Stockholder Litigation: Procedural Issues

6/13/2025 pdw

Sarah Shareholder is angry. She owns two shares of Best Bikes, and she thinks you've mismanaged the company. She sends a letter to the board accusing you of embezzeling and of neglecting her "brilliant sketches for a new line of unicycles." She emails these sketches to you almost daily. They are terrible.

Should a shareholder with a single share be able to just sue you? To make you take a day off for a deposition everytime they disagree with your management decisions? Even assuming you have misbehaved, is a board really well placed to second guess you? What do judges know about tricycles? It was a terrible design.

Maybe we just leave it to the board to decide. But what if the board is in on it? Should a CEO be able to stuff a board with golf buddies to avoid any accountability? Or what if the board is the one that has misbehaved? How do we defer to the expertise of the board without letting a conflicted board write its own ticket out of jail?

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