Outside Directors at Risk: How to Serve and Protect Yourself


In early 2005, outside directors of WorldCom and Enron agreed to litigation settlements that required these directors to make payments to plaintiffs from the directors’ personal assets. In the aggregate, these payments totaled nearly $40 million and signaled that outside directors were no longer safe from the courts. In the wake of these outcomes, and the SEC’s continuing focus on holding outside directors responsible for failing to detect management wrongdoing, many outside directors have become understandably concerned that their personal assets may be at stake based on what they did – or failed to do – in the boardroom. In particular, those outside directors who sit on audit and compensation committees may find themselves (and their personal assets) at considerable risk and rightly wonder whether it is worth it.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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