The “Unwritten Policy” Trap
July 29, 2005 | Filed Under Governance, In the News
When something is important, it’s probably worth writing down.
Continuing the storyline of the GC as witness, the Topeka Capital Journal reports (reg req) about testimony in a federal re-trial in Kansas:
The former general counsel for Westar Energy said this morning in the trial of former Westar executive officers David Wittig and Douglas Lake, that the utility had an unwritten policy that a relative could fly on the corporate jet if there is a seat available.
Richard Terrill, who worked 21 years for Westar or Kansas Gas and Electric, which later became part of Westar, testified that he, his wife and his two children, flew aboard the Westar jet. Terrill saw the director and officer reports and none of the other Westar executives and board directors reported personal travel on those reports.
These reports were apparently to be used for tax purposes and also for securities disclosures. Prior testimony by a prosecution witness placed the value of this personal use of corporate aircraft at $2,151,354.
A rather large alleged benefit to be governed by an unwritten policy. This would of course never pass muster in even the most rudimentary review of internal controls.
But all may not be lost for Messrs. Wittig and Lake, due to questions of prosecution document production raised by the defense.
Given that the FBI reported in May that there are 405 corporate fraud cases being pursued in the US (double the number in 2003), there may be more opportunities for GCs (current and former) to hone their witness skills.
Footnote: Corporate aircraft are a lightning rod for scrutiny, as the recent reports about Sanford Weill’s attempt to leave Citicorp early indicate. Does Citi-Jet One have this?
Preparation Dep
July 27, 2005 | Filed Under Organization, General
We recently saw that a GC may be called as a witness. Now the Wall Street Journal is reporting ($) that depositions may require skills most executives do not routinely possess. A few of the major recommendations are:
To survive being deposed, attorneys and executives say, it helps to keep four things in mind. Make answers brief and tightly focused, avoiding the temptation to expand beyond what was asked. Prepare diligently beforehand. At the deposition, stay calm and truthful. And understand your side’s legal strategy well enough that you don’t undermine your value as a witness for the company if the case goes to trial.
I think a big challenge is that many executives may think depositions are an argument to be won; the article quotes Dallas attorney C. Vernon Hartline Jr., a partner in the firm of Hartline Dacus, who says:
… his first priority in advising executives is to get them to understand that this isn’t another business meeting to be attacked and conquered.
Additonal thoughts on defense deposition preparation are available from the Nixon Peabody firm. An even more detailed view of “Keeping Your Executives Out of Hot Water” is available from Hogan & Hartson.
I’ll stretch protocol and admit that I have been deposed, and found it to be a learning (and humbling) experience. I am amazed at how few lawyers I meet have ever been so sworn.
On second thought, if you get too good at giving depositions, it’s probably a sign of bigger problems.
War of the Worlds
July 25, 2005 | Filed Under Technology, In the News
It’s like Ali-Foreman in Zaire.
Law.com serves up wire reports that Google has fired back at Microsoft over the latter’s lawsuit seeking to prevent Google from hiring a Microsoft executive, Kai-Fu Lee, who would establish a new Google research facility in China and lead its operations there. Dr. Lee was working on search technology at Microsoft and is the highest-ranking executive to depart for Google. A key Microsoft engineer left for Google earlier this year.
While the ostensible reason for Microsoft’s lawsuit is a non-compete agreement that Dr. Lee signed (and perhaps a desire to play the China card), there may be 302 other reasons:
If press reports are true that Microsoft’s initial lawsuit was filed “within hours” of seeing the Google press release, the meter is probably running 24/7 for two companies that can afford it.
Update (28 July 05, pm) :
Microsoft gets the TRO. Advantage Ballmer.
Ballmer quoted in the New York Times:
“Are you buying our stock?” he said he had asked a group of his executives, but there were no takers. “All the hands stayed down.”
Advantage Google.
Sea Change
July 22, 2005 | Filed Under Regulation, In the News
Sometimes life has a way of making you stop and reflect.
The New York Times has a profile of Margaret Cole, the new director of enforcement for the FSA, the regulator of the London stock market.
Ms. Cole came from the London office of White & Case. What prompted the career change, according to the article, was her proximity to a tsunami:
Fleeing the island of Phuket, Thailand, as the Indian Ocean tsunami hit last December, she recalled that she was moved by the “complete randomness” of the disaster. “I asked myself, When are you going to do something useful?” she said in a interview.
The NYT can’t resist the obligatory comment that Ms. Cole’s new postion involved taking a pay cut of 80%; perhaps to control a potential stampede out of law firms and into regulatory agencies.
Ms. Cole had a very successful career as a corporate litigator, earning this distinctly British compliment from an adversary:
“When I litigated against Margaret, she was a formidable opponent, quite tenacious and she didn’t let go,” said David Gold, a partner with Herbert Smith in London. “She was a bit like a dog with a bone.”
Those sort of comments get you on double-secret probation at major US law firms.
Best wishes to Ms. Cole in her new position. Having different phases to a career is getting more common, but it takes courage to swim against the current.
The CEO View of Legal - #1
July 20, 2005 | Filed Under Organization, Managing
I hope to offer the occasional insight into the CEO’s view of the corporate legal function. Today, two different voices:
Innovating rather than litigating.
Good Technology CEO Danny Shader was recently interviewed on CNET’s news.com. Mr. Shader was asked about licensing patents from NTP, who is waged in pitched litigation with BlackBerry maker Research In Motion:
(Interviewer): Patent-holding company NTP says you license their technology. I’m curious if you had any thoughts on how the patent dispute and contract negotiation between RIM and NTP is going to shake out.
Shader: I can’t speculate. We took a license because we think it’s better to spend our time and energy innovating on behalf of our customers rather than litigating at the end.
Based upon that comment, Mr. Shader appears to be a CEO focused on the best way to achieve business objectives and not one to litigate because you may have a case. The cost, distraction and uncertainty of litigation is easy for some CEOs to underestimate, and it is up to the GC to educate on these points as well as advocate a potential position. Companies sometimes move into litigation like a tropical storm builds into a hurricane. A bit of cold water helps both situations.
I can’t believe how much of your day can be taken up by legal.
While not a CEO (yet), Limited Brands COO Len Schlesinger gave a first person account to Fast Company in their clever “What I Know Now” feature:
I can’t believe how much of your day can be taken up by legal. Everything has legal implications. The governance issues all have legal implications. When you have 4,000 outlets, something happens in the stores every day that has legal implications. We’re in almost every state, so there are those regulatory authorities. Something’s always happening. And of course, I waste the most time on paperwork.
While this remark seems to describe a GC’s dream environment, it reveals a real challenge: if much of what we do appears to “take up” the day of the CEO/COO, we must do only what is required in the most effective way possible. Anything more–and there is always something else to do, or some other angle to address–is too much. Such a GC risks making the corporate legal department a boat anchor in the aforementioned hurricane.
So Lesson #1 of the CEO View of Legal:
Drive innovation and not just litigation.
And a bonus corollary:
Take the time needed–not a second more.
P.S. I found it interesting that Mr. Schlesinger is a former professor at Harvard Business School. I don’t know why he would want to leave the cutting edge academy that is HBS and join a stodgy company like Limited Brands.
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