A suggestion from a


A suggestion from a reader …

A stockholder in Sinclair Broadcast Group can file what’s called a “shareholder’s derivative action” against the officers and directors of the corporation, which is publically traded, to enjoin the officers and directors from using corporate resources in ways that do not benefit the shareholders. I believe Sinclair is incorporated in Maryland, and if so that’s probably where the action should be brought. One stockholder has standing to sue and should request a temporary restraining order before the pseudo-documentary airs to prevent the officers and directors from misusing corporate property to benefit their political agenda. The reason it is misuse of corporate property is because ordering the local stations to air the anti-Kerry propoganda will likely cause a loss of network advertising revenue, may in fact violate the stations’ contracts with the networks they are affiliated with, and is almost sure to embroil the corporation in costly legal battles, for example from entities complaining that this is an illegal corporate campaign contribution, or from angry consumers who will contest the stations’ license renewals. Against this, there has to be some plausible benefit to the stockholders or the corporate action is unlawful and could subject the officers and directors to personal liability for any damage to the stockholders. They also could be stuck with the legal fees of both the corporation and the stockholders who sued them.

Shareholders derivative actions are fairly complex; we need a Maryland corporate lawyer type. I’m a lawyer in Texas and was thinking to file the suit here but under Texas law, the acts of the officers and directors are governed by the corporate law of the state of incorporation, about which I know little. However, I do know that as a general principle, corporate officials have a fiduciary obligation to the stockholders, and everything they do is supposed to be for the benefit of the same. Normally a court won’t second-guess the decisions unless the stockholder can show that there is no plausible benefit to the corporation in the complained-of act. What could the benefit be here?

I’d be curious to hear <$NoAd$>reactions from readers with relevant legal or business experience how practicable this would be. Of course, I’m curious about everyone’s reactions. But in this case I’m particularly interested in hearing with folks with professional insight into how this might work. Of course, the most direct approach — and I suspect a successful one if done correctly — is to target Sinclair’s advertisers. Another reader writes in the following …

[I’ve removed the introduction to this letter where the reader describes a local TV market where he works. Suffice it to say that he works in local TV and says he has friends who work at some of the Sinclair affiliates in question.]

Let me tell you, they’re NOT afraid in the least of the license challenges that Steve Soto has proposed. I mean, what’s the point? If they air it, then fine, challenge away, I’m all for taking revenge on them. But the goal should be to shut down the broadcast before it happens.

What they’re deathly afraid of is the stink of this thing will somehow waft over to their advertisers. That’s of course why they’re not selling local ad time for this show. Having worked in the ad department of Sinclair’s competitor, I know that local Sinclair stations make over 60% of their ad revenue from their nightly 6pm newscast. That’s their bread and butter. You make a concerted effort to go after their top advertisers on the 5pm/6pm news hour and you’ll have the executives spiking this show so fast it’ll be amazing.

Again, I have no basis for judging what would work best, though common sense suggests that going after these guys on every front simultaneously would probably be the best bet.