United States: Representing The Targeted Executive: Diplomacy Matters

It seemed like a good idea. Provide a local media outlet with a peek under the company's hood—give a tour of the facilities, answer questions about operations, preview a few promising transactions. When the article ran, however, with facts misstated and statements taken out of context, it quickly turned into a very bad idea for the company and for its chairman and CEO, John Smith.

Within days, the company, its board of directors and Smith were caught in a media firestorm. Various news outlets raced to allege that Smith was engaged in self-dealing and conflicts of interest. Those stories suggested federal securities law violations, and an influx of civil actions for securities fraud and fiduciary duty breaches was ratcheting up the pressure. Attempts to correct the record only fanned the flames.

Within weeks, federal and state regulators had taken notice. The company and Smith received letters and subpoenas from various government agencies informing them that investigations had begun. Documents would have to be produced, witnesses would have to be interviewed and there was a very real potential for an enforcement action.

With Smith and the company now in the crosshairs of federal and state enforcement agencies, a wide range of interests and issues, some that were competing, quickly emerged. As the agencies sharpened their focus on Smith, mixed views about his conduct were voiced by the media, the board, the company's counsel and shareholders, among others.

Smith's predicament, while fictitious here, is not unique. An enforcement agency investigation targeting an executive has the potential to draw the ire or concern of a range of interested parties, and to raise a number of common issues. A review of those parties and issues demonstrates that blending large doses of diplomacy with legal substance in these moments of crisis is necessary to extricate the executive from these challenging circumstances.

Board of Directors

The board could itself be under the agency's scrutiny, or subject to civil lawsuits, and therefore board members may be motivated to protect themselves at the expense of the executive. If the board is not implicated, it may nonetheless be in a defensive posture, fending off assertions that it did not have enough oversight and control over the executive. Conversely, the board may believe the executive is being wrongfully accused, and thus be willing to show solidarity with the executive. In all events, given the heightened attention, the board will be careful to send a message that it takes the accusations seriously, and that it is taking the necessary steps to uncover and fix any problems. Because the executive's counsel may have little, if any, direct contact with the board, it will be necessary to develop a productive working relationship with the board's counsel.

The Company

It should be presumed that the company will want to cooperate with the agency in the hopes of mollifying and defusing what is likely to be a guilty-until-proven-innocent view of the company and the executive. Like the executive, the general counsel will be trying to balance the interests of the agency, the board, shareholders, the media and the executive. An influx of civil actions could further burden the GC's office from a resources and expense standpoint. The executive's counsel has to recognize the increased pressure on the GC in order to effectively position the executive for alignment with the company, which may be critical to the executive's defense.

In addition to the GC, the company's outside counsel will naturally be an important relationship for the executive's counsel. If there is an alignment of interests, it may be possible and beneficial for the executive's counsel to step back and draft off of the work the company's outside lawyers are doing with the agency. If the company is attempting to distance itself from the executive, however, effective diplomacy with both outside counsel and the GC is even more critical if the executive's counsel hopes to stay ahead of any adverse approach the company may take.


There is a strong likelihood that the plaintiffs bar will attempt to represent the shareholders by way of derivative lawsuits and class actions. But special attention may need to be paid to large institutional investors who can effect change at the board level. Activist shareholders may see the crisis as an opportunity to wrest control of the board. Here again, the messaging needs to be very careful. Direct communications with powerful shareholders, as well as statements made in earnings releases and at investor presentations, can be effective in easing concerns and correcting the record, but they may also require disclosure—and could constitute disclosures that result in additional scrutiny.

Other Executives and Employees

Executives and employees not involved in the facts underlying the allegations may feel personally betrayed, angry about the distraction and nervous about their future. Knowing whom to trust can be difficult. Likewise, while it may be ideal to know there is alignment among those who are or who may become targets, there is a strong likelihood that others will cooperate with the agency if and when push comes to shove. Messaging to employees to calm nerves and correct the record may be desired and useful, but it should be limited and carefully worded to avoid any statements that could be taken out of context.


Media outlets rushing to judgment with incomplete or inaccurate facts can inflame the various interested bystanders—most notably regulators, the board and shareholders. The agency may latch onto incorrect or embellished facts to justify a deeper investigation. Attempts to correct the record by answering questions or issuing press releases rarely achieve the intended effect, and more often perpetuate the bad press. A public relations firm that specializes in crisis management may be a useful intermediary to respond to requests from the media for information, but counsel need to take an active role in crafting any public statements. Not commenting, however, may be the best way to have the story become old news.


Of primary importance to the executive is whether, and the extent to which, he will be indemnified for defense costs. Indemnification agreements between the executive and the company, as well as obligations under federal and state law, may provide for indemnification of some, all or none of the executive's expenses in defense of the agency's investigation, an internal investigation and/or civil lawsuits concerning the same facts. Indemnification may include advancement of expenses, for which the company may require the executive to execute an undertaking. Having a thorough understanding of the executive's entitlement to indemnification, and being able to obtain and maintain the company's commitment and obligation to indemnify under the challenging circumstances, will make a significant difference to the intensity with which the executive and his counsel participate in the defense.

Internal Investigation

Depending on the facts and circumstances at issue, the board may commence an internal investigation. This would likely be handled by a law firm hired by and reporting to the board. Although this firm may cooperate with the executive in order to facilitate the executive's forthcoming participation in the internal investigation, such cooperation will be limited so that the investigation maintains the appearance of independence.

The internal investigation should be considered an extension of, and the first phase in, the agency's investigation, given the likelihood that the internal investigator's findings will be reported to the agency. Therefore, effective communication between the executive's counsel and the internal investigators is critical.

Attorney-Client Privilege

There is a strong likelihood that the company will cooperate with the agency as much as possible, which may include waiving, to some extent, the attorney-client privilege. This is especially true if an internal investigation is commenced. A common interest or joint defense agreement may provide some protection against waiver and disclosure, but the company may be reluctant to agree to protect the privilege under all circumstances. Counsel must be aware of the impact a waiver may have on the executive, and make it a priority to negotiate a favorable common interest agreement, if possible.


A natural question is whether the executive will be terminated or will negotiate a separation from the company as a result of the investigation. Provisions in an employment agreement concerning termination may dictate whether and how the executive departs. Similarly, the executive may also be required to vacate any board membership. Either step could require negotiations in which the executive, the company and the board have a significant amount at stake in terms of information control, expenses and optics. Civil actions could arise out of a termination or separation.

Civil Lawsuits

Private shareholder securities or fiduciary duty claims can be easily cobbled together based on misstated facts learned from the bad press or a lawyer's basic investigation. These actions, which may name as defendants the executive, the board, the company and other executives, intensify the pressure on the company as a result of the immediate defense costs and potential for costly settlements. Counsel for the executive must manage the additional strain these lawsuits can put on the already stressed relationship between the executive, the company and the board.

In addition to the above, of paramount importance is the executive counsel's interaction with the agency during the investigation. Although more difficult to summarize, diplomacy with the agency most certainly includes establishing credibility and communicating a willingness to cooperate, while demonstrating a preparedness and determination to defend the executive on the merits through trial.

So, returning to Smith's hypothetical dilemma, what does counsel need to do to disentangle an executive from similar challenging circumstances? Counsel who are adroit in diplomacy, and who are able to manage the sensitivities of the various interested groups, stand the best chance of obtaining a successful resolution to the agency action. While establishing credibility with the agency, and signaling a readiness and willingness to defend on the merits is critical, the failure to succeed on the nonagency fronts will make success with the agency very difficult, if not impossible.

Originally published by Corporate Counsel Magazine.

Seth A. Goldberg is a partner in the trial practice group of Duane Morris. Matthew A. Taylor is the head of the global trial practice group. Both are based in Philadelphia.

This article is for general information and does not include full legal analysis of the matters presented. It should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The description of the results of any specific case or transaction contained herein does not mean or suggest that similar results can or could be obtained in any other matter. Each legal matter should be considered to be unique and subject to varying results. The invitation to contact the authors or attorneys in our firm is not a solicitation to provide professional services and should not be construed as a statement as to any availability to perform legal services in any jurisdiction in which such attorney is not permitted to practice.

Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. Duane Morris LLP, a full-service law firm with more than 700 attorneys in 24 offices in the United States and internationally, offers innovative solutions to the legal and business challenges presented by today's evolving global markets. The Duane Morris Institute provides training workshops for HR professionals, in-house counsel, benefits administrators and senior managers.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions