Magazine article USA TODAY

Protecting Corporate Officers from Lawsuits

Magazine article USA TODAY

Protecting Corporate Officers from Lawsuits

Article excerpt

Top corporate officers and directors increasingly may find themselves named as defendants in complex and costly legal proceedings. While CEOs, directors, and senior officers of publicly held corporations seldom have been found personally liable for acts taken on behalf of the corporation, there is a growing trend toward targeting lawsuits at key executives, according to Maryann A. Waryjas, a partner in the corporate and securities practice of the law firm of Jenner & Block, Chicago, III.

Fueled by battles for corporate control, shareholder derivative suits, product liability, and securities class actions, litigation claims against directors and officers can occur at any time. California's Proposition 211, which was defeated on the November, 1996, ballot, would have prohibited companies from indemnifying officers and directors when they are named in securities lawsuits, "Although defeated, Proposition 211 is a scary indicator of today's litigious environment," maintains Waryjas."We may see modified versions of it in other states."

The increased threat of litigation is giving rise to greater concerns about the protections available for directors and senior management. "Indemnification is one of the protections that corporations provide to their directors, the CEO, and other senior officers to help them sleep more peacefully at night, without unduly worrying about the personal financial costs inherent in defending litigation. In today's environment, maximum protection is crucial to attracting and retaining talented individuals to serve as directors and senior executives."

According to Waryjas, there are several strategies for maximizing protection for selected members of senior management. These include devising a policy for mandatory indemnification and advancement of expenses for all senior executives and directors; adding provisions to the company's charter and bylaws which eliminate or reduce directors' personal liability; entering into separate indemnification and contribution agreements with each senior executive and director; and purchasing adequate director and officer insurance coverage or implementing other funding mechanisms, such as an insurance subsidiary, a pooling arrangement, letters of credit, or trusts. …

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