Monday, September 30, 2002
Snell & Wilmer's Lonnie J. Williams Elected to Secretary of the National Conference of Bar Presidents
09-27-2002
Snell & Wilmer announced that Lonnie J. Williams, Jr., was recently elected to the Office of Secretary of the National Conference of Bar Presidents (NCBP) for a one year term. Williams previously served as a Member of the Executive Council from 1998-2001. This recent election to the office of secretary is the first step toward serving as president of the national organization.
Williams, a partner with the Phoenix office of Snell & Wilmer, is the practice group leader for the firm's employment law group. He has extensive trial experience representing clients in employment, commercial, tort, banking, condemnation/eminent domain and real estate disputes. Williams is a Past President of the Maricopa County Bar Association; a member of the National Bar Association; and a Fellow of the American Bar Foundation. Williams is currently listed in The Best Lawyers in America(R), editions 1995-2002.
Founded in 1950, the National Conference of Bar Presidents is an independent, voluntary association of individuals who share the privilege of past and present bar leadership. NCBP's focus is to provide high quality programming to assure that bar leaders remain on the cutting edge of issues of concern to their members. The organization also emphasizes outreach to minority and specialty bars.
Thursday, September 26, 2002
After Tyco, GCs Role Under Scrutiny
Scandals spark debate over legal and business duties
Otis Bilodeau -- Legal Times -- 09-26-2002
In the wake of the Tyco scandal, the ABA, ACCA and ethics scholars are re-examining the responsibilities of lawyers on the inside. Mark Belnick, the ousted general counsel of Tyco International Ltd., has been indicted by the Manhattan district attorney and sued by his former company and the Securities and Exchange Commission. His nightmarish predicament lends urgency to questions now being raised about the role of general counsel at corporations nationwide.
Some are questioning whether corporations should grant stock options to in-house lawyers. The argument is that stock options compel general counsel to buy in too much. They push GCs toward the measurable -- work that clearly impacts company profitability -- and away from work that makes the company healthy and not corrupt.
And, the ABA's Task Force on Corporate Responsibility is about to propose new rules related to the recent corporate scandals which could require every general counsel to report to both the chief executive officer and the board of directors, require regular meetings between the GC and the board in executive session, without the company's CEO present.
Finally, buried within the Sarbanes-Oxley Act of 2002, the recently passed corporate reform law, is a provision aimed at forcing corporate lawyers to be more proactive in alerting senior executives, and board members, to corporate malfeasance. The SEC is expected to issue proposed rules under that provision early next year.
Read more . . .
And see Corporate Lawyers Smell a Rat -- efforts to get in-house counsel to inform on their own employer
New York Lawyer -- September 26, 2002
Sarbanes-Oxley Act of 2002: What Corporate Lawyers Need to Know -- a seminar available on video.
Monday, September 23, 2002
Lawyer Recognize Importance of Marketing
Various methods used to hone business development skills
Tracy Carbasho -- Pittsburgh Business Times -- From the September 20, 2002 print edition
Law firm develops Marketing/Business Development Olympics to encourage attorneys to develop and use their marketing skills by completing various tasks. Each task suggested by the coordinators varied in degree of difficulty and the corresponding number of points. For example, developing an e-mail contact list was worth three points, while speaking at a trade organization brought in 40 points.
What's Important:
-- educate yourself about clients
-- find out what a client's needs are
-- work on maintaining existing clients
-- remember to respond to clients in a timely fashion
-- be a good attorney
-- develop relationships
Read more . . .
Tuesday, September 17, 2002
AIG's White Paper on the D&O Market: "Understanding Board Member Risk"
Executive Summary
It is a trying time for corporate directors and officers. Corporate scandals have put the actions of executives under greater scrutiny. New corporate governance initiatives, while a positive step in addressing valid concerns of the investing public, have created new liability exposures for directors and officers, some of which may not have been intended. The personal assets of directors and officers are at risk now more than ever. The specter of prison time also looms large. With good reason, talented people are asking themselves whether being a director is worth the risk.
In the current environment, it is critical that directors and officers investigate and understand how their directors and officers liability insurance (D&O) protects or fails to protect them. The findings could surprise them. As the nation’s leading provider of D&O insurance, National Union feels strongly that the industry’s ultimate customer—individual directors and officers—should understand why changes to the D&O insurance policy are needed. Modifications must be made in order to refocus the policy on its original intent: protecting the personal assets of directors and officers. These changes will serve the best interests of directors and officers.
