TRENDS
•
Competing Governance Theories
• Traditional Governance
• Protection of Shareholders
• Increase in Long Term Enterprise Value
• Protection of Creditors Only in Zone of Insolvency
• Business Judgment Rule (BJR) Supreme
Compliance and Regulatory Governance
 Accountability of Corporation for its Actions

Judicial and Governmental Scrutiny of Agents
 BJR no longer an iron clad 100% guarantee of immunity
 Civil and Criminal Exposure for Company’s Agents
 Directors, Officers, Accountants (and Lawyers ?)
FORTHCOMING OHIO LAW CHANGE –
CORPORATIONS
Library & Resources/Ohio Senate Bill 181
Current Law
1701.56 (A)
Ambiguous as to
Chairman being an
officer
New (A)(4):
Chairman is not an
officer unless
articles, regulations
or board action says
otherwise
New: 1701.641 for
corporations and
1705.031 for limited
liability companies
Unclear that officers
have fiduciary duties
to the corporation
Makes clear that
officers have only
fiduciary duties set
forth in the statute
OFFICER EXCULPATION
 Perform duties
 In Good Faith
 In a manner the officer reasonably believes to be in or not opposed to the
best interest of the corporation
 With care of an ordinary person in like position or circumstances
 Affirmative Defenses
 Officer is entitled to rely of information, reports, statements and opinions of
other directors, officers, employees and agents so long as officer believes the
source to be competent and reliable. Knowledge by the officer to the contrary
voids her right to rely.
OFFICER EXCULPATION
 Burden of Proof
 Culpability: Plaintiff must first prove by clear and convincing evidence
that officer did not act (1) in good faith or (2) in a manner the officer
reasonably believed was not in the best interest or opposed to the best
interest of the corporation or (3) without the care of an ordinary person in
similar circumstances.
 Damages: Clear and convincing evidence in court that proves that (1) the
officer had a deliberate intent to cause injury to the corporation or (2) the
officer’s actions were undertaken with reckless disregard for the best
interest of the corporation.
DAMAGES TEST EXCEPTION
 Opt – Out Rights
A corporation can opt-out of the damages test of the Officer Exculpation provision
by expressly referencing the opt out right in
(1) the corporation’s articles or regulations or
(2) a written agreement between the corporation and the officer
FORTHCOMING OHIO LAW CHANGE – LLC
Library And Resources\Ohio Senate Bill 181.pdf
Current Law
New: 1705.031
1705.081
Contracts or
Transactions with
Members and
Managers; authority
to fix compensation
Confirms that
Chapter 1705
applies to all Ohio
LLCs (including single
member entities)
Clarifies that
manager’s duties
can be the same as
member’s duties
FORTHCOMING OHIO LAW CHANGE – LLC
Library And Resources\Ohio Senate Bill 181.pdf
Current Law
New: 1705. 081(C)
Waiver and
Elimination of
fiduciary duties
permitted if done in
writing
1705.081 (D)
Increases maximum
freedom on contract
in Operating
Agreement (subject
to stated limits)
FORTHCOMING OHIO LAW CHANGE – LLC
Library And Resources\Ohio Senate Bill 181.pdf
Current Law
1705.281
Members Duty of
Loyalty does not
include non-compete
and conflict of
interest can be
cleared by safe
harbor of
1705.31(A)(a), (b) or
(c)
1705.081 (D)
Increases maximum
freedom on contract
in Operating
Agreement (subject
to stated limits)
FORTHCOMING OHIO LAW CHANGE – LLC
Library And Resources\Ohio Senate Bill 181.pdf
Current Law
New: 1705.291
LLCs do not need
officers
Default of fiduciary
duties of LLC
officers, if elected, is
the same as for
corporate officers
FORTHCOMING OHIO LAW CHANGE – LLC
Library And Resources\Ohio Senate Bill 181.pdf
Current Law
New: 1705.30
LLC officers have the
same right to rely on
information of others
as do members and
managers.
1705.48
Clarifies that lack of
formality alone will
not result in personal
liability for members,
managers and
officers
GOLDMAN SACHS – WHO IS AN OFFICER
ARTICLE IV
Officers
Section 4.1. Officers; Election or Appointment. The Board of Directors shall take such
action as may be necessary from time to time to ensure that the Corporation has
such officers as are necessary, under Section 5.1 of these by-laws and the
Delaware General Corporation Law as currently in effect or as the same may
hereafter be amended, to enable it to sign stock certificates. In addition, the
Board of Directors at any time and from time to time may elect (i) one or more
Chairmen of the Board and/or one or more Vice Chairmen of the Board from
among its members, (ii) one or more Chief Executive Officers, one or more
Presidents and/or one or more Chief Operating Officers, (iii) one or more Vice
Presidents, one or more Treasurers and/or one or more Secretaries and/or
(iv) one or more other officers, in the case of each of (i), (ii), (iii) and (iv) if and to
the extent the Board deems desirable. The Board of Directors may give any officer
such further designations or alternate titles as it considers desirable. In addition,
the Board of Directors at any time and from time to time may authorize any officer
of the Corporation to appoint one or more officers of the kind described in
clauses (iii) and (iv) above. Any number of offices may be held by the same
person and directors may hold any office unless the certificate of incorporation or
these by-laws otherwise provide.
Section 4.3. Powers and Duties. The officers of the Corporation shall have such
powers and duties in the management of the Corporation as shall be stated in
these by-laws or in a resolution of the Board of Directors which is not inconsistent
with these by-laws and, to the extent not so stated, as generally pertain to their
respective offices, subject to the control of the Board. A Secretary
GOLDMAN SACHS – WHO IS AN OFFICER
•
•
•
•
•
•
•
Sergey Aleynikov – former Goldman Sachs programmer
with VP title
FBI arrested him for stealing software codes as he quit
Goldman Sachs
Convicted of theft and sentenced to 8 years in prison
Conviction overturned
Sues Goldman Sachs under indemnification provision in
Goldman Sachs by laws for $7 million in legal fees alleging
Goldman Sachs has a mandatory obligation to indemnify
Goldman argues “vice president” is a “courtesy title” and
only board can elect officers.
Trial court ordered indemnification; appellate court
overturned and remanded for a trial on the facts for a jury
to decide if Goldman Sachs VP are all officers.
The Regulations are a contract between the
Corporation and the beneficiaries entitled to rely
thereon.
•1701.64 Officers - authority and removal.
•(A) The officers of a corporation shall consist of a
president, a secretary, a treasurer, and, if desired,
a chairman of the board, one or more vicepresidents, and such other officers and assistant
officers as may be deemed necessary. The
officers shall be elected by the directors. . .
Why does it
matter?
•Most Regulations contain a mandatory
indemnification provision of directors and
officers.
BPA ENTITY GOVERNANCE TOOLKIT
General
Board
Committees
•Code of Regulations (#8321560.1)
•Code of Conduct (#8321577.1)
•Guidelines on Board Authority (#5856293.1)
•Statement of Expectation of Directors (#5931074.1)
•Indemnification Provision for Regulations (#8321545.1)
•New Director Bench Report and Skill Matrix (# 8323256.1)
•Standing Board Agenda aka Board Risk Calendar (#6679012.1)
•Audit Committee Charter (#6322832.1)
•Audit Committee Quarterly Task List (#8321534.1)
•Governance Committee Charter (#876777.4)
THANK YOU
THANK YOU