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Is the Board Misbehaving? Tips for Handling Allegations of Misconduct

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By Gabriella Khorasanee, JD on July 25, 2013 10:12 AM

As in-house counsel it's up to you to make sure everyone in the company stays in line -- even the board of directors. Allegations of board member misconduct can not only hurt the company's reputation and value, but can cause strife among employee ranks.

Nobody likes internal investigations, but as part of the legal department, the responsibility in this area falls on you. A comprehensive ACC Docket article talked about ways to handle an investigation of board member misconduct. We're doing you the favor of giving you the consolidated play-by-play so you can get back to work quickly.

There are four main things to keep in mind with regard to investigating misconduct by board members...

Duty to Cooperate

Preferably, the duty to cooperate should be explicit in board member service agreements. Letting the board member know at the outset of their service that, in the event of allegations of misconduct, they have a duty to cooperate in the investigation is paramount. If the duty to cooperate is not explicit in the member's service agreement, then consider adding that language to the board's resolution authorizing the investigation.

Company Devices

It may be wise to avoid BYOD on the board level to avoid waiving an attorney-client privilege. If you communicate with a board member about legal issues via other company emails, he may be waiving his attorney-client privilege. Also in the technological realm, be sure to have procedures for handling text-messages, during and after the board member's service.

Other Fiduciary Duties

If a board member is being difficult and not cooperating in an investigation, or not replying in a timely manner, you may have to remind her that she owes fiduciary duties to the company, namely the duty of care and duty of loyalty, both which could require her cooperation in the investigation.

Outside Counsel

If you take one thing away from this post let it be this: retain outside counsel. Do not handle the investigation yourself through the company's legal department. Having a third party conduct the investigation, especially counsel that has, according to ACC authors Sean Radcliffe and T. Markus Funk,

little prior involvement with the company or board members ... Tasking outside
counsel with the job of conducting a full and independent investigation will not only help give counsel's ultimate investigative findings additional credibility with company stakeholders, but will also be a factor considered if and when the authorities step in and review the investigative findings.

Investigating allegations of misconduct, especially at the board level, is not going to be easy. However, if you lay a good foundation in board service agreements, and have a plan such as obtaining outside counsel, then at least you've done what you can to handle the situation. As far as dealing with the emotions, well, that's a whole other story.

Have you ever had to deal with an investigation of a board member? What precautions worked for you? Tell us how by tweeting @FindLawLP.

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