How general counsel can avoid personal liability

By Andrew Lu

It used to be unheard of for corporate executives, much less general counsel, to be held personally liable for crimes committed by a company.

But in the past 10 years, several GCs at companies like AIG, Hewlett-Packard, and World Health Alternatives have been personally targeted in legal actions, according to a partner at Gibson, Dunn & Crutcher.

You may be wondering if this is because corporate lawyers are committing more crimes or throwing ethics to the wind in this bottom-line-driven economy? Or is the prosecution of in-house counsel due to the federal government's renewed focus on holding corporate decision makers (and those counseling them) accountable?

It's likely a combination of both. So if you're an in-house counsel, you should be aware that you may be held personally liable for your company's actions.

Here are some tips you can incorporate to avoid liability:

1. Get included in the company's directors and officers' liability insurance. Your superiors are likely covered by a corporate insurance plan. There's no reason you shouldn't be included too.
2. Nip issues in the bud. Instead of only getting involved in issues when it is too late (i.e., catastrophes), you should help develop a corporate culture in which even routine decisions are deliberated and second-guessed. Creating open lines of communication can help with issue-spotting long before an actual crisis arises.
3. Object! Speak up when you identify red flags. Tell your superiors that a course of action can lead to serious trouble. It can be difficult to put the brakes on your bosses' plans, but you're being paid the big bucks to have these difficult conversations.
4. Remember, the company is the client. Your loyalties are to the company and its shareholders, not one particular executive. Keep this in mind every time you are weighing a difficult decision.

General counsel are increasingly being targeted by prosecutors and shareholders in legal actions. Keeping these tips in mind can potentially help you avoid personal liability down the road.

This article originally appeared November 13, 2012 on "In House," The FindLaw Corporate Counsel Blog.

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