RiskMetrics Group reports that shareholder activism and litigation are flourishing as a result of the credit crisis, as investors blame the turmoil on weak risk management.

The firm published two separate studies examining shareholder responses to the subprime credit crisis. The first report identifies the corporate governance factors involved in the credit crisis, how stronger provisions might have mitigated investor risk, and the ways investors are evaluating boards’ risk management and disclosure practices. The second report examines the wave of securities litigation and regulatory enforcement actions that are beginning to swell as a result. A major finding from both reports is that shareholder activism and litigation has increased.

The first report finds that ineffective risk management by corporations with subprime exposure, and the absence of mortgage industry regulation, are considered to be the key causes of the mortgage meltdown by investors. Additionally, the report found a substantial majority of investors believe boards lack risk management expertise.

However, of the respondents who vote proxies, about 60% indicated they were unlikely or unsure whether they would hold boards accountable for failure to mitigate the risks related to the credit crisis by withholding votes from directors. In fact, lack of board oversight was only the third most concerning governance factor for all the respondents (22%) after lack of transparency (38%) and poor pay practices encouraging short-term performance (29%).

“Although investor respondents may generally not be interested in turning directors into scapegoats for credit-related problems, they do expect directors to hold senior managers accountable for risk management breakdowns that occurred on their watch,” said Bimal Patel, manager of Corporate Governance and Policy at RiskMetrics Group. “Investors are looking to directors to strengthen their ability to effectively monitor risk in the future. In fact, of the institutions that may consider voting against directors targeted for their roles at their respective companies, 41% said the entire board should be held accountable, 36% said members of the Risk Committee, if one existed, and 23% would hold the Audit Committee responsible.”

The second report revealed that, as of early April, there were at least 67 subprime-related securities class actions, targeting underwriting firms, investment managers, home builders, and mortgage lenders. It adds that the litigation wave has spread beyond companies with direct ties to the traditional subprime-related fields, and is now hitting companies facing issues concerning valuation of subprime-related assets such as asset-backed securities held as investments or cash equivalents by the company.

“As the credit markets remain tight, more subprime-related companies may seek bankruptcy protection, leaving class action plaintiffs to look to auditors, underwriters and others for financial recoveries,” said Adam Savett, head of RiskMetrics Group’s Securities Class Action Services.