During and after a crisis, trustees more than ever must be prepared to shift the way they think about the fund’s relationships with service providers in order to obtain meaningful results for shareholders (and mitigate or eliminate their own litigation risk). This article provides an example of what not to do and a few practical suggestions.
Granite Construction Inc. stockholders have filed a proposed $7.5 million settlement in the Delaware Chancery Court for litigation arising from $338 million in cost overruns concealed from investors between 2017 and 2019.
Granite Construction will pay $7.5 million and adopt a series of oversight reforms to end shareholder litigation over claims that its board concealed hundreds of millions in overruns affecting four “mega-projects.”
The Delaware Court of Chancery, in an October 2021 opinion, held that a board wrongfully refused a stockholder demand because it was “reasonable to infer that the directors just did not care about complying with the legal requirements of Delaware law.” The decision is a reminder to directors that their fiduciary duties do not permit them to cursorily refuse a legitimate stockholder demand, and a reminder to investors that they have meaningful legal options if a board refuses to remedy clear corporate misconduct.
Five Activision Blizzard Inc. stockholders have sued the gaming company in Delaware’s Chancery Court for access to documents on allegations that the company’s board and senior managers fostered “a toxic corporate culture” that tolerated harassment and discrimination.
The media, SEC and public have increased their focus recently on trading by company executives through so-called Rule 10b5-1 plans, which continues to be a problem for public companies, despite a downtick in insider trading cases filed by the SEC last year. The interest has been generated, in part, by an academic paper, which spurred the SEC and Congress to reconsider the rules around trading plans.
Morris Kandinov LLP has filed a derivative action on behalf of Granite Construction Inc. following the revelation of over $338 million in project cost overruns that were concealed from investors in multiple major construction contracts between 2017 and 2019.
We believe that the deterrent effects of stockholder litigation—and the billions of dollars recovered for millions of investors over the preceding decades—are largely attributable to a small group of individual and institutional investors who were willing to assert their legal rights to remedy corporate misconduct.