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Partner Craig C. Martin discussed current issues relating to fiduciary duties in public and private companies at the PricewaterhouseCoopers General Counsel Forum held on July 19 and 20. The presentation was attended by over sixty general counsel over the course of two mornings.
Directors today face several challenges, Mr. Martin said, including the consideration of directors and officers’ personal concerns, such as legal liabilities for their actions and their personal reputations. Executive compensation issues are also a recurring topic within the boardroom, he said, and there is increasing pressure to make "value-enhancing" decisions that benefit the shareholders as well as management when handling such concerns.
Mr. Martin also discussed the recent trend of ERISA Stock Drop lawsuits, or litigation by employees under ERISA in connection with drops in stock prices. He said that such suits may be the result of the increased role of pension money in ownership of companies. Mr. Martin cited the "tension between the fiduciary duty to the company and the ERISA fiduciary duty to plan participants," as also being a major factor in these lawsuits. It can place directors and officers in a challenging situation, as they are frequent fiduciaries and also privy to private corporate information, he said.
Mr. Martin also discussed potential legal issues arising from transactions. Both public and private companies use strategic transactions to recognize value for existing shareholders and management, he said. These transactions can be implemented through a variety of legal structures, he said, including a leveraged ESOP transaction. Potential litigation issues in a leveraged ESOP transaction for private companies include valuation and redemption issues, because an ESOP of a closely held company does not have a market gauge of the value of the employer stock, he stated.
The monthly PricewaterhouseCoopers General Counsel Forum is designed to offer discussion, debate and insight in current legal topics for General Counsel of Chicago public and private companies.