Disagreement has broken out over the legitimacy of
US shareholder litigation spawned by failed say-on-pay votes
during this year’s proxy season. But everyone
agrees the industry should brace itself for a wave of similar
suits in the coming months.
At least five lawsuits have been filed since
January when, under Dodd-Frank, it became mandatory for pubic
companies to put executive compensation to shareholders for an
advisory vote. Two similar suits were filed last year.
In each of the seven cases, the board did not
follow shareholders’ negative vote
recommendations. They responded by filing derivate claims (on
behalf of the company) claiming damages for breach of fiduciary
duty, unjust enrichment and corporate waste.
Corporate practitioners say these lawsuits
won’t succeed. They point out that Dodd-Frank does
not make the shareholders’ recommendation binding.
If Congress intended shareholders to dictate executive
compensation, then this would have been explicit in the