Outside Director Role

Outside Director Responsibilities

One important outcome of the spate of major corporate scandals in recent years has been the movement toward heightened liability for outside directors. Increasingly, the scope of outside directors’ fiduciary obligations to the company and its shareholders is being redefined to require far more active participation and aggressive oversight of the management and overall direction of the company. No longer may outside directors simply accept the “facts” as they are presented by management and senior executives. Outside directors have an independent duty to ensure the integrity of the company’s business operations.

When the Stakes are High … Gallion & Spielvogel LLP

One way to fulfill these enhanced fiduciary responsibilities is to seek and obtain legal advice on a regular, ongoing basis from truly independent outside attorneys who have experience in conducting internal investigations. Such attorneys are uniquely positioned to provide outside directors with appropriate preventive and prophylactic advice as a means of identifying potential problems within the company and addressing them swiftly and effectively, before they can develop into full-blown crises and scandals. It may be advisable for outside directors to retain such attorneys for private, discreet counsel on an ongoing basis.

Such an arrangement is also particularly appropriate with respect to board committees made up of outside directors, such as audit, executive compensation and litigation committees. The unique perspective that can be provided only by experienced internal investigation attorneys with no prior connection to the company can be of inestimable value to outside directors in fulfilling today’s heightened expectations of fiduciary obligations.

Perhaps the need for such independent counsel for outside directors is never more pronounced than when company management is proposing a significant change in the company’s structure, such as a large acquisition, a merger or a management-led buy-out. Many such cases in recent years have led to large-scale and protracted lawsuits by disgruntled shareholders who inevitably level charges of “sweetheart” deals and unfair financial terms. Because the task of evaluating the terms of such transactions and ensuring ultimate fundamental shareholder fairness increasingly falls to the outside directors, the critical importance of advice and counsel from truly independent outside counsel in such situations can not be overstated, particularly in today’s climate of increased liability for outside directors.

At a minimum, outside directors should insist on the engagement of a truly independent outside law firm such as G&S to spearhead any contemplated internal corporate investigation when the existence of serious problems has already been made known. Reflexive reliance on the company’s regular outside lawyers may well lead to any number of difficulties and litigation that otherwise could be easily avoided.

If you suspect a problem in the corporation, contact the internal investigation lawyers at Gallion & Spielvogel LLP. We can help you assess the situation and determine if an internal investigation is necessary.

When the company’s future and your own personal liability are at stake, our internal investigation lawyers have the experience it takes to independently investigate the situation.

Located in New York City, we are available for internal corporate investigations throughout the United States. Gallion & Spielvogel LLP is part of an extensive national network of law firms focused exclusively on the legal needs of businesses.