UK - Schemes joining securities class action lawsuits will destroy their lines of communication with companies along with management's ability to run them, delegates were told.
Cable & Wireless chairman Richard Lapthorne hit out at schemes and investors which pursue class action lawsuits in a bid to recover money they feel has been lost due to management fraud or to force through changes they want.
He claimed law firms were a “divisive” element which damaged the relationship between companies and institutional shareholders. He also warned that ultimately, disputes between management and investors would be a distraction that damaged a company’s financial well-being.
Lapthorne said: “I don’t want a relationship with shareholders where I feel like I’m being cross-examined. Investing institutions may feel compelled to join class action lawsuits, but the whole process distracts management and is disturbing for the corporate sector.”
Association of British Insurers head of investment affairs Peter Montagnon agreed and said one of the wider consequences of schemes joining class action lawsuits was that it would condemn the corporate engagement efforts of others to failure.
He explained that when a company became the subject of a class action lawsuit, the flow of information and communication between management and all investors dried up. As a result, the engagement efforts of those that did not participate in the lawsuits would have little chance of success.
Montagnon added: “You can’t turn down free money, but there are wider consequences which come from pursuing class actions which could be very damaging.”
However, Milberg Weiss Bershad Hynes & Lerach partner William Lerach disagreed.
The law firm – which pioneered class action lawsuits in the US on behalf of American schemes – said UK pension plans should have no hesitation in turning to the law to enforce good corporate governance.
“Governance activists have been ignored for too long and are now resorting to legal action. There’s a new trend developing – using class action lawsuits to impose corporate governance. It may be good governance by the gun, but it is still good governance.”
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