Private Enforcement of Directors’ Duties:
Derivative Actions as a Global Phenomenon
Abstract
When company directors are in breach of their duties, it seems natural to give shareholders a claim for compensation. However, directors’ duties are owed to the company, not shareholders individually. This raises the question of whether individual shareholders, or groups of them, can sue for compensation on behalf of the company. In some legal systems such derivative actions have been in place for a long time, though only in few countries – most notably, the US – shareholders have frequently made use of them. More recently, many other legal systems have also introduced or facilitated these derivative claims. Still, there is considerable diversity around the world. In this paper I will explore how the availability of derivative actions is related to other differences between countries, for instance, the common law/civil law divide, the ownership structure of firms, and other questions of shareholder protection and civil procedure.
This paper is structured as follows. Part II explains why legal systems may differ in the way how directors’ duties are enforced, and which reasons are typically given as explanations for these differences. The comparative analysis of the following parts is based on two different methods. Part III provides a conventional comparison of US, UK, French, German, Chinese and Japanese law. I identify recent changes in company law, and whether these changes have led to an increase in claims. I also address the relevance of procedural and cost rules. Part IV uses an innovative quantitative (“leximetric”) approach in order to compare the rules on derivative actions in 25 legal systems. It is based on data collected at a project at the Centre for Business Research of the University of Cambridge. I use these data in order to show whether there are significant differences between common law and civil law countries in the availability of derivative actions. It is also examined whether the the availability of such actions is correlated with other legal and economic data. Part V concluded.