Corporate Governance Battle Heads to Court

Corporate governance activist Bob Monks and corporate lawyer William Lerach plan to file a series of lawsuits against companies who they believe haven’t paid enough attention to shareholders and whose shareholder price has declined, a Financial Times story reported.

The goal: not only to generate damage awards, but also a court-supervised agreement for improved corporate governance. Early targets, according to the Financial Times: Sprint, Qwest, and AT &T.

The Financial Times said the new strategy of using the courts as a weapon comes amid growing frustration that some big US corporations won’t reform voluntarily.

Monks, a Harvard-trained lawyer, founded Institutional Shareholder Services, which advises investors how to vote on important company issues.

“We have tried to persuade corporate America to change through traditional shareholder actions. But are we getting anywhere with this?” Monks told the Financial Times. “The answer is, we’re not. So now we’re going to try, not as shareholders, but as plaintiffs.”

Government Hurting Sarbanes-Oxley?

There is also concern that the Sarbanes-Oxley Act, a reform intended to clean up corporate America in the wake of the Enron scandal, is being undermined by the Bush administration.

Monks is to work with Milberg Weiss Bershad Hynes & Lerach, a New York law firm that champions the rights of defrauded investors.

Lerach, a partner in the law firm, is no stranger to potentially high profile litigation. He is the lead lawyer in the class action against Enron, representing the University of California, the lead plaintiff that is claiming $144 million in losses.

According to the Financial Times story, Milberg Weiss will finance the litigation – in expectation that it will win a slice of the damages.

Monks said that he would take no fees, transferring any proceeds to his charitable foundation. He is also to begin talks with US and UK pension funds and other institutional investors that have big stakes in US companies.

Under US law, pension funds can become the “lead plaintiff” in class actions against companies.

Lerach has found that companies have tended to pay out higher sums -and bow to tough demands on corporate governance – to pension funds. Since 1995, when US law changed to allow pension funds to become lead plaintiffs, the typical settlement has been $17.5 million – compared with just $5 million before the change in the law.