December 20, 2005
On December 7, 2005, a blue ribbon commission of the National Association of Corporate Directors issued a report that discusses the current legal liability environment for directors and recommends best practices for directors to safeguard against personal liability. John F. Olson, a partner in the Washington, D.C. office of Gibson, Dunn & Crutcher LLP, served on the commission.
The NACD report is particularly timely, in light of recent press reports that outside directors are being targeted by the SEC in several pending investigations, including the SEC’s investigation of Hollinger International. According to press reports, "Wells notices" have been sent to current and former members of the audit committee of Hollinger, indicating that the Enforcement Division intends to recommend that enforcement actions be brought against those directors. It is believed that the investigation focuses on, inter alia, the directors’ approval of over $200 million in management fees paid to a company allegedly controlled by former chairman Conrad Black. In related news, a Deputy Director of the Enforcement Division recently was quoted as saying that the SEC will pursue cases against outside directors when the directors have "taken no care in ensuring the accuracy" of statements made in SEC filings that they sign. "When they sign something, it has to have some basis," the SEC official said.
The threat of enforcement actions against outside directors underscores that boards of directors should take appropriate steps to strengthen their board decision-making processes. The recommendations in the NACD report include that directors:
The appendices to the NACD report include an excerpt from a chapter on indemnification and insurance authored by Gibson Dunn attorneys that has been published as part of a larger work on corporate governance co-edited by Amy L. Goodman, a partner in the Washington, D.C. office of Gibson Dunn. The excerpt discusses the role of insurance in protecting directors and officers in circumstances where indemnification may be unavailable and reviews the structure of a typical D&O insurance policy.
The NACD report, entitled "Report of the NACD Blue Ribbon Commission on Director Liability: Myths, Realities and Prevention," is available from the NACD at http://www.nacdonline.org.
Gibson, Dunn & Crutcher’s lawyers are available to address questions regarding these issues. For further information, please contact the attorney with whom you work or:
Jonathan C. Dickey – Bay Area Offices (650/849-5324; firstname.lastname@example.org)
Robert F. Serio – New York (212/351-3917; email@example.com)
Wayne W. Smith – Orange County (949/451-4108; firstname.lastname@example.org)
John F. Olson – Washington DC (202/955-8522; email@example.com)
Amy L. Goodman – Washington DC (202/955-8653; firstname.lastname@example.org)
© 2005 Gibson, Dunn & Crutcher LLP