An investigation of the relationship between board composition and stockholder suits

TLDR

Corporate director lawsuits have risen sharply, and critics predict further increases as insider representation grows. This study investigates how board composition relates to shareholder lawsuits. Boards sued for fiduciary breaches had a higher proportion of inside directors, yet overall board composition was not significantly linked to suit outcomes.

Abstract

Abstract In recent years lawsuits against corporate directors have increased dramatically. Moreover, many critics feel that with current shifts toward greater insider representation, the number will rise still more. This study examines the relationship between board composition and shareholder suits. The results indicate that, when compared to a control group, boards sued for failing to maintain their fiduciary responsibilities tended to have a greater proportion of inside directors. There was, however, no significant relationship between composition and suit outcomes.