Michael W. Peregrine

The Board’s Marchand/Clovis Reaction Plan

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Corporate boards may wish to adopt a plan of action in response to two recent Delaware decisions suggesting a shift in application of the historically director-friendly Caremark[1] standard for board oversight of a company’s compliance systems.  Such a plan would be designed to reduce director liability exposure, support director retention, and enhance the effectiveness of risk oversight.

It is well established that a Caremark claim is one of the most difficult theories in corporation law to win[2].  It requires particularized facts that either (i) “the directors completely fail[ed] to implement any reporting or information system or controls, … Read more

Business Roundtable’s Statement on Corporate Purposes Has Noble Aims but Creates Uncertainty

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The Business Roundtable’s controversial new Statement on the Purpose of a Corporation (“Statement”) is a significant corporate governance development that requires thorough board discussion. The Statement will not only affect corporate purposes generally, but also have a very uncertain impact on the fiduciary obligations of the board of directors. The discussion of it should be led, in part, by the chief legal officer.

The Statement is grounded in traditional American principles of economic equality and opportunity: the right to “an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and … Read more

Revisiting Compliance Program Reporting Relationships

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Corporate leaders may wish to revisit the important yet sensitive topic of reporting relationships in compliance programs following the release of new guidance from the Department of Justice’s Criminal Division.

That guidance, entitled Evaluation of Corporate Compliance Programs[1], (The “New Guidance”) discusses in detail the three main thematic questions that prosecutors should apply in evaluating corporate compliance programs and how those questions can be used to elicit information as to compliance program adequacy and effectiveness. One of those thematic questions is whether the corporation’s compliance program is being implemented effectively. The autonomy of compliance program leadership is one … Read more

What Boards Should Know About CLOs’ Expanding Role

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A series of significant developments provides a timely prompt for boards of directors to acknowledge the expanding role and importance of chief legal officers (“CLO”).

These developments include the departure of several high-profile CLOs; the recognition of the CLO as a key board advisor on workforce culture and ethics; the prison release of Jeffrey Skilling; and most particularly, the 2019 survey of the Association of Corporate Counsel (“ACC”).

Any discussion with the board of these developments should be grounded in the following basic fiduciary considerations.

First is director awareness of the increasing commercial acceptance of “Chief Legal Officer” as the … Read more

The Governance Implications of Business Disruption

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In 2018, corporate boards will increasingly be called upon to respond to how innovative competitors disrupt their companies’ business models.  These competitors use technology, scale, and sharp insights into consumers to lower prices, improve products and services, and draw customers away from traditional companies, forcing those companies to cut costs and lose relevance.[1] Blockbuster, Borders, and ESPN are prime examples of victims of nimble disruptors.

Victims typically overlook the trajectory of disruptors, which focus initially on perfecting their business models rather than their products or services.[2]  Flawed governance can lead to such oversight by making it hard for … Read more

How General Counsel Are Becoming More Essential in the C-Suite

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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

The Board, the General Counsel, and the Risk-Insensitive Executive

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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

Board Forecast: Continuing Gatekeeper Anxiety

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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

General Counsel’s Growing Prominence May Prompt Privilege Problems

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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

Is the Risk of Director Liability Really a “Myth”?

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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”[1], 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.[2] Relying in part on an … Read more

The Governance Implications of DOJ’s New Corporate Conduct Enforcement Guidelines

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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

Practical Board Guidance based on Chief Justice Strine

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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.[1] 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

Reclaiming the General Counsel’s Role as Advisor on Organizational Ethics

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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 Broader Governance Lessons of the “Valukas Report”

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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

Clawbacks, Compliance and Incentive Compensation: A Supplemental Approach

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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

Willful Blindness as Boardroom “Bad Faith”

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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

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