Trying to Match SOX: Dealing with New Challenges and Risks Facing Directors

Directors of public and private companies face increased scrutiny and potential attacks on several fronts. Those include 1) government enforcers and plaintiffs taking directors' personal assets; 2) governance reforms enacted at the state and federal level; 3) court rulings which strip directors of the attorney-client privilege; 4) attacks against the safe harbor of the business judgment rule; and 5) insurers trying to rescind directors' insurance policies. Directors can take steps to protect themselves while still meeting the higher standards. These include hiring independent counsel for non-management directors, restructuring the D&O insurance program, and taking particular actions if the company winds up in bankruptcy.