As organizations continue to evolve and grow, so too does the role of the general counsel. Recent, diverse developments underscore how general counsel are no longer just corporate lawyers but also essential executive officers.
These developments include the emergence and authority of new, non-traditional executive officer positions. Also new is the willingness of the chief executive officer to take public positions on social issues, and to participate in social media. In addition, new proposals to repeal the Sarbanes Oxley Act are prompting a reaffirmation of principles of corporate responsibility, and the lawyer’s relationship to corporate governance.
With respect to each … Read more
A significant emerging governance issue is how best to monitor – and influence – the management style of senior executives who by nature are insensitive to the risks of their initiatives. As recent controversies across multiple industry sectors confirm, such insensitivity can lead to extraordinary legal, accounting and reputational crises for the organization.
The issue extends beyond the chief executive officer to other senior officers (e.g., the chief operating officer, the chief financial officer, the chief information officer) with significant organizational portfolios and the authority to implement strategic initiatives. Their potential insensitivity to risk can similarly trigger enterprise-level concerns.
The … Read more
Multiple recent developments suggest that governing boards will continue to be called upon to address the personal liability concerns of corporate gatekeepers and other executives. There may be no clear indication yet of whether the Trump administration will endorse government individual accountability initiatives, such as the Yates Memorandum. But these new developments indicate that the “pipeline effect” of investigations commenced after the Yates memo was issued in September 2015 will be felt for the foreseeable future.
Such an effect will undoubtedly fuel the self-interest tendencies of many key corporate leaders. That, in turn, could enhance the potential for conflict between … Read more
An emerging best practice of granting general counsel greater organizational prominence can create risks and benefits for corporate governance The general counsel’s ability to serve as a business partner of management helps establish the credibility essential to the successful performance of her roles as legal advisor and guardian of the corporation’s reputation. Yet this valuable business partnership can have the unintended consequence of weakening the attorney-client privilege that generally cloaks the general counsel’s advice to management.
The model of the organizationally prominent general counsel is rooted in the post-Sarbanes-Oxley era’s emphasis on corporate responsibility. Important policy monographs from the American … Read more
A recent scholarly article questioning the realistic financial liability exposure of corporate directors serves to prompt a larger discussion on the broad range of risks faced by directors, and actions that can be taken to mitigate those risks.
In the interesting and well-written piece, “Seven Myths of Boards of Directors”, Professor David Larcker and Brian Tayan identify seven common presumptions about board service that the authors believe are not substantiated by empirical evidence. “Myth Six” is that corporate directors are exposed to “significant personal legal and financial risk” arising from their service. Relying in part on an … Read more
The September 9 Department of Justice release of guidelines on corporate prosecution is a significant development that should be taken seriously by governing boards across industry sectors. The new guidelines, with their substantially increased focus on individual accountability, will likely affect the board’s approach to legal compliance, internal investigations and interaction with management on matters of regulatory concern. An attentive, yet measured response would be consistent with the board’s fiduciary duty of care.
The guidance, presented in the form of a memo to federal prosecutors from Deputy Attorney General Sally Quillan Yates, concentrates on seeking individual accountability for corporate wrongdoing. … Read more
Both “deal” and “governance” counsel will enjoy sharing with corporate clients the highly practical guidance provided by Chief Justice Leo E. Strine, Jr. in a newly published article in The Business Lawyer. In his article, the Chief Justice identifies several actions lawyers can recommend to improve the process by which boards review merger/acquisition proposals. These include promoting more effective decision making, mitigating the potential for conflicts of interest and more accurately recording the exercise of board judgment – all for the purpose of reducing transaction exposure to future litigation challenge. More broadly, these recommendations serve to underscore the … Read more
This post comes from Michael W. Peregrine, a partner in McDermott Will & Emery. Mr. Peregrine advises corporations, officers and directors on matters relating to corporate governance, fiduciary duties and officer/director liability issues. His views do not necessarily reflect the views of McDermott Will & Emery or its clients. Mr. Peregrine wishes to thank his colleague, Kelsey Leingang, for her assistance in the preparation of his post.
The general counsel should be proactive in reclaiming her traditional role as an adviser on organizational ethics, in addition to her accepted roles as legal counselor and business partner. Legal scholars, industry observers … Read more
The following post comes to us from Michael W. Peregrine, Partner at McDermott Will & Emery LLP.
Outside counsel’s report to the General Motors Board of Directors on the ignition switch controversy offers important governance lessons on the potential frailties of risk management systems. These lessons speak to reporting breakdowns and cultural barriers that can arise within any organization, not just one of the world’s largest corporations. As such, the lessons transcend the automotive/manufacturing sectors to apply across industry lines. The conclusions and recommendations of the “Valukas Report” are painful to read, extraordinary in their scope, and are … Read more
The following post comes to us from Michael W. Peregrine, Partner at McDermott Will & Emery, Andrew C. Liazos, head of McDermott’s executive compensation practice, and Timothy J. Cotter, Managing Director at Sullivan, Cotter, and Associates, Inc.
Governing boards should consider compliance-based incentive compensation as a supplement to statutorily mandated “clawback” provisions, and as an alternative to more aggressive proposals to recoup past compensation from “culpable” executives. The general counsel is well situated to support the board in any evaluation of compensation-based executive accountability policies.
There is much public discourse concerning the function of clawback clauses, their structure, and their … Read more
The recent increase in the frequency and success with which “willful blindness” theories have been asserted in litigation may have long term implications for the corporate director’s liability profile.
Willful blindness is an aggressive liability theory that seeks to expand the definition of “knowledge” to include situations in which institutions or individuals “turn a blind eye” when there is a high probability that a particular, troubling, fact or circumstance exists. Assessing willful blindness involves a highly subjective analysis, and can be especially troublesome for defendants in cases where bad facts, and real harm, may be present. As such, it is … Read more