Summary โof Bloomberg Law Article: Increasing Personal Liabilityโค forโ Corporate Executives
This Bloombergโข Law โขarticle, authored โฃby T. Markusโ Funk and โขCarolyn Pelling Gurland of White & Case, details theโ growing trend of personal liability for corporate executives, notably regarding oversight failures in areas like data management, โขsupply chain openness,โ and AI โimplementation. โฃHere’sโ a breakdown of the key takeaways:
Key Arguments:
* โข Expanding Fiduciary Duty: โ Delaware courtsโฃ areโข increasingly โขholding officers personallyโ accountable forโฃ failuresโ in oversight, extending beyond conventional financial risks to encompass broader compliance and โคethical concerns.
* Increased Regulatory Scrutiny: Laws like the German โSupplyโ Chain Due Diligence Act and the โUS โUyghurโค Forced Labor Prevention Act are creating new obligations with direct implications for executive accountability. Regulators are specifically warning against delegating responsibility to algorithms in areas like hiring and risk assessment.
* Narrowing liability gap: The โฃline between corporate liability, board member liability, and individual โexecutive liability is becoming increasingly blurred.
* Proactive Oversight is โขCrucial: Effective oversight is no longer just goodโ governance, but โaโค vital form of personal โฃrisk mitigation โ for โฃexecutives.
Practicalโ Implications โฃ- What Companies & Executives Should Do:
The article outlines five key steps to mitigate โrisk:
- Clarify Role Definition: โClearly define responsibilities for operational, risk,โ and compliance executives.
- Formalize Governance โคProtocols: Establish โขdocumented escalation procedures for compliance issues.
- Review D&O Insurance: Ensure Directors & Officers insurance (Side A/B/C policies)โฃ adequately โcovers oversight and regulatory claims.
- Preserve Privilege During Investigations: Structure internal investigations โฃwith outside counsel to protect attorney-client privilege.
- document training & Oversight: Regularly train senior management and maintain records of proactive oversight efforts.
Additional Recommendations:
* Enhanced Onboarding/Certification: Ensure executives acknowledgeโ oversight duties โand understand theโ consequences of โnoncompliance during onboarding.
* Governance Memo/Certification: Formalize expectationsโค through a writtenโค memo or certification statement.
Overall Outlook:
The authors predict a “new eraโฃ of personal โaccountability” โfor executives, drivenโค by expanding fiduciary duties and intensified regulatory enforcement. Aโ strong,โฃ well-documented culture of compliance is presented as the best defense against personal โคlegal challenges.
In โคessence, the article serves asโ a warning to corporate leaders: they canโค noโ longer rely โฃon a “check-the-box” approach to compliance. Active, โขdemonstrable oversight is now essential for protecting both the company and themselves.
