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Gevurtz, Franklin A. --- "The Role of Corporate Law in Preventing a Financial Crisis – Reflections on In re Citigroup Inc Shareholder Derivative Litigation" [2012] ELECD 390; in Vasudev, M. P.; Watson, Susan (eds), "Corporate Governance after the Financial Crisis" (Edward Elgar Publishing, 2012)

Book Title: Corporate Governance after the Financial Crisis

Editor(s): Vasudev, M. P.; Watson, Susan

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857931528

Section: Chapter 8

Section Title: The Role of Corporate Law in Preventing a Financial Crisis – Reflections on In re Citigroup Inc Shareholder Derivative Litigation

Author(s): Gevurtz, Franklin A.

Number of pages: 46

Extract:

8. The role of corporate law in
preventing a financial crisis ­
reflections on In re Citigroup Inc
Shareholder Derivative Litigation
Franklin A. Gevurtz

1 INTRODUCTION

As we survey the wreck of the economy left in the wake of the recent finan-
cial crisis, the question inevitably becomes what to do in order to prevent
another such meltdown. This question, in turn, divides into two subsid-
iary inquiries: (1) What substantive rules are necessary to prevent another
crisis; and (2) Who should impose such rules? This chapter looks at one
aspect of the latter question.
The debates over who should impose rules to prevent another financial
crisis tend to focus on agencies that regulate financial institutions (for
example, bank regulators) and agencies that regulate financial markets
(for example, securities regulators) (Paletta 2009). Commentators have
given less attention to the role of government bodies that create and
enforce corporate law more generally. The lack of attention given to those
responsible for enforcing corporate laws in preventing a future financial
crisis seems surprising. After all, one would not assume a priori that
corporate law is irrelevant to preventing a crisis involving the collapse or
bailout of major corporations. Indeed, among the potentially more sig-
nificant legal actions to date from the recent crisis has been a shareholder
derivative lawsuit seeking to hold the directors of the mega financial firm,
Citigroup, liable under Delaware corporate law for the massive losses suf-
fered by the firm (In re Citigroup 2009).
This chapter seeks to fill ...