The modifications being made are not only in response to the recent corporate scandals and the increased exposure that directors and officers face. They are being made because the fundamental economics of the D&O insurance industry have been extremely negative ever since the passage of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).
With this in mind, we thank PricewaterhouseCoopers for their assistance and input, included herein, into some of the underlying causes behind recent securities litigation trends and the reasons these trends have not tracked to pre-Reform Act expectations.
Despite the Reform Act’s good intentions, securities claims soared to record levels of frequency and severity after its passage. The number of companies sued in securities litigation rose nearly 300% from 1996 to 2001.1 Settlement values jumped 150% during the same time period.2 However, given the competitive environment that was created by new entrants to the marketplace, the premiums insurers charged to cover these increasing exposures reduced by more than half. In 2000, the implausible economics of the situation begin to take a visible toll. Two large D&O carriers became insolvent. Since then, several more insurance carriers have been downgraded. Currently, the balance sheets of many D&O insurance carriers are dangerously weakened.
In dozens of recent cases, due to the insolvency of a D&O insurer or a problem inherent in the D&O insurance policy itself, directors and officers have been left without protection for their personal assets. One large D&O insurance company recently went from an A- credit rating to liquidation in 18 months, leaving many insureds with a D&O policy that was not worth the paper it was printed on.
The inclusion of coverage for the corporation in the D&O policy has also had several unforeseen effects, adverse to the interests of directors and officers. First, the inclusion of “entity coverage” has diluted the amount of coverage available for directors and officers. Policy limits intended for individuals are being eroded by the corporation’s own liabilities when a claim occurs. Second, the existence of entity coverage has also reduced corporate incentives to hold down litigation costs and settlements: Corporations no longer have a vested financial interest in mitigating damages—only in settling suits within policy limits.
Since the introduction of entity coverage, settlement amounts, as well as legal expenses, have skyrocketed. Third, in certain instances, such as the corporation’s bankruptcy, directors and officers have found access to their policy proceeds (including funds to pay for their defense) wholly blocked due to the inclusion of entity coverage.
Despite certain well-publicized instances of fraud, the vast majority of directors and officers are innocent and deserve protection. If the D&O industry is unable to protect these individuals, they will not continue to expose themselves to the threat of personal litigation.
And in order for D&O insurance and the D&O insurance market to protect innocent directors and officers, immediate changes must be made:
• Entity coverage, which has diluted the protection available to directors and officers, needs to be regulated. In order for the contract to provide clarity as to what it will and will not cover, the industry needs to adopt a pre-set allocation clause, which articulates how much the D&O policy will pay on behalf of the individuals as opposed to how much the corporation will pay on behalf of its own exposure in securities claims.
• The quality of the insurance companies participating at every level of the D&O program must be sound, lest insured directors and officers be blindsided by a carrier that is financially unable to pay losses when a claim occurs. Directors and officers need to realize that their D&O insurance is not a commodity.
• D&O underwriters must understand the true nature of the risk that they are being asked to assume. The industry will not be able to survive if it is required to pay claims on behalf of policyholders who provide inaccurate or misleading information as part of the underwriting process.
• D&O insurance premiums must be aligned with the current level of securities exposure. For this to occur, premium rates must continue to climb rapidly. By returning the D&O policy to its original focus of protecting the personal assets of directors and officers, these changes will also ensure that the D&O policy provides proper economic incentives for all parties involved in defending securities claims. This will result in a reestablishment of the traditional partnership among the insurer, defense counsel, directors, officers and corporation. Individual directors and officers will be better served when this is achieved.
With recent corporate scandals, and the quick passage of the Corporate Auditing and Accountability Act of 2002 (officially titled, “Sarbanes-Oxley Act of 2002”) in response to these scandals, significant additional exposures have been created for directors and officers.
Because of this, the need for change in the D&O insurance industry has become particularly urgent. The need for knowledgeable, experienced brokers is critical. D&O insurers and brokers must act quickly to enact the changes needed to ensure a stable, enduring D&O insurance market. An in-depth analysis of the issues facing directors and officers in today’s marketplace is attached. We hope that you will find this useful and informative in understanding why, and how, the D&O industry needs to change.
Table of Contents
Executive Summary
Introduction
I Background: The PSLRA
II Expectations: Post 1995
• Capacity
• Premium Rates
• Coverage
• Entity Coverage
• Multi-Year Contracts
III Reality: Post 1995
• Frequency Rises
• Severity Increases
• Accounting Allegations
IV What Went Wrong?
• Record Rise in Restatements
• Accounting Rules Lag Behind
• Complex Disclosure Requirements
• SEC Activism
• Greater Focus by Plaintiff Firms
• Large Valuations
• Lack of Risk Sharing
V Economics of the D&O Industry
• Failed Economics
• Reinsurance Problems
• Unintended Repercussions of Entity Coverage
VI Corporate Auditing and Accountability Act of 2002
• Securities Litigation Reform
• No Bankruptcy Discharge of Securities Law Liability
• CEO/CFO Certification
• Real Time Disclosure
• Increased Frequency of SEC Review
• Audit Committee Requirements
• Executive Compensation
• Insider Transactions
• Disclosure of Off-Balance Sheet Transactions
VII Solutions for the D&O Industry
• Regulate Entity Coverage
• Price Coverage Properly
• Embrace the Flight to Quality
• Risk Sharing
• Side A Excess Program
• Resurrecting the Partnership
• Consequences of Misleading Information
• Protecting the Innocent
Conclusion
Read more . . .
Saturday, September 14, 2002
E-mail as Evidence
Paul Neale -- Law Technology News -- 09-16-2002
Nothing in e-mail is private, anything is potentially admissible as evidence and deleting e-mail doesn't necessarily destroy it. E-mail is a treasure trove of evidence during litigation. Firms can develop greater in-house expertise for retrieving, analyzing and managing this evidence, and find outside experts to help with the process.
Read more . . .
See also: Open the Door to Electronic Data Discovery
Firms Can Monitor Internet and E-Mail Activity
From snoopware to nonviral mailware, firms can limit liability by monitoring employees' computer activity
Roger Schechter -- New Jersey Law Journal -- 09-16-2002
Web surfing and e-mail can expose your firm to potential employment-related liability for inappropriate use of these resources. The risks increase exponentially with the popularity of e-mail jokes and other nonbusiness activities.
Firms can monitor employees' computer activity via a wide range of products -- known as snoopware, spyware, nonviral mailware, hackers'and surveillance utilities -- that gather information about a person's computer activity.
Read more . . .
See also:
Active Internet Monitoring Is Widespread
E-Legal: Electronic Monitoring of Employees by Employers
Justice -- An Open Letter to the Profession from Alfred P. Carlton, Jr., ABA President
Alfred P. Carlton Jr. -- Special to law.com -- 09-16-2002
The seasons have now cycled since that moment when we saw a blue September sky turn the darkest of gray. One year ago, forces from outside our imagination attacked innocent and earnest people for no other reason than they were workaday participants in the wondrous journey that is America.
Sept. 11 was not the first time we, as a nation, have endured such a stunning shock to our sensibilities and faith. Nor, in all probability, will it be the last.
The deep outpouring of grief and sympathy from ordinary people all over the world was the manifestation of an almost universally held belief that, despite the disagreements that invariably exist between nations, America is a phenomenon unlike any other in the history of mankind. That in power we find compassion; in wealth we find conscience. That we are a nation of individualism, fiercely protective of all manners of our freedom, a place where one can believe in any god, speak any idea, maintain any belief. The United States has been a salvation for millions and millions because we are a nation of democracy, tolerance and the deeply held conviction that the human spirit, left to flower, can triumph over almost any challenge.
Such an allegiance to these ideals is not just rhetorical. It is written into, and facilitated by, our laws. It is our law, above all else, that binds us all to a common moral code. Our law protects us from tyranny, rewards our creativity, punishes our corruptness. Our law facilitates that which is the greatest moral concept our species has ever had the temerity to develop: the concept of justice.
As lawyers, you and I see justice every day. Fair hearing, due process, presumption of innocence, are the foundations on which everything else rests. It is you and I, the American lawyer, whose calling it is to ensure that justice is done.
Most of us became lawyers because of a desire to be involved in the operation of the social construct. As officers of the court, we seek to ensure that our vast universe of human endeavor moves with the grace of justice. We are sworn to pursue this calling with our common oath to "uphold, defend and protect the Constitution and the laws of the United States of America."
I hope all lawyers have felt, as I have, a renewed passion for our chosen profession in these new times. No matter how far removed your daily work seems from the founding principles of this nation, we know that it is not. Justice exists every day, each a fair hearing, each served by due process.
The law is, and always will be, our collective shelter from the storm.
Alfred P. Carlton Jr. is the president of the American Bar Association and a partner at Kilpatrick Stockton; he is based in the firm's Raleigh, N.C., office.
Friday, September 13, 2002
Charges Filed Against Former Tyco General Counsel
Tyco Hires Bill Lytton as New GC
(gave luncheon talk to Network in Stamford, 2001)
Anthony Lin -- New York Law Journal -- 09-13-2002
The Manhattan district attorney's office and U.S. Securities and Exchange Commission filed criminal and civil charges Thursday against former Tyco International Chief Executive Officer L. Dennis Kozlowski, former Chief Financial Officer Mark H. Swartz and former Chief Corporate Counsel Mark A. Belnick, alleging they defrauded the company and its shareholders of more than $600 million in improper compensation, loans and stock sales.
Tyco followed prosecutors by filing its own suit in the Southern District of New York Thursday against Kozlowski, who resigned as chief executive of the diversified conglomerate in June. The company charged he committed fraud and conspired with Swartz and Belnick to breach the three officers' fiduciary duties.
The district attorney has charged Belnick with six counts of falsifying business records, alleging that he lied in internal documents to conceal $14 million in loans to himself. He faces four years in prison.
Belnick, whom Tyco sued separately for fraud in June, is the first general counsel to be charged with a crime in any of the recent corporate scandals. In charging that Belnick participated in a conspiracy with Kozlowski and Swartz, Tyco's suit goes further than either the district attorney or the SEC, both of whom are alleging that the former counsel chiefly sought to conceal his own $14 million loan, rather than assisting the looting of the other two officers. Tyco is also alleging that Belnick conspired with Kozlowski in May to conceal from Tyco's board the fact that Kozlowski was under investigation for attempting to evade sales tax on more than $11 million in art and antiques he had purchased from New York dealers. The Manhattan district attorney indicted Kozlowski for sales tax fraud in June.
In its suit against Belnick, Tyco sought the return of $35 million in unauthorized compensation and loans. The $14 million loan at the heart of charges against Belnick allegedly went to purchase a $10 million home in Park City, Utah, and an apartment on Central Park West in New York.
The June 17 suit against Belnick followed his dismissal from Tyco for allegedly trying to hinder an internal investigation being conducted by attorney David Boies. Boies' firm, Armonk, N.Y.-based Boies, Schiller & Flexner, filed Tyco's suit against Kozlowski Thursday, and the firm's report on its internal investigation is expected shortly.
Belnick, a former partner at Paul, Weiss, Rifkind, Wharton & Garrison, was a prominent white-collar criminal litigator before joining Tyco in 1998. In June, Belnick's lawyer, Stanley Arkin, said Belnick was the victim of a "legal turf war" with Boies and Joshua M. Berman, a Tyco board member and former partner at Kramer Levin Naftalis & Frankel. Belnick replaced Arkin in July with Reid H. Weingarten, a partner at Washington, D.C.'s Steptoe & Johnson.
Weingarten said via e-mail: "Mark Belnick's entire professional life has been dedicated to the law and he has complete faith in the legal system. Because of that and because he has done nothing wrong, we are certain that when this painful process ends he will be cleared of the unsupported allegations that have been made against him."
Weingarten declined further comment.
NEW GENERAL COUNSEL
Tyco also announced Thursday it had hired a new general counsel, William B. Lytton, who was previously general counsel at International Paper Co. His previous experience includes eight years as a federal prosecutor in Chicago and Philadelphia. Edward D. Breen, Tyco's chief executive, said in a written statement that Lytton "will play a vital role in helping us establish and maintain the best practices of corporate governance."
Read more . . .
Thursday, September 12, 2002
Federal Judges Ponder Future of Secret Settlements
Dan Christensen -- Miami Daily Business Review -- 09-12-2002
South Florida's federal district court judges will be considering whether to join South Carolina's federal judges in banning secret settlements in civil lawsuits, a move strongly opposed by the insurance industry. The nation's courts have been dogged recently about sealed agreements and documents that, if not sealed, might have sounded early alarms about pedophile priests, bad doctors and dangerous products.
Read more . . .
See also Proposed Ban on Secret Settlements in California Fails
Kevin Livingston -- The Recorder -- 09-18-2001
