Shareholder Derivative Suits - About Freakin' Time

I know that there have already been a number of shareholder derivative suits, most have failed and it is a difficult suit on which to succeed. I also know companies paying their executives billions in bonuses can likewise spend many millions defending the same executives without blinking an eye (which ironically in itself is a basis for a derivative suit if the executives in fact were serving their own interests above those of the corporation as the corporation should not be paying to defend their actions). So it should not be a big surprise that shareholder derivative suits have not been more common. Still, given the widespread press on corporate abuses in the financial sector, especially in terms of compensation and bonuses, you would think stockholders would be more adamant about pursuing their rights. And so it is with great pleasure that I see Goldman has been sued by its shareholders:

http://www.bloomberg.com/apps/news?pid=20601087&sid=acwVfK8iybLs&pos=3

I offer no opinion on whether the just filed suit against Goldman has legs. Based on what is being alleged by the government and a lot of blogs I suspect Goldman has a lot of explaining to do. Either way, I like this development. Shareholders need to take financial institutions to task and should be including individual officers and directors in such suits when there is good evidence they acted more in their own financial interest (i.e. short term gains for bonuses and pay raises) versus the long term financial interest of their companies. Given the government's less than stellar attempts so far (including the fraud suit against Goldman) to punish the culprits, the stockholders are the last line of defense against moral hazard. It is especially important to include the individuals and if there is good evidence of fraud or other intentional misconduct to include such allegations. Companies carry E&O coverage that will protect them and their officers and directors but if these officers and directors committed fraud or intentional misconduct they may lose their coverage and have to pay out of their own pockets.

We absolutely have to do what we can to punish the culprits and diminish moral hazard as the governments of the world are doing the exact opposite; they are financially saving and supporting the companies that brought about the financial disaster of 2008-2009 (and beyond).

Disclosures: I am short on some financial institutions, but not Goldman.