Corporate Counsel - Pulling the Rug Out

November 01, 2005

Pulling the Rug Out

CAVEAT DIRECTORS AND officers. In the name of cooperation, corporations are increasingly bowing togovernment pressure andforcing directors, officers, and employeesto pay their own legal fees from government investigations. Executives are also being asked to pay settlements,fines, and penalties out of their own pockets, too. Historically, companies shouldered allcosts associated with civil suits and government investigations, as well as judgments, settlements,and fines for directorsand employees. But directors and officers are finding that the solid footing they were once standing on is no longer there. Even D&O insurance policies don’talways reduce their exposure, because sometimes the government prohibits these policies from being tapped. At the same time, a company’s refusal to indemnify a director or officer may directly contradict its corporate bylaws, as well asstate laws. But faced with either placatinga federal prosecutor or ignoring state corporate law, companies sometimes pickthe former. These developments put businesses and individuals in a bind andcan pit corporations against their mostvaluable executives.