Corporate Governance

The Chamber of Commerce Gets Its Wish: Making the Responsible Persons Pay

By J. Robert Brown

The Chamber of Commerce recently issued a report contending that securities litigation was excessive and harming US capital markets.  As part of the report, the Chamber noted that the current system was flawed because the responsible officers and directors were not required to pay the costs associated with their misbehavior.  Instead, recovery generally came from D&O insurance carriers.  Although noting the "problem," the Chamber, in its wish list for reform, did not ask for legal changes that would result in greater personal liability imposed on the wrongdoers.  We have noted all of this in another post. 

Nonetheless, the plaintiffs' bar apparently heard the pleas of the Chamber of Commerce.  In the recent settlement between a number of defendants (including Hank Greenberg) and AIG, the company received $115 million.  Of that portion, "the four men will pay $29.5 million of the settlement, with the rest covered by director's and officer's liability insurance."  (Although, apparently, Greenberg wasn't one of those who was required to pay).  In other words, the individuals settling had to dig into their own pockets and pay some of the settlement amount in the case.  Similarly, former UnitedHealth Chief Executive William McGuire announced a settlement of claims by shareholders and agreed to pay $30 million as part of the settlement (in addition to agreeing to forfeit 3.7 million options).  In the same case, David Lubben, the former general counsel agreed to kick in $500,000.

As the plaintiffs' bar continues to seek payments from the responsible officers and directors, it can point to the statements of the Chamber of Commerce as support for the strategy. 

Full post as published by The Race to the Bottom on October 04, 2008 (boomark / email).