Why do shareholders sue a company that they ostensibly own?
In: 1
The board of directors and the CEO have what is called a “fiduciary responsibility” to the shareholders. Long story short, they’re obligated to hold the shareholders best interests in mind when making decisions about the company.
This makes it so that if they make decisions that they personally profit from to the detriment of the company then they are in breach of their duty and can be held liable. (like giving “sweetheart” deals to other companies they own, like say they need to buy steel for a manufacturing process so the CEO buys it from a company they have a large financial stake in for twice the market rate for the steel)
Class Action lawsuits are one of the methods used for holding them liable for failing in their fiduciary duty.
Latest Answers