In a special Sarbanes-Oxley section, today’s Wall Street Journal has an article (subscrip. req’d) on the recent trend of requiring corporate governance reforms as part of the settlement of shareholder litigation. Although the article is generally positive about this trend, it has been the subject of some debate.
Quote of note: “There can be immediate advantages, too, such as helping to avoid a protracted fight inside a courtroom, and, more important, possibly reducing payouts. . . . [I]n a handful of cases tracked by NERA since Sarbanes-Oxley was enacted in 2002, evidence suggests that the plaintiffs in a majority of those cases agreed to reduced cash payouts in return for governance reforms. Of the eight settlement agreements tracked that included cash and governance reforms, five included financial payments that were at least 40% lower than NERA’s model had predicted, and only two turned out to be higher.”