Around £75bn has been recovered for investors through corporate actions – and Institutional Protection CEO Caroline Goodman believes there is still an untapped opportunity for institutions.
Corporate fraud has proven that it is not limited by geography and that it shows no sign of going out of fashion. At the same time, the landscape for seeking collective redress against such misconduct has rapidly evolved.
Investor litigation – collective legal action by investors seeking redress for losses caused by corporate misstatements, omissions or misconduct – has moved firmly into the mainstream.
Since the landmark Morrison v National Australia Bank ruling over a decade ago, which limited the ability to bring US securities lawsuits over overseas investment losses, jurisdictions outside the US have steadily developed their own mechanisms for shareholder redress. The result is a global landscape no longer entirely dominated by US class actions – and one that is fundamentally different in how it works, what it demands of investors, and what it can deliver.
Across the UK and Europe, there are now established routes, each with its own approach to investor restitution, with different cost regimes, funding options, loss methodologies and legal procedures.
For internationally investing institutions and asset managers, this is a landscape that can no longer be ignored.
Opting in versus opting out
Unlike in the US, most European and non-US jurisdictions have chosen an opt-in litigation process, as opposed to an opt-out. This means that, rather than any eligible investor being automatically included as part of a class action, investors must choose whether or not to join an action before it commences.
Within an opt-in system, there may also be various competing actions related to the same case that investors will need to choose between, should they wish to participate.
As an example, there are currently eight different British American Tobacco cases available. These cases effectively compete for investor support and can vary significantly in terms of strategy, legal teams, cost structures and risk profile – with the potential to produce materially different results.
This therefore shifts the decision-making from that of an administrative choice to a legal one, necessitating a new framework and approach to decide whether participation and recovery are appropriate, and if so, which is the best route to take.
“Over $100bn has been returned to investors globally through collective actions, yet substantial sums still go unrecovered where institutions lack the infrastructure or expertise to monitor and assess opportunities.”
Caroline Goodman, Institutional Protection
Outside the US, institutions cannot simply rely on custodians or notification providers to handle passive reclaims. Success hinges on understanding and mitigating jurisdiction-specific risks.
While navigating these opt-in cases requires a brand-new skillset and a serious commitment to due diligence, the potential rewards – both in substantial financial recovery and enhanced long-term investment value – far outweigh the effort.
Collective power as a force for good
The financial implications alone are significant. Over the last two decades, well over $100bn (£75bn) has been returned to investors globally through collective actions, yet substantial sums still go unrecovered where institutions lack the infrastructure or expertise to properly monitor and assess opportunities.
In many opt-in cases outside the US, recoveries can also represent a materially greater proportion of investor loss than traditional US securities class actions – underlining the importance of active engagement rather than passive oversight.
Beyond recovering losses, when institutional investors act together through class actions, they represent a powerful force to drive better corporate behaviour. Investor litigation has the ability not only to recover losses but to provide further accountability for serious governance failings and encourage higher standards across the market over the long term.
For many responsible investors, cases linked to allegations of corruption, withheld information, environmental failings or broader governance breakdowns are often viewed through the lens of stewardship and long-term value protection.
Litigation has increasingly become another tool within the wider governance framework – one that enables investors to challenge behaviour that would otherwise go unchecked and help drive stronger, more resilient businesses for the future.
At its best, collective action reinforces the idea that markets cannot simply regulate themselves. When investors come together with a common purpose, they can help set expectations around accountability, transparency and corporate conduct, while protecting the interests of the beneficiaries they ultimately represent.
It is worth at this point addressing a crude line of argument against investor litigation: that recovery from a company only serves to further diminish the value of investors’ own holdings – a zero-sum game.
This overlooks the fact that company value is driven by multiple factors. More importantly, it ignores the governance case entirely: when management teams realise that both regulators and shareholders will enforce accountability through every available channel, it creates a powerful deterrent. Knowing they face multi-layered scrutiny makes executives far less likely to cross ethical or legal lines in the first place.
Inaction against this backdrop is no longer a neutral position.
Navigating complexity
The rapid growth in collective investor litigation has created a complex landscape to navigate. Investors are now faced with a growing pipeline of potential actions, multiple competing claims, differing legal structures and varying levels of risk, funding arrangements and recovery potential.
Some investors, faced with the proliferation of cases across multiple jurisdictions, conclude that opt-in litigation outside the US is simply too complex and resource-intensive to manage effectively.
“While complexity is real, the answer is not to sit on the sidelines. For investors prepared to navigate this landscape thoughtfully, the benefits far outweigh the risks.”
Caroline Goodman, Institutional Protection
This misses the point and risks missing the opportunity to reap the benefits of a much broader international system of investor restitution.
Having a clear decision-making framework is essential. Institutions need the right processes, technology, and specialist expertise to properly assess opportunities, scrutinise terms and maintain consistency across jurisdictions and cases over time.
This can help them understand the legal and commercial landscape surrounding each opportunity, from funding structures and adverse costs exposure to potential conflicts, recovery modelling, and how proceeds may ultimately be treated. Just as importantly, these factors can help institutions take a measured, independent and repeatable approach to decision-making in an increasingly crowded and fast-moving market.
While complexity is real, the answer is not to sit on the sidelines. For investors prepared to navigate this landscape thoughtfully, the benefits far outweigh the risks.
Caroline Goodman is CEO of litigation specialist Institutional Protection.
