Shareholder Suit a Tough Sell With HP Stock High

Not every embarrassing corporate conflagration makes an easy shareholder suit (but Bill Lerach is giving it his best shot with HP).

It’s a lesson lawyers have learned in recent months from the ongoing stock options backdating suits, where many companies with high-profile troubles have seen relatively small changes in stock price.

And it’s even more true of Hewlett-Packard.

As Benjamin Pimentel of the San Francisco Chronicle points out, while a group of HP board members — and possibly executives and lawyers — trundles its way toward disrepute in the aftermath of an investigation they authorized (in which two other board members had private phone records accessed by sketchy means), the company’s stock price is doing just fine. In fact, investment experts are about the only people downplaying a mess that has federal and state prosecutors simultaneously investigating possible charges.

So what’s a plaintiff lawyer to do? William Lerach, the lead partner at Lerach, Coughlin, Stoia, Geller, Rudman & Robbins, decided to file a derivative suit Thursday. Such cases are almost always less lucrative than shareholder class actions, but they can be effective, Lerach said in a phone interview, at getting better controls in response to the governance problems that cost a company money without gutting its share price.

Of course, over the past few decades, derivative cases have developed a reputation as copycat suits filed in the aftermath of securities class actions. But that’s been less true recently, especially in the aftermath of the options backdating mess. “This is where the derivative lawsuit plays a very important role in corporate governance,” he said.

— Justin Scheck