Why Expanding Director Power Over Corporate Bylaws Could Undermine Core Stockholder Rights: Comments on Three Scary Predictions of the Future

When we dare to predict the future–knowing that our predictions will not be published for another year–we necessarily assume the risk that events in the real world will give our readers the hindsight to know whether or not we got it right at the time of our predictions. At the time of the 2014 ILEP conference, the principal focus–for the authors whose articles I reviewed and for the audience that was truly engaged and concerned–remained on corporate directors’ unilateral adoption of bylaws that required shareholders to litigate claims in arbitration. Many participants expressed concern about the notion that directors, who will be defendants in the lawsuits they send to arbitration, can decide the scope of discovery and make other procedural determinations that impair the viability of the arbitration. A central concern of the academics and audience, however, was the risk that directors could also undermine the ability of stockholders to even initiate suit, regardless of merit, by precluding any award of attorneys’ fees to the successful shareholder plaintiff. That was exactly the case in Katz v. CommonWealth REIT, a case I recently litigated. Many of the conference participants expressed concern that bylaws mandating arbitration could lead slowly to a world without class actions.