Executives command large salaries and top-tier benefits. Their jobs are also quite demanding, requiring overtime, travel and extensive networking to keep the organization solvent.
Executives sometimes abuse that authority through embezzlement, self-dealing and other forms of corruption. That misconduct can endanger the organization and undermine the returns for shareholders. Executives have a fiduciary duty to the company itself and to the shareholders who have invested in the organization. They must act in the company’s best interests, and the failure to do so could warrant their removal from their role.
In some cases, shareholders may begin to suspect that professionals running a company have not done so ethically and competently. What options do shareholders have when dealing with executive misconduct?
Shareholders have the right to act
In cases with clear evidence of misconduct, it is sometimes possible for a majority coalition of shareholders to work cooperatively and restrict the authority of an executive pending an investigation. They may also be able to remove them from their position if enough people agree to vote to address the executive’s misconduct. Evidence of misconduct and communication with other shareholders are necessary to remove an executive from their role.
In cases where only a minority group of shareholders take issue with an executive’s behavior, there are still legal options available. Shareholders can potentially file derivative actions. They can file a lawsuit on behalf of the organization seeking to halt financial misconduct or recoup losses sustained due to verifiable executive misconduct.
Reviewing financial records and communications with an experienced business litigation attorney can help shareholders protect their interests in an organization. Legal action is often necessary when shareholders cannot address the issue internally.