“Et tu, Brute?” People frequently associate that iconic line from Shakespeare’s Julius Caesar with political betrayals. Unfortunately, betrayals are not limited to political powers. You see them every day among businesses in Corporate America.
As part of my business divorce practice, I often represent one owner against other owners. People who may have once been close friends or family members now turn into ugly, bitter enemies. What started as a company with shared goals and vision has dissipated into a pool of litigation. What started as an impenetrable alliance often ends in bitter business divorce, frequently after adding other owners, investors, or “advisors” into the mix. “Advisors” are those who do not have the talent, let alone the vision, to start their own business but are very good at creating factions and prodding an internal turmoil at someone else’s business. Indeed, one “derivative” of business divorce I noticed more and more recently occurs when a subordinate attempts a coup within the company. Many of these subordinates are prodded by “advisors,” who have anti-leadership skills by negatively influencing others. Many coup attempts fail. But many succeed, especially when the leader was not well-liked within the organization. Unpopular leaders become an easy target and eventually get ousted.
Leaders, including unpopular ones, deserve more than just being unceremoniously ousted from the organizations they started or led. Unlike those who start or assist coups, who often lack the originality of the leaders, the leaders are usually the innovators whose idea or vision was the catalyst for creating the company. Even if these leaders have become unpopular, they deserve fair treatment from the company that they started or innovated. They deserve fair compensation and respect. Unfortunately, many of them just disappear without a fight, especially when the coup-leader has the war chest of the organization with dozens of lawyers. Unlike advisors who are highly adaptive with moving principles, the leaders are too proud to linger around. Instead, they disappear.
It is unjust. It is unfair. It isn’t right. We need more leaders, not more wannabes. Even if leaders are unreasonable or unlikeable, they lead. They innovate. They help others succeed. They deserve better. That is why I started representing officers and directors against the company they started or innovated. While in many ways it is an offshoot of my firm’s business litigation practice, the representation of officers and directors of companies has developed into a much-needed niche practice; one that requires specialized knowledge and experience.
The representation of corporate officers and directors in lawsuits filed by third parties or by their own company or company’s shareholders is a growing practice area. Our firm represents executives, CEOs, officers, and directors of public and private companies, working with insurers on often complicated and sophisticated arrays of claims. Often, the company must indemnify officers and directors in a lawsuit, even if the lawsuit was brought by the company itself.
Basically, when a corporate director or officer is sued by a third party for alleged misconduct carried out in their capacity as director/officer, the company generally indemnifies the director/officer by defending them against the lawsuit. The company’s duty of indemnification arises from both the law and governing corporate documents. This happens with greater frequency than you might think. A shareholder might bring a derivative lawsuit under the company’s name against the officer or director, who then needs legal representation. Besides indemnification provisions in corporate documents, states such as Pennsylvania and Delaware provide additional statutory provisions. In some instances, a corporation is required to advance legal expenses to the officer or director as well, which is sometimes necessary to put the officers and directors on an equal footing (or close to an equal footing) financially against the company. Delaware—home to the Court of Chancery and the centerpiece of the corporate world in the United States—offers a more favorable law and venue than many other states. So it makes sense that many of these courtroom battles take place in the First State.
In these direct corporate actions, the officers/directors require an aggressive defense against well-financed mega law firms with seemingly unlimited financial and other resources. Practitioners who are defending officers or directors against the company’s lawsuit should immediately demand both indemnification and advancement of legal expenses from the company. Under appropriate circumstances, the company could be required to advance legal expenses incurred not only for defending against the lawsuit but also for prosecuting their counterclaims against the company. We’re defending the leaders, the creators, and innovators from the lawsuit brought by the company they started. It’s a niche that seeks justice.
About the Author
Edward T. Kang is the managing member of Kang, Haggerty & Fetbroyt, a business litigation firm based in Philadelphia, PA and Marlton, NJ. He devotes his practice to business litigation and other litigation involving business entities. Contact him at 215.525.5852 or EKang@KHFlaw.com.