A more thorough explanation:

A derivative action is a type of lawsuit where a corporation sues itself for a wrong committed against the corporation. This type of lawsuit involves two parts: (1) the failure of the board of directors to sue on an existing corporate claim and (2) the existing claim. Shareholders bring derivative suits because they stand to indirectly gain from winning a derivative suit. If a shareholder wins a derivative suit, the corporation can undergo higher share prices, resulting in higher dividends to shareholders.

For example, if a corporation's board of directors fails to sue a former executive for embezzlement, shareholders can bring a derivative action against the corporation to recover the stolen funds. If the shareholders win the lawsuit, the corporation will receive the damages awarded, which can lead to higher share prices and dividends for the shareholders.

Derivative suits are necessary because the board of directors are the primary operators of the corporation. The directors make decisions about when a corporation can sue someone else for a breach of contract, breach of duty of care, etc. As such, in the case of a breach of fiduciary duties of directors, the directors are making decisions on behalf of the corporation regarding whether or not to sue those very same directors.