Can we sue our CEO for mismanagement?

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Can we sue our CEO for mismanagement?

I am currently working for a publicly traded company. The company has been purchased buy another organization and our building is closing down and about 90 people will be out of a job. There is a lot of speculation about the ex-CEO and board of directors of the company and how they mismanaged and screwed the company by giving the executives huge salaries. Would we as the employees have any ground to sue the board and CEO?

Asked on December 30, 2011 under Business Law, Alaska

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

No, employees have no grounds to sue for mismanagement. In the first instance, you have no standing, or right, to sue, unless, arguably, you are also owners of the company (e.g. it's an employee owned business); since "mere" employees have no right or entitlement to their jobs, there is no cause of action for losing them.

Second, even if the employees as a group do own enough of the company to give them a legal basis to sue for mismanagement as owners, the board of directors manages the company on behalf of the owners. You'd have to sue the board, not the CEO and other executives, for the board's breach of fiduciary duty; but it is VERY difficult to show a breach of fiduciary duty--it's not enough to show that the board made questionable or bad decisions, but you'd have to show something equivalent to or very close to actual embezzlement. Board members (and also executives) are deliberately given very wide latitude in management, and they are not liable unless they have essentially engaged in criminal conduct, or at least its near equivalent. Simply giving themselves huge bonues, etc. at the expense of the employees does not even begin to approach this standard--if it did, every company in the country would be being sued even as this is written.


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