Articles & Updates - Priya Cherian Huskins

Directors and officers of corporations face the risk of personal liability for actions performed and decisions made on behalf of the corporation. Perhaps unknowingly, many directors and officers unnecessarily accept an enhanced risk of personal liability by failing to insist on a personal indemnification agreement - a relatively common agreement that obligates the corporation to indemnify a director or officer for his or her actions.

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For every director who serves on the board of a corporation, the question arises of where to draw the line between the role and responsibilities of the corporation’s board and those of its executive officers. On the one hand, the board of directors does not want to micromanage the corporation’s officers and risk usurping the authority of the management team; on the other hand, the board certainly does not want to abdicate its responsibilities, especially in today’s legal environment.

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Directors and Officers of private companies potentially face unlimited personal liability if they are sued. As a result, when it is time for a start-up company to recruit serious talent to take the company to the next level, the purchase of director and officer liability insurance becomes a priority. This article was first published in the Spring 2008 issue of The Entrepreneurs Report, by Wilson, Sonsini, Goodrich & Rosati.

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When it comes to compliance with the Foreign Corrupt Practices Act (FCPA), multinational companies that adopt a "don't ask, don't tell" policy may come to regret their hands-off approach. Compliance with the FCPA's laws against bribing foreign officials has recently come under increased scrutiny by the Securities and Exchange Commission (SEC), the United States Department of Justice (DOJ), and the plaintiffs' bar. At the same time, jurisdictions outside of the United States have also exhibited a renewed interest in enforcing their own FCPA-like laws.

For individual officers and directors, the environment is equally challenging. Of particular concern may be an emerging focus by the SEC to hold individual officers personally liable for failing to implement proper internal controls designed to prevent FCPA violations.

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Consider this scenario: a company's CEO tells his board that he has received a compelling offer for the sale of the company. Upon reviewing the offer, the directors agree that the offer is attractive, and think that the shareholders would be well-served to accept the offer. However, as experienced board members, they know that the potential sale of a company is an inflection point for litigation. The board's next steps are critical, both to maximize shareholder value and to avoid litigation that may result from failing to do so. This article outlines the fundamental duties of a board considering the sale of a company. The article also details what a board can do - beyond diligently fulfilling its duties - to protect itself from liability and thereby focus entirely on promoting the interest of shareholders.

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Given the increasingly global nature of business, many US public and private companies find it advantageous to incorporate subsidiaries in jurisdictions outside of the United States. It has long been accepted as conventional wisdom that the officers and directors of these foreign subsidiaries face little risk of personal liability and that, if a problem were to arise, the parent company’s director and officer liability insurance policy would respond. Conventional wisdom is, in this case, unreliable.

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"Don't ask, don't tell" is not a winning strategy when it comes to compliance with the Foreign Corrupt Practices Act (FCPA). Both public and private companies need a more hands-on approach, and urgently so.

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