Wells Fargo and company: shareholder derivative action - should the case succeed in federal court for the board of directors

Abstract

A shareholder derivative suit is an action allowed by the courts available for shareholders who believe that they have been harmed by actions of the board of directors and management. In most instances, particularly in the US state of Delaware, the actions are not allowed to proceed. The rationale being that the business judgment rule applies and as a consequence boards of directors are not held responsible for bad decisions and as a result, the business judgment is held to be supreme. Thus they are presumed to act with diligence, without self-interest and in the best interests of the corporation. In the case of the action against Wells Fargo and Company, Judge Tigar of the Northern District of California, has allowed the action to go ahead, on the basis that the directors had been negligent on multiple actions with respect to several proceedings by Federal Agencies against the bank and furthermore that the directors failed to hold senior management to account when concerns were raised from several sources about malfeasance occurring in the bank. The paper suggests the arguments both for the plaintiffs and the defendants in the case.