The global financial and economic crisis has, since it first arose in 2007, led to numerous and searching reappraisals of corporate governance in financial firms – particularly in the United States and the United Kingdom, the two countries at the very heart of the crisis. In the aftermath of this catastrophe, US and UK academics and practitioners alike have sought to diagnose what went wrong and to devise solutions to prevent it from happening again. Amidst the profusion of regulatory analyses and reform proposals, this fascinating and important book undertakes a related, though distinct, inquiry: Why have shareholders of UK financial institutions been so reluctant to sue in the wake of the crisis?

As Professor Joan Loughrey (editor of the book) suggests in her introduction, the lack of shareholder suits alleging breach of duty by directors of banks and other financial firms is indeed surprising given the magnitude of the losses borne and the widespread perception that those losses are substantially attributable to mismanagement (p. 7). The contributors to this book – including both academics and practitioners – approach this puzzle from various perspectives, some focusing on the substance of relevant directors' duties (both common-law and statutory) while others focus on procedural modes of shareholder litigation. These strands are drawn together in later chapters, which include an academic-practitioner discussion and Professor Loughrey's conclusions.

The opening chapters examine the director's duty of care and duty to promote the success of the company, now codified in sections 174 and 172 of the Companies Act 2006, respectively, as well as the section 417 “business review” intended to illuminate the directors' performance with respect to the latter duty. In each case, the authors find little reason to expect successful shareholder litigation relating to the crisis.

Professor Loughrey begins with a chapter exploring various dimensions of the director's duty of care potentially applicable to the crisis context, concluding that shareholders advancing a care claim would face substantial impediments – notably judicial reluctance to impose liability where directors have “made bad decisions” but have not outright “abdicated their managerial responsibilities,” and the difficulty of establishing causation “given the unforeseeability of the financial crisis and the scale of losses that materialized” (p. 46).

Professor Andrew Keay, then, examines the director's duty to promote the success of the company under section 172, a provision reflecting the view that director decision-making ought to be oriented toward what is typically called “enlightened shareholder value.” While section 172 requires the director to “act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members” – that is, its shareholders – the director in so doing is to “have regard” to a non-exclusive list of other matters and constituencies, notably the “long term” consequences of a given decision and the interests of employees, suppliers, customers, the community, and others (Companies Act 2006, s. 172(1)). The broader purpose of section 172, Professor Keay explains, “was primarily to emphasize the fact that directors should not run a company for short-term gains alone” (p. 63), yet his analysis provides substantial reason to doubt that the provision could meaningfully counter short-term market pressures of the sort thought to have contributed to the crisis. “While the duty … might be regarded as educational (as far as directors are concerned) it is vague and provides little direction or even guidance,” he writes (p. 95). Moreover, the subjectivity of the core duty – requiring pursuit of what the director “considers, in good faith,” would most likely promote the company's success – effectively undercuts robust enforcement. Professor Keay's comprehensible pessimism is shared by Professor Charlotte Villiers, whose in-depth study of the section 417 business review reveals that management – or perhaps more pertinently, their lawyers – have responded with cautious boilerplate aimed at fulfilling the statutory requirement while avoiding more substantial forward-looking disclosures that “could come back to haunt them in a legal challenge” (pp. 108, 119–120). Taken together, the detailed and informative analyses of Professors Loughrey, Keay, and Villiers paint a bleak picture of the prospect for enforcement of directors' duties following the crisis.

While other contributions suggest that section 172 may nevertheless prompt productive governance changes, the provision's practical impact remains far from certain. Professor Loughrey observes, in her chapter on the duty of care, that problems in the financial sector appear to have arisen predominantly from bad decision-making rather than outright abdication – and as management consultant Andrew Campbell's contribution explains, neuroscientists' growing understanding of how and why decision-making processes go awry suggests some potential for developing procedural “‘safeguards’, that is, additions to a decision process that can counterbalance the effects of distorted thinking” (p. 139). In the academic-practitioner discussion transcribed later in the book, one participant suggests that section 172 might itself be viewed as a useful step in this direction – for example, by reminding directors to weigh into the balance the impacts of a given decision on non-shareholder constituencies (pp. 233–234, 249–250). Practitioners participating in the discussion, however, expressed the view that section 172 has little practical impact – one characterizing it as “hot air which will never achieve anything” and another confirming that “it hasn't altered [his] advice” to directors (pp. 232–233). As Professor Loughrey rightly observes in her conclusion, if such views are widespread among those advising directors, then section 172 “may well have little impact on board behaviour, no matter what academics perceive to be its potential” (pp. 250–251).

The difficulties facing UK shareholders contemplating suit for breach of duty are only multiplied by the procedural challenges involved. While practitioner Robin Hollington's discussion of the remedy for just and equitable winding up in the context of Caribbean hedge funds (pp. 182–185) does, as Professor Loughrey suggests in her introduction, indicate that “an established shareholder remedy can be utilized imaginatively by shareholders to obtain effective redress” (p. 10), the broader prospects for UK shareholder actions against financial firm directors remain dim. In their thorough assessment of derivative proceedings – in which shareholders seek to enforce rights of the company – Professors Keay and Loughrey conclude that reforms introduced through the Companies Act 2006 have not achieved the stated aim of clarifying the procedure. This they attribute in part to “the flawed nature of the reforms themselves such as, for example, the retention of ratification as a bar to a derivative claim,” and in part to “the traditional suspicion of the English courts towards derivative actions” – a posture reflected in the fact that “the permission cases that have been heard thus far appear to have led to mini-trials, something that the Law Commission wanted to avoid in any statutory derivative process” (pp. 226–227). Professor Roman Tomasic and Dr. Folarin Akinbami add empirical detail, finding in their Westlaw-based study of cases concerning shareholders under the Companies Act from 2000 to 2010 (excluding Scottish, European Court of Justice, and Privy Council cases) that just eight of 115 cases were derivative actions, of which just one involved a public company (pp. 158–160). Professor Tomasic and Dr. Akinbami aptly sum up the descriptive thrust of the book as a whole in concluding that court enforcement of UK company law remains a “myth,” and that “the prospects for successful litigation against directors of large public companies, such as directors of failed UK banks and financial institutions, are somewhat remote” (pp. 171–172).

The book's principal contribution lies in its detailed and expert analysis of the state of directors' duties and shareholder litigation following the crisis, and its lucid account of the substantial challenges faced by UK shareholders contemplating suit against directors of banks and other financial institutions. As such, the book will be of great interest not only to UK legal academics and practitioners, but also to their counterparts engaged in comparative research in other countries – perhaps most of all in the United States, where a broadly similar crisis arose for broadly similar reasons, yet where the shareholder litigation landscape differs in important ways.

While not the emphasis of this book, an important normative question toward which various contributors gesture is the degree to which corporate decision-making ought to be oriented toward the shareholders and their interests, particularly in financial firms – an overarching issue at once implicating the shareholders' governance authority and their enforcement capabilities, as well as the respective postures of lawmakers, regulators, and courts. On this broader matter, various contributions to the book exhibit differing levels of enthusiasm for the enhancement of shareholders' disciplinary powers in the wake of the crisis.

In their chapter on derivative proceedings, for example, Professors Keay and Loughrey lament “the present state of uncertainty” in which “prospective applicants will in many cases be unable to obtain confident and clear advice as to the merits of an application for permission to continue derivative proceedings,” the result likely being “that all but the valiant will be deterred from proceeding” (p. 228) – suggesting that greater shareholder capacity to discipline management through derivative suits would be a welcome development. With respect to financial firms specifically, Professor Loughrey suggests in her introduction that more robust shareholder enforcement ought to be expected in this specific context than elsewhere. “If, even in such extreme circumstances, and with such huge losses, a claim against bank directors was not viable,” she writes, “then this has ramifications that go well beyond the financial sector. It raises far broader questions about the efficacy of the law on directors' duties and shareholder litigation as a means of holding directors to account, particularly in the context of dispersed share-ownership companies” (pp. 7–8). It is assumed that the shareholders' disciplinary powers ought to be at least as strong in financial firms as they are in other contexts.

Professor Tomasic and Dr. Akinbami, on the other hand, appear less sanguine regarding the desirability of stronger disciplinary powers for shareholders, particularly in financial firms. Noting the threat posed by “constant pressure to achieve short term performance goals,” they observe that “[t]hese pressures, to a large degree, come from institutional investors themselves. So rather than being seen as the solution, short-term oriented institutional investors may actually be part of the problem” (p. 146). Likewise they question the practicability of the UK Stewardship Code, aimed at promoting more substantial engagement among institutional investors. Institutions, they explain, “usually adopt a short-term or quarterly view of stock prices. As a result, they may not be the solution to corporate governance problems that [Sir David] Walker suggests. These handicaps also apply to litigious actions that shareholders may contemplate” (p. 153).

Professor Loughrey and the other contributors to this book provide much food for thought on a number of pressing issues facing UK lawmakers, regulators, and courts, as well as investors and taxpayers still struggling to comprehend the crisis and its aftermath. Their core project being to explain financial firm shareholders' reluctance to sue directors for breach of duty, they do not purport to provide silver-bullet regulatory solutions to the problem of risk-taking in financial firms – and it is a credit to the authors that they avoid glib policy prescription. Nevertheless, through its engaging and thoughtful exploration of a surprising post-crisis legal phenomenon, Directors' Duties and Shareholder Litigation in the Wake of the Financial Crisis makes an important contribution to the ongoing debate over the role of shareholders in financial and non-financial firms alike.