October 29, 2012

Continuing with our theme on the role of counsel in various aspects of the client’s activities we focus in this post on how attorneys can support the activities of the board of directors.  The general counsel and any outside counsel advising the corporation on matters relating to corporate governance issues play an important role in ensuring that the directors understand the legal rights and responsibilities and that relations between the directors and members of the management team proceed smoothly and professionally. For example, while the agenda for meetings of the board of directors will be set by the chairperson of the board and the CEO (if the CEO is not also serving as chairperson), and the members of the executive team will be primarily responsible for collecting and disseminating the information necessary for adequate board deliberations, the attorney will be the one who makes sure that all decisions are reached in a manner that meets or exceeds the applicable legal standards.  For larger companies, particularly firms which have securities listed on a national exchange such as the NYSE or Nasdaq, the list of responsibilities for the attorney advising the board of directors can be quite long and include all or most of the following responsibilities:

  • Determining the scope of the reporting obligations of the company and its directors, officers and principal shareholders;
  • Establishing procedures for the selection of directors, ensuring that the composition of the board satisfies applicable director independence requirements;
  • Establishing director education and training programs, with a particular emphasis on financial literacy
  • Identifying and documenting the duties and responsibilities of the audit committee, including adoption of a written charter and a policy for review and approval of services provided by outside auditors;
  • Establishing disclosure controls and procedures, including a formal disclosure committee;
  • Establishing a timetable for drafting, completion, filing, and distribution of the company’s required periodic shareholders’ reports and other disclosure documents;
  • Establishing procedures for disclosures of material information regarding the company, including press releases and other communications;
  • Establishing procedures for satisfying officer, director, and principal shareholder trading disclosures and reporting requirements;
  • Preparing a timetable and list of activities and responsible parties for preparation and filing of annual reports and the annual report to shareholders;
  • Establishing procedures for preparation of proxy materials for annual shareholders’ meetings;
  • Drafting and overseeing distribution of appropriate corporate governance codes and policy statements; and
  • Establishing procedures for compliance with the SEC standards of professional conduct for attorneys and “hotline” procedures for complaints regarding accounting matters.

The broad theory and the specifics of the applicable state rules of professional conduct, the applicable state corporation law and the corporate bylaws, particularly in the areas of the call and conduct of board meetings and the duties and responsibilities of directors, must be at the attorney’s fingertips when dealing with corporate directors of a corporate client. These are the business attorney’s Evidence Code, governing questions that will need to be answered without the luxury of time to research the law. Without knowledge of the specifics, challenges to the call of a meeting cannot be answered or a transaction in which a director has a material financial interest will not be approved with the proper formalities; without the broader theory, analysis of factually based issues not specifically covered in a code section may be flawed. Therefore counsel must continuously reread the relevant statutes and new and revised provisions must be studied on a regular basis.  In addition, counsel must remain current on case law of the state in which the corporation has been incorporated, as well as the case law of other respect jurisdictions, and prepare presentations for the directors on new judicial interpretation that can guide the actions of the directors. All this means that counsel must invest the necessary time and effort to regularly review relevant treatises and publications distributed by law firms with known expertise in providing guidance in the corporate governance area.  In addition, counsel should become involved with national, state and local bar associations that continuously offer educational programs on director responsibility and liability issues.