Summary of Bloomberg Law Article: Increasing Personal Liability for Corporate Executives
This Bloomberg Law article, authored by T. Markus Funk and Carolyn Pelling Gurland of White & Case, details the growing trend of personal liability for corporate executives, notably regarding oversight failures in areas like data management, supply chain openness, and AI implementation. Here’s a breakdown of the key takeaways:
Key Arguments:
* Expanding Fiduciary Duty: Delaware courts are increasingly holding officers personally accountable for failures in oversight, extending beyond conventional financial risks to encompass broader compliance and ethical concerns.
* Increased Regulatory Scrutiny: Laws like the German Supply Chain Due Diligence Act and the US Uyghur 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 line between corporate liability, board member liability, and individual executive liability is becoming increasingly blurred.
* Proactive Oversight is Crucial: Effective oversight is no longer just good governance, but a vital form of personal risk mitigation for executives.
Practical Implications - What Companies & Executives Should Do:
The article outlines five key steps to mitigate risk:
- Clarify Role Definition: Clearly define responsibilities for operational, risk, and compliance executives.
- Formalize Governance Protocols: Establish documented escalation procedures for compliance issues.
- Review D&O Insurance: Ensure Directors & Officers insurance (Side A/B/C policies) adequately covers oversight and regulatory claims.
- Preserve Privilege During Investigations: Structure internal investigations with 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 acknowledge oversight duties and understand the consequences of noncompliance during onboarding.
* Governance Memo/Certification: Formalize expectations through a written memo or certification statement.
Overall Outlook:
The authors predict a “new era of personal accountability” for executives, driven by expanding fiduciary duties and intensified regulatory enforcement. A strong, well-documented culture of compliance is presented as the best defense against personal legal challenges.
In essence, the article serves as a warning to corporate leaders: they can no longer rely on a “check-the-box” approach to compliance. Active, demonstrable oversight is now essential for protecting both the company and themselves.