|  | | 2004 News and Press Releases | | |
HEADLINE NEWS:
An Invaluable Tool In Corporate Reform; Pension Fund Leadership Improves Securities Litigation Process
Jay W. Eisenhofer
Pensions & Investments. November 29, 2004
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EXCERPT: In recent months, there has been an aggressive effort by opponents of corporate governance reform to derail the post-Sarbanes-Oxley momentum of shareholder activism. All of those who care about shareholder rights should be vigilant of this movement to stop - and even roll back - governance reform. The Business Roundtable has led a ferocious effort to block shareholder nominations of directors. Critics are also on the warpath against class actions, seeking to discredit this long-established legal mechanism. What all of this invective suggests is that institutional involvement in shareholder activism is actually working and hitting a little too close to home. Institutional investors - particularly public pension funds - are using shareholder litigation in ways that have dramatically enhanced their ability to advance corporate governance reform. Private lawsuits are an invaluable tool in the overall regime of enforcing securities laws. The Securities and Exchange Commission has long recognized this fact. As former Chairman Arthur Leavitt put it: "Private suits are the primary method for compensating defrauded investors." Only by banding together can investors obtain the strength in numbers that can give them any hope of recovery against multibillion-dollar corporations. As one court explained, "a class action serves important public purposes" in that it "afford[s] aggrieved [parties] a remedy if it is not economically feasible to obtain relief through the traditional framework of multiple individual damage actions." The Private Securities Litigation Reform Act was passed by Congress in 1995 to curb what were perceived to be the abuses of private securities litigation. Prior to the PSLRA, there was little client control of shareholder litigation, resulting in low recoveries, shoddy legal work and unchecked legal fees. The statute was designed to encourage institutional shareholders to take charge of securities litigation and to make sure suits were meritorious and well prosecuted. The facts show that is exactly what has happened over the past decade. Shareholder recoveries have increased markedly since institutional investors were encouraged to enter the fray. Annual aggregated settlement values grew more than 40% from 2001 to 2003.
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