Giving Guidance As To Best Practices

Editor: Are you seeing situations among your clients where general counsel act as persuasive counselors?

Silverstein: I would say that the "persuasive counselor" is the most common model for general counsel that I have observed for as long as I have been practicing law. Incidentally, it also is the model employed by good outside counsel. Despite some very public examples in recent years of general counsel who have fallen down on the job, I would say that the vast majority of the corporate counsel I have observed have played the role of persuasive counselor - and most have played that role quite well. In my experience, general counsel often take a proactive role in ensuring that the corporate employees, officers and directors understand and comply with the law. And, more often than not, the general counsel with whom I have worked have followed an approach of erring in favor of advocating conduct that goes above and beyond simply complying with the strict letter of the law.

In fact, I recently had the pleasure of working with a particularly mindful general counsel who had overseen the development of an internal code of corporate conduct that imposed obligations on directors and executive officers that extended beyond the strict requirements of the law. When a stockholder - represented by an aggressive "strike suit" attorney - raised a variety of questions regarding the legality of certain board conduct, an internal investigation established that the board's conduct was not only lawful, but had been a model of propriety. The stockholder learned of the facts and dropped the matter without resorting to litigation. I am certain that the result would have been different if the general counsel had been less aggressive in insisting that all conduct be well above board. As I remember, the general counsel's motto was that it was not sufficient to consider how the board's conduct would be viewed in a courtroom, it was also important to think about how the board would feel about its conduct being reported on the cover of the Wall Street Journal.

This is a model of corporate counsel behavior that I advocate to my clients, and it is one that I have seen work quite well.

Editor: Does your firm include experts on questions relating to the conduct of board and board committee meetings, preparation of minutes and otherwise documenting the due diligence of the directors?

Silverstein: I have to start with a disclaimer. Under applicable ethical rules in many jurisdictions, it is not permissible for lawyers to hold themselves out as "experts" in any given field. That being said, as Delaware counsel to a number of corporations, we have substantial experience in advising board and board committees in the conduct of their business and affairs. This experience runs the gamut of advising on the proper composition of board committees, to advising directors with respect to their fiduciary responsibilities, assisting in conduct of special investigations, consideration of transactions, and internal corporate actions. We also defend the conduct of our clients in a courtroom when litigation arises. While we do have substantial experience in assisting with the preparation of minutes and other manner of documenting board diligence and activity, I find that this function is more typically handled in-house at most of our corporate clients. When asked to do so, however, we are able to provide meaningful assistance in these areas.

Editor: Does your firm assist the general counsel in the indoctrination of directors and in answering questions of directors with respect to avoidance of personal liability and the adequacy of D&O insurance and indemnification?

Silverstein: Again, I have to take slight issue with the question. We are often asked about "avoidance of personal liability," and I always begin by explaining that this is the wrong way to