1 1.Securities Class Action Filings: 2019 Year in Review, Cornerstone Research 13, https:///research-reports/1996-2019/Cornerstone-Research-Securities-Class-Action-Filings-2019-YIR.pdf (reporting 10% of S&P 500 by market cap was sued for securities violations in 2019). In a typical year, managers of corporations representing about 10% of America’s big public corporations are sued by their investors. If insurers had only a few years to recoup any losses, they would seek to limit those losses by serving as an active gatekeeper. This recognition unlocks a potential solution: mandatory rotation. Insurers ignore even the worst corporate governance because they can recoup losses in the years to come. This Article diagnoses the failure of D&O insurance as a form of pernicious relational contracting. D&O insurers should be active gatekeepers for the corporation, since they lose money if executives misbehave, but all available evidence suggests the opposite: insurers protect executives from liability for bad management, and they encourage wasteful settlement of even meritless lawsuits. Show MoreĪlmost all public companies buy insurance for their directors and officers. For exemplary research assistance, I thank Elizabeth Doski, Brittany Dutton, Hannah Fry, and Tianna Larson. Green, Sean Griffith, Mark Hall, Sung Hui Kim, Kevin LaCroix, Saul Levmore, Amelia Miazad, Alan Palmiter, Elizabeth Pollman, John Rappaport, Gabriel Rauterberg, Fernan Restrepo, Roberta Romano, Mike Simkovic, and Richard Squire. For helpful comments, I thank Ian Ayres, Iman Anabtawi, Stephen Bainbridge, Tom Baker, Anthony Casey, Larry Cunningham, Joel Feuer, Victor Goldberg, Jeffrey N.
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January 2023
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