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Comment by mixmax | Hacker News Reader

Personally I think the legal system in the US is broken, and this is a good example. In a sane country you would oust the board of directors if you didn't agree with them. In the US you sue.

In cases of fraud, deception, etc. suing is of course the right thing to do. But in this case the board of Yahoo has chosen to reject the offer from Microsoft based on their belief that the bid was too low. Where exactly is the wrongdoing in that? You can of course disagree, in which case you should take it up on the next shareholders meeting, and vote for removal of the board.

But I have a hard time seeing the justification in suing a board for having an opinion on the valuation of the company. I thought that was what they were paid to do...

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If a board takes a decision on other grounds and neglects its fiduciary duty to the shareholders, they can sue. This is probably what the people suing feel has happened. Of course proving it in court is a different matter.

You typically sue to obtain redress for an injury. Firing the board won't make up for their perceived loss.

Where I'm from you fire the board of directors if you think that they haven't lived up to expectations, or made as much money as you would like them to. You don't sue them for injury.

I think this is the best approach for several reasons:

1) The board can actually run the company as they see fit, and not worry about being bankrupted by a hedge fund that sues them because they have a different idea of how to run it.

2) A board constantly keeping to the middle of the road and only taking the choices that are absolutely safe with shareholders stiffle innovation.

3) Control of a company slips from the board to the legal system - which is definitely not good.

It is a pretty sad state of affairs - I would never want to be on the board of an American company.

All I'm saying is that you can't take away the right to sue for perceived harm. Its all very well to declare that the US legal system is broken, but its not right to say that the shareholders should not be allowed to sue the board in such cases. Whether the case has merit is precisely the judgement that the courts are there to make.

"Whether the case has merit is precisely the judgement that the courts are there to make."

Excellent point. I can only hope for the outcome :-)

If I get hired to make sandwiches, and I do a really slow job, I get fired, I don't get sued. If the shareholders are worried about spur of the moment things that are damaging to the company, they should grant themselves referendum powers, so that, e.g. here they could have blocked the board.

I disagree.

This statement assumes that "two Detroit pension funds" have enough votes to oust the board of directors or that the stock is structured in a way that they could ever get these votes, even with voting trusts or voting agreements with other shares. I can easily guess that Yahoo stock structured as such and if I am wrong, please correct me.

So, if I was managing a pension fund with languid Yahoo shares and not enough votes to do anything, my smartest and perhaps only move would be to sue. 62% ABOVE the actual market price of the stock? At that potential premium, if I did not sue, the pension fund might be coming after me as shirking my fiduciary duties. This does not mean I will win but its better than flailing around while the Yahoo board figures out a way -avoid- a merger and possibly prevent my fund from realizing 62% ABOVE market price on my sagging Yahoo shares.

So, from my perspective, it makes complete sense.

I might not have been completely clear, but what I'm attacking is not the fact that they sue under these circumstances but the fact that the board is sued on the basis of their judgement.

The board of Yahoo has, for some reason, decided that it is in the companys best interest not to take the offer. This is their judgement. What I'm attacking is that they are being sued because of their judgement. And the reason you pick a board of directors in the first place is to exercise judgement.

And if the board is constantly being sued whenever they make a move that is not entirely predictable and not in any way offending to anyone they don't make judgements based on the companys best interest, but based on their fears of repercussion through legal action.

I see your point that if you are a minority investor there is not much you can do if you don't believe in the boards decisions - but then you should sell your stock.

Just my opionion :-)

Oh - and welcome to YC news, hope you like it.

You just described the underlying problem with a suit such as this. There is a concept called the "business judgment rule:" if a shareholder sues the board for a breach of fiduciary duty of care, a court is unlikely to second-guess a business decision if it was made in good faith and was informed. So, the system does give deference to the judgments of the directors. Its existence is just buried deep in the folds. :-)

Ok, thanks for the info. I wasn't aware of that.

Maybe the system isn't as bad as it seems form the outside.

Well the US isn't as bad as the Europeans think :-) By the way, if this lawsuit upset you, then I really shouldn't tell you that Yahoo was already being sued for refusing to do a deal with Microsoft last year!

didn't the yahoo stock climb to about what MS was offering once the news came out? The disgruntled shareholders could have sold their shares then and gotten their 62% premium.

The pension fund owns 13,600 YHOO shares through mutual fund investments so they are kind of stuck. Of course, this begs the question of why they do not go after the fund(s) but that is beyond my realm of knowledge.

I would also think that an implicit part of their thinking is that if YHOO does not take MSFT's offer, the market bump in the share price that was caused by the offer will go away and the shares will be trading at sub $20 again.

Stephen Bainbridge has a good assessment of this and similar suits with additional info at: http://www.businessassociationsblog.com/lawandbusiness/comme...

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