Someone suggested to me that Olympus shareholders should sue the company in view of recent events. (search Olympus, fraud). I will get back to Olympus, but first some general background on companies in general.
Who Pays?
If a law suit is filed and against a company...who is actually being sued and why?
It is the shareholders (in terms of people) who are actually being sued when a claim is made against a company. The wealth of the company is all owned by the shareholders, and if some of this wealth is paid out as a result of legal action, it is the shareholders who as a result, become less wealthy.
This may not seem fair, as whatever the company did that was wrong was done by people who work at the company, not by the shareholders. However office holders (CEOs, Presidents, Vice Presidents, Boards, are not the company, even though it often seems that way. These people operate the company on behalf of the shareholders. Ok- sometimes these same people are also shareholders, but the important point is that if action is sought against a company, the people who work in any capacity at the company will only be 'paying' as a result of the claim to the extent that they are shareholders, and made to 'pay' exactly in the same manner as all other shareholders. Of course the 'payment' of each shareholder is limited, at most, to the value of the shares they hold.
Ok, so if it is officers of the company who make the companies decisions, why is it that shareholders are the ones to pay out? In the end, there are two available arguments as to why this can make sense:
1) If the company actually made financial gain from whatever wrong doing took place, it is in theory the shareholders, as the company owners, who have profited from that gain.
2) The shareholders are responsible for appointing the board, who in turn appoint the other officers of the company. So in the end, 'the buck stops' with the shareholders as far as choosing the people who made the bad decisions of the company.
Who is really to blame?
If it is the company who is the subject of a lawsuit, then it will effectively be the shareholders who pay any damages. But what if it really isn't the shareholders fault or the shareholders gain?
While in theory every action of a company is done under guidance of a shareholder elected board for outcomes to the benefit of shareholders, in practice the shareholders or the board may be deceived. If there was no negligence by the shareholders or board then it should not really be the company that is the subject of legal action, but rather the officers of the company or individuals within the company who caused the problems who are the subject of legal action. Of course, such individuals are a less attractive target as the capacity to pay damages is less, so it will generally be argued that no only are the individuals at fault, but the framework provided by the company should have prevented the problem, so, in the end, the shareholders also should pay.
A further reality is that senior staff of public companies are almost always covered by professional indemnity insurance which protects against unintended transgressions so there are cases where action against the company officers can call on insurance the achieve substantial payouts. Of course, the shareholders also lose in this case as it is the company paying for the insurance of these officers and premiums will rise substantially following any payout!
What about Olympus?
In the case of Olympus, there appear to be no other victims that the shareholders. Shareholders suing the company makes no sense as the shareholders are the ones funding any payout. They would have to pay themselves!
It also seems a strange case in that so far it has not emerged that the people employed by Olympus who were responsible have actually profited themselves, beyond delaying a loss of face. It may emerge that bonuses and even tenure were protected but there is little to suggest the funds were siphoned out of Olympus for personal gain.
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