My wife invests her money in stocks she likes. She liked Apple products long ago and insisted, against my and our financial friends’ protests, on buying their stock in the $30 range when no one wanted it. Had I taken all of our money and done that… well we didn’t. Then she insisted on buying the stock where her brother works, Honeywell in the $50 (it is now over $80). And where her sister worked, J.C. Penney,  which is one of her only stock dogs, dropping from over $40 per share to the teens.

In the mail last week, we received a very official, class action looking lawsuit form against J.C. Penney and all their Board of Directors. For once I read this document. Only retired, former CFOs would ever do such a silly, time wasting thing.

Here is what this Proposed Settlement of Derivative Action notice seemed to say:

-someone named Everett Ozeene (now deceased) sued the company and all the Directors individually because of how they paid certain Executive Termination Pay. No mention of to who or how much, which is the more fun part I would have enjoyed reading.

-the notice then said this was not a Class Action suit on behalf of all Penny’s shareholders and that no shareholder would get any money! Now I am very curious. Why are we doing all this?

-it was then explained that J.C. Penney agreed that they had done something wrong involving Executive Termination Pay and that their Board of Directors’  Compensation Committee would do a better job on this for the next four years. Some detail was provided like making clear and in simple English these Termination agreements in future SEC filings. (Good luck on the simple, clear English part.) The Compensation Committee would meet four times a year and discuss all these matters with the full Board of Directors, etc. (If they had not done most of the things in the notice, they should get fired and sued for real.)

-I am still reading and re-reading because I don’t get what this is about… until the last section of the notice that states that the Lawyers who helped Mr. Ozeene bring this critical matter to everyones attention will receive $5,000,000 for their help and trouble. As often, I am shocked and disgusted, even though by this point of my business life, I have seen and heard this story too many times.

So poor J.C. Penney,  whose stock price has fallen dramatically in the last two years, pays $5 million to make this lawsuit of questionable value or merit go away. Why do companies and their Boards agree to pay off lawyers? Because they are afraid. Afraid of litigation in general.  Afraid of  having their Senior Officers having to testify. Afraid of having their precious Directors being personally suit and having to testify.

But mostly large,  public companies like J.C. Penney are afraid of looking stupid in a trial and having it published in all the financial media and on CNN.

As everyone knows, there is no room for fear in life or in business. We discuss this a lot in my book, The Business Zoo.

We have written before about the endless Class Action suits involving asbestos where whole industry segments have gone into bankruptcy. Or about the injustice to a fine old firm like Dow Chemical involving faulty implants that really were not faulty. I hope someday the public in general will help our state and federal representatives do a better job of rewarding those who are rightfully damaged versus a part of the legal profession who are so often wrongfully rewarded. Let’s all try to be a little more brave about doing the right thing.

Note to self: listen to wife more as she suggested we should have sold Penny when her sister retired earlier this year!