Corporate Governance

The Chamber of Commerce and Excessive Litigation: Be Careful What You Wish For (Part 3)

By J. Robert Brown

We are discussing the recent report,  ?Securities Class Action Litigation: The Problem, Its Impact, and The Path to Reform,? published by the Institute for Legal Reform of the Chamber of Commerce. 

The report is a collection of arguments, not all consistent.  Some of them, if they became the basis for reform, would probably be opposed by the Chamber.  An example?  The report rightfully notes that "even if a [securities fraud] claim is legitimate, the "guilty individuals rarely make a significant contribution." 

In other words, the company pays (or more accurately the insurance carrier pays) but the persons responsible for the fraudulent disclosure do not.  In that case, isn't the solution obvious?  It's not to reduce litigation but to change the regulatory system to provide for increased likelihood that the responsible individuals will have to dig into their own pockets and pay a portion of any settlement. 

Yet in the list of reforms proposed by the Chamber, that particular one is noticeably absent.  In other words, there is nothing in the proposal designed to reduce fraud or bring to judgment the guilty individuals.  There are only proposals designed to make companies more litigation proof, irrespective of the merits.

Full post as published by The Race to the Bottom on September 02, 2008 (boomark / email).