Directors & Officers Liability Exposures Course Outline

  1. Chapter 1 Introduction and Overview
  2. Chapter 2 The Corporation and the Functions of Directors & Officers
    1. What is a Corporation?
      1. The Defining Feature of a Corporation
      2. Chartering of Corporations
      3. Public versus Private Corporations
    2. The Functions of Directors and Officers
      1. Specific Functions of Corporate Directors
      2. Inside versus Outside Directors
      3. Board Committees
  3. Chapter 3 Common Law Duties of Directors & Officers
    1. The Four Fiduciary Duties
      1. The Duty of Loyalty
      2. The Duty of Obedience
      3. The Duty of Due Care (also Known as The Duty of “Due Diligence”)
      4. The Duty of Good Faith: An Emerging Fiduciary Duty
  4. Chapter 4 Federal Securities Liability
    1. The Securities Act of 1933
      1. Liability under Section 5: the Obligation To Register a New Security
      2. Liability under Section 11: the Obligation To Make Truthful Statements about Securities
    2. The Securities Exchange Act of 1934
      1. Liability under Section 10(b): the Prohibition against Deceptive Acts/Statements
      2. Liability under Section 10b-5: The Prohibition against "Insider Trading"
    3. The Sarbanes-Oxley Act of 2002
  5. Chapter 5 Liability under Other Types of Statutes
    1. Liability for Anticompetitive and Unfair Business Practices
      1. Predatory Price-Cutting Activities
      2. Disclosure of Trade Secrets
    2. Liability for Copyright/Patent/Trademark Infringement
      1. Copyright/Patent Infringement
      2. Trademark Infringement
    3. Liability for Racketeering Activities
      1. Treble Damage Provisions
    4. Liability for Mismanagement of Investment Company Funds
    5. Liability for Mismanagement of Employee Benefit Plans
    6. Liability for Failure To Collect and Remit Payroll Taxes
    7. Liability for Political Contributions
    8. Liability for Safety Violations
    9. Environmental Liability
      1. The Comprehensive Environmental Response Compensation and Liability Act
      2. The Resource Conservation and Recovery Act
    10. Liability in Connection with Government Contracts
    11. Liability in Connection with Bribery of Foreign Officials
    12. Liability in Connection with Employment Laws
      1. Coverage under Stand-Alone Policies
  6. Chapter 6 Primary Defenses to Corporate Liability
    1. The Importance of Minutes at Board Meetings
    2. The Business Judgment Rule
      1. The Essence of the Business Judgment Rule
      2. The Business Judgment Rule: A Case Study
    3. Dissent
    4. Ratification
  7. Chapter 7 Securities Class Action Claims
    1. What are Securities Class Action Claims?
      1. Advantages of Class Action for Plaintiffs
    2. What Triggers a Securities Class Action Claim?
      1. Securities Class Action Claims: A Typical Scenario
      2. What Specific Actions Give Rise to Securities Class Action Claims?
    3. The Private Securities Litigation Reform Act: Reducing Class Action Abuses
      1. Anatomy of a “Shake-Down”: How Many Class Action Lawsuits Originated
      2. Specific PSLRA Reforms
    4. The Class Action Fairness Act of 2005: Another Attempt To Control Class Actions
      1. Goals of the Act
      2. Basic Provisions
      3. Impact
    5. Securities Class Action Claim Data
      1. The Correlation between Claim Filings and Industry Sector
      2. Historical Class Action Claim Filing Data
  8. Chapter 8 Specific Situations Giving Rise to Securities Class Action Claims: Part 1
    1. Financial Restatement Claims
      1. Notable Financial Restatement Claims
    2. IPO-Related Claims
      1. How Does an IPO Work?
      2. Types of IPO Claims
    3. Claims from “Change-of-Control” Situations
      1. The Typical Change-of-Control Claim Scenario
      2. Frequent Claimants
      3. Types of Claims Made against Directors and Officers in Change-of-Control Situations
      4. Resistance to Hostile Takeovers
      5. Approval of Friendly Takeovers
      6. Preacquisition Mismanagement
      7. Failure To Disclose
      8. Mismanagement (Following the Acquisition)
    4. Claims from “Options Backdating”
      1. What are “Stock Options”?
      2. What is “Backdating”?
  9. Chapter 9 Specific Situations Giving Rise to Securities Class Action Claims: Part 2
    1. Claims from Auction Rate Securities
      1. What are Auction Rate Securities?
      2. What Went Wrong?
      3. What Were the Consequences of Failed Actions?
      4. What Is the Basis of the Lawsuits?
      5. Claim Counts
    2. Claims from the Subprime Mortgage Lending/Credit Crisis
      1. Step One: Subprime Loans
      2. Step Two: Securitization
      3. Step Three: Credit Derivatives
      4. What Are the Leading Claim Allegations against Corporate Directors and Officers?
      5. Investor Lawsuits
      6. Shareholder Lawsuits
    3. Claims from the Bernard Madoff Investment Ponzi Scheme
      1. The Scheme, in Brief
      2. The Reality
      3. The Unraveling
      4. What Are the Leading Claim Allegations against Corporate Directors and Officers?
    4. Claims from Private Equity Operations
      1. What is a Private Equity Group?
      2. How Do Claims from Private Equity Deals Arise?
  10. Chapter 10 Parallel Proceedings
    1. Derivative Claims
      1. Common Breaches of Duty Alleged in Derivative Claims
      2. A Notable Derivative Claim
    2. Opt-Out Lawsuits
      1. Why “Opt-Out”?
    3. ERISA “Stock Drop” Litigation
      1. 401(k) Monies Invested in Company Stock: The Trigger for ERISA Stock Drop Litigation
      2. Specific Allegations against Directors and Officers in ERISA Stock Drop Cases
      3. Securities Class Action Litigation versus ERISA Stock Drop Litigation
    4. Regulatory and Criminal Proceedings
      1. Regulatory Investigations and Class Action Claims
      2. Criminal Prosecutions and Class Action Claims
      3. Special Issues Associated with Parallel Proceedings
      4. Defense Coverage Issues: The Shrinking Limits Problem
  11. Chapter 11 Underwriting Directors & Officers Liability Insurance: Part 1
    1. Underwriting Data
      1. Annual Report
      2. Proxy Material
      3. Corporate Bylaws
      4. Roster of Directors and Officers
      5. Dun and Bradstreet Report
      6. SEC Reports
    2. Financial Situation
      1. Profitability
      2. Leverage
      3. Accounting and Financial Reporting Practices
      4. Liquidity
      5. Stock Price Volatility
    3. Industry/Competitive Position
      1. Market Share
      2. Competitive Structure of the Industry
      3. Revenue Sources
      4. Industry Group
  12. Chapter 12 Underwriting Directors & Officers Liability Insurance: Part 2
    1. Internal Company Factors
      1. Merger and Acquisition Activity
      2. Breadth/Concentration of Stock Ownership
      3. Future, Company-Specific Risks
      4. Public Offerings and Repurchases
      5. Service Provider Relationships
      6. Company Size
      7. Company Age
      8. Degree of Diversification
      9. Degree of Centralization
      10. Public Perception
      11. Risk Management Program
      12. Loss History
    2. Composition and Operation of the Board of Directors
      1. Degree of Control by the Chairman
      2. Board Selection Criteria and Composition
      3. Compensation Method of Management
      4. Analyzing Board Turnover
      5. Assessing the Board’s Knowledge of the Organization
      6. Conducting Face-to-Face Meetings with Management
      7. Conclusion: The Art of D&O Underwriting
  13. Chapter 13 Controlling Directors & Officers Liability Claims Part 1: General Suggestions
    1. Encourage Active Questioning and Appropriate Dissent
      1. The Problem with Board Appointments: Most Often a Function of Friendship
    2. Consult with Legal Counsel and Outside Experts
    3. Maintain Contact with Operating Managers
      1. “Management by Walking Around”
    4. Avoid Embarrassing Corporate Actions
    5. Require Review of the D&O Policy and Application
      1. The Importance of the Application
    6. Monitor Insider Trading
    7. Investigate Warning Signs
      1. Enron: A Case Study in Financial Manipulation
    8. Don’t Manage to Artificial Indictors
  14. Chapter 14 Controlling Directors & Officers Liability Claims Part 2: Effective Corporate Governance
    1. What Is “Corporate Governance”?
    2. Assure Independent Decision Making on the Board
      1. Limit Corporate Boards to No More than Three Insiders
      2. Assign Only Independent, Outside Directors to the Three Key Committees
      3. Set Mandatory Term Limits
      4. Ban (or at Least Limit) Stock Sales by Directors, for the Duration of Their Service
    3. Require a Minimum Level of Stock Ownership
    4. Reform Option-Related Compensation Practices
      1. Accounting Rules Incentivize Option Grant Abuses
      2. Specific Option-Related “Best Practices”
    5. Separate the Roles of Board Chairman and CEO
      1. Split of Board Chairman and CEO Roles Common in Canada and the U.K.
      2. Better Monitoring of CEO Performance
      3. Board Chairman and CEO: Too Demanding for One Person?
      4. Appoint an Independent Lead Director: An Alternative To Splitting the Roles
    6. Conduct “CEO-Free” Board Meetings
      1. Facilitating Frank Discussions
    7. Periodically Evaluate Director Performance
      1. Areas To Evaluate
    8. Improve Audit Committee Effectiveness
    9. Provide Directors with Relevant and Timely Information
      1. Create an Adequate Support Structure
    10. Limit Time Devoted to Board Service
      1. Semi-Retired Directors versus Directors with Full-Time Jobs
      2. Limiting Board Service is a Growing Trend
    11. Avoid Conflicts of Interest
      1. Conflicts of Interest: An Example
      2. “Side Deals”: A Frequent Source of Conflicts
    12. Eliminate Corporate Board “Interlock”
      1. Board Interlock: Potential for Quid Pro Quo Deals

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