|  | | 2007 News and Press Releases | | |
HEADLINE NEWS:
D & O Liability: Is This The Calm Before The Storm? Directors Have Enjoyed A Good Run On Good News. But Important Cautions Must Be Offered.
Randy Hein
Directors & Boards. December 22, 2007
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EXCERPT: AUGUST'S WHIPSAWING stock market should serve as an important reminder that, when it comes to financial markets, there is peril in letting your guard down. Certainly the past five years have seen a relatively stable stock market. This "Great Moderation," as Federal Reserve Chairman Ben Bernanke has described this period, has been marked by steady stock market growth and reasonable, smooth corporate price/earnings ratios. This time period has also been characterized by a marked decline in securities class-action lawsuits against companies and their directors and officers. Since the number of securities suits peaked at 497 in 2001, they have declined steadily, plunging in 2006 to 118--their lowest level since 1996. … August's wild market ride, the scariest in some time, may open the door to a resurgent environment of litigation should jitters spread into sectors outside mortgage lending. Clearly, two important cautions must be offered with the mid-August plunge fresh in our minds: First, volatility is a financial fact of life. Some argue that Sarbanes-Oxley, the Dura Pharmaceuticals and Tellabs Supreme Court decisions and the Milberg Weiss indictment will have a permanently calming influence on the securities class-action landscape. However, as we all know, history shows that volatility is a fact of life, and volatility always attracts securities class-action activity. Second, substantive securities suits will always be present. Although weak securities lawsuits against directors and officers may have a steeper hill to climb, substantive suits will continue to advance. For the most part, directors have enjoyed a good run on good news. Thanks to regulatory and legislative reforms, companies are now equipped to be better defendants in what continues to be a litigious environment. Furthermore, recent case law decisions have been favorable for corporations. However, we shouldn't be lulled to sleep. It's simply unrealistic to assume that the calm will continue indefinitely and that volatility has permanently disappeared from the marketplace. The only truly permanent condition is the potential to be sued. |
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