private Policing of Mergers and Acquisitions: An Empirical Assessment of Institutional Lead Plaintiffs in Transactional Class and Derivative Actions,” fills the gap, offering new insights into the utility of mergers and acquisitions litigation. The most significant findings in the paper are that public pension funds and labor union funds have become the dominant institutional players in these cases, and that public pension fund lead plaintiffs correlate with the outcomes of most interest to shareholders: an increase from the offer to the final price, and lower attorneys’ fees.
