Health Law Checkup

Each year, a number of surveys and commentators describe and predict the trending topics of interest and importance to boards of directors in the for-profit and non-profit sectors. As we wrap up the first quarter of 2017, it appears that many of the predicted hot topics continue to garner attention from various corners.

Cybersecurity – According to various surveys, boards have ranked cybersecurity among their principal concerns coming into 2017.  An earlier blog post discussed some recent lawsuits against directors and officers alleging breach of fiduciary duties in shareholder derivative suits.  Amongst additional data breaches that have been reported in the news media as 2017 has been underway, the National Association of Corporate Directors recently published a Director’s Handbook for Cybersecurity Risk Oversight, illustrating the continued attention that the topic has been receiving in boardroom.  In March, three U.S. Senators have introduced the Cybersecurity Disclosure Act of 2017, which would require public companies to disclose whether any corporate directors have expertise in cybersecurity and, if so, the nature and extent of that expertise.

Board Tenure, Diversity and Refreshment.  A number of boards and commentators have addressed their interest in balancing the retention of tenured directors – who may have deep knowledge of companies and industries – with fresh directors that may bring fresh perspectives and knowledge about developing areas of importance for companies, such as cybersecurity, as mentioned above.  Similarly, various commentators have questioned whether long-serving directors may have developed such close ties with management (see, for example, the discussion of conflicts of interest below) that they may cease to be as effective outside directors as newcomers might be.

Individual Accountability – As previously reported, uncertainty remains regarding the Federal government’s enforcement of criminal actions against individual officers and directors under the so-called “Yates Memo.”  Amongst the uncertainty, the U.S. Department of Justice posted DOJ Evaluation of Corporate Compliance Programs to its website in February 2017.  This recent guidance states that it is intended to answer common questions about the factors and considerations that the DOG takes into account when determining whether to bring charges and negotiating plea or other agreements in the context of corporate investigations.

Conflicts of Interest – A number of recent cases in late 2016 and 2017 have examined conflicts of interest between management and their companies in significant corporate transactions, and have considered the extent to which those transactions may be cleansed via the approval of disinterested directors.  In a handful of cases, the courts have determined that directors that might otherwise appear to be independent are – or may be –interested directors even though they may not have formal relationships with companies outside of their directorships.  In making these determinations, courts have focused closely on the depth and nature of directors’ relationships with management outside of the corporations in question.  As these cases have sometimes been ruled upon at the motion to dismiss stage, this is still a developing area.  As discussed below, conflicts of interest may also present themselves in other context, such as executive compensation.

Executive Compensation – Executive compensation is a trending topic in both the for-profit sector and the non-profit sector.  High-profile incidents at Volkswagen (involving the manipulation of emissions reporting), Wells Fargo (opening bank accounts without customer authorization) and other companies has led to scrutiny of executive compensation, and, in the case of Wells Fargo, “clawbacks” of the CEO’s restricted stock grants.  In the tax exempt world, news organizations such as the Wall Street Journal are beginning to mine the Forms 990 published with Amazon Web Services by the IRS in June 2016.  According to WSJ’s analysis, four of the top five highly compensated executives at tax-exempt organizations in 2011 (the most recent year for which the Forms 990 were published with Amazon Web Services) served in the healthcare industry.

So far, it appears that many of the predictions were correct; time will tell whether these topics – or others – continue to garner attention for the balance of 2017.