Shareholder derivatives are stakeholders’ measures to file a lawsuit on behalf of a business against a third party. Although it is the responsibility of a company to take an issue in court, a stockholder can raise complaints if they feel the leadership of the organization is not serving their interest by protecting someone or a wrong action. In the United States, the states’ laws provide derivative litigation.
Shareholder derivative has encouraged businesses to be more culturally responsible by holding their executive members accountable for their actions. Directors are the core pillars of any business, and their decisions extensively influence the company’s success. Therefore, if a shareholder decides to file a lawsuit against a third party on behalf of the corporation, then it makes them realize that they are not performing their obligations as required. It is the work of a director to file cases on behalf of a company. As a result, the business becomes more responsible for its duties.
Shareholder derivatives have also enabled companies to be culturally responsible by obliging directors to follow organizations’ rules strictly. CEOs are accountable for both the shareholders and the employing entity. However, at times, directors put their interest first and breach their contract, which might negatively affect the company’s customs. Nevertheless, shareholder derivative can continuously remind the director that the organization’s interest and the stakeholders come first. For instance, in the case of In re Revlon Inc. Shareholders’ Litigation, Delaware Chancery Court ruled that executive directors must follow the organization’s bylaws if a dispute is predicted (Winship 502). Hence, it will ensure that the business adheres to its culture since CEOs’ actions reflect the company’s values.
In conclusion, every state in the US has different laws that govern shareholder derivative litigation. Various acts have ensured that business directors, who are tasked with serving the interest of both the business and the shareholders, stick to the organization’s culture. Every company has a culture that must be followed, and if CEOs have failed in their duty, they should be held to account by the shareholders.
Work Cited
Winship, Verity. “Shareholder Litigation by Contract.” Boston University Law Review, vol. 96, 2016, pp. 486−542, Web.