From great expectations to an even greater failure - the case of Montenegrin regulatory framework on shareholder derivative suits as an incentive for rethinking the concept itself

• Author: Vladimir Savkovic
• Position: Associate Professor
• Pages: 7-21

PROCEEDINGS SUBMITTED TO 6TH INTERNATIONAL

CONFERENCE “PERSPECTIVES OF BUSINESS LAW

IN THE THIRD MILLENNIUM”, 25 -26 NOVEMBER 2016,

THE BUCHAREST UNIVERSITY OF ECONOMIC STUDIES,

BUCHAREST, ROMANIA

From great expectations to an even greater failure - the case

of Montenegrin regulatory framework on shareholder derivative suits

as an incentive for rethinking the concept itself

1

Associate Professor Vladimir SAVKOVIĆ

2

Abstrac t

The auth or utili zes a case study of Montenegri n regulat ory concep t of shareho lder

deriva tive su its in o rder to demonstrate, by comparin g its feat ures with such con cepts in

other leg al systems and features mark ed as favorab le factors in lega l theory, that its

failure, as well a s th e failure of derivati ve suit s in other count ries can not be a priori

consid ered as result of inadeq uate approa ch of t he leg islator. Along with some o ther

importa nt legal systems, shareho lder derivative litiga tion in United Stat es is also analyze d,

since its tra ck record shows that it i s virtu ally the sin gle at lea st rela tively successful

system of derivati ve suits so far. This a nalysis is made so a s to di stinguish the pa rticular

and in many wa ys unique features o f the sh areholder derivat ive litig ation concept in United

Stat es t hat enabled t he relative succe ss of it. As result of t he resea rch co nducted and

anal yses made, th e autho r argues t hat the re is an inherent flaw in the very foun dation of

the concep t of shareh older deri vative su its, which generally hinders the use of this l egal

mechani sm. Fina lly, the aut hor finds tha t this flaw is deepl y rooted in wh at is known today

in the ory of company law as t he first agen cy problem.

Keyword s: shareho lder deri vative suits; Mo ntenegrin regulato ry framework;

legisl ator; first agency pro blem; incentives, in herent flaw

JEL Cla ssification: K22

1. Introduction

A. Agency Problems and Derivative Suits as Suggested Solution

From the historical point of view, shareholder derivative suits had emerged

as one of the earliest mechanisms used to resolve the first agency problem -

conflict between the owners of a company and the appointed mangers, i.e.

1

This article was submitt ed to 6th International Conference “P erspectives of Bus iness Law in the

Third M illennium”, 25 -26 November 2016, the Bucharest University of Economic Studies,

Bucharest, Romania.

2

Vladimir Savković - University of Montenegro, Faculty of Law, vsavkovic@t-com.me