It has been argued in this article that endeavours to improve corporate governance should be diverted to change the perception of corporate law. Managerial unethical practices are dealt with corporate governance strategies; rather, they should be addressed by empowering shareholders to initiate proceedings against errant directors, who are primarily accountable to shareholders. Derivative litigation is not only a useful tool to recover losses caused by the directors to companies, but it may also serve as a deterrent against managerial wrongdoings. However, derivative ligation may lead to abusive proceedings in some circumstances where some opportunistic shareholders may use this very kind of private enforcement mechanism to achieve their bad motives and private gains. This issue can be addressed by allowing only merit-based litigation through screening and filtration of valuable litigation, which could serve the larger interest of the corporations.
Abbas et al. (Thu,) studied this question.