Transcripts

"Commentary"-Shareholders Are Paying The Price for Litigation

SUSIE GHARIB: Tonight's commentator says it's the shareholders that lose when it comes to securities class action suits. He's Glenn Hubbard, dean of Columbia's graduate school of business and former chairman of the White House Council of Economic Advisers.

GLENN HUBBARD, GRADUATE SCHOOL OF BUSINESS, COLUMBIA UNIV.: Recent blue-ribbon reports from the U.S. Chamber of Commerce, New York Mayor Bloomberg and Senator Schumer and the committee on capital markets regulation have concluded that our securities class action lawsuits are costly. They are reducing the competitiveness of U.S. capital markets and when companies can't risk litigating huge dollar suits and feel under pressure to settle them, shareholders lose.

Two considerations drive the concern. First, shareholders receive settlements generally no more than 3 percent of investor losses, while 25 to 30 percent of any recovery goes to class action lawyers. Second, how the prospect of corporate liability deters fraud by corporate executives isn't clear. Did Bernie Ebbers care that WorldCom would pay billions in class action settlements if his fraud were discovered? And even if deterrence works, why not rely on actions by the SEC and the Department of Justice?

Shareholders of public companies should be at the center of any discussion of securities class action reform. It is those shareholders who recover and pay, and who benefit from deterrence, if there's a benefit to be had. Some reformers recommend that shareholders should decide how they want to resolve disputes with their companies, including whether they want to preserve class actions at all. Runaway securities litigation costs are a tax on our capital market and a tax on shareholders. The recent blue- ribbon reports are right. The time for reform is now. I'm Glenn Hubbard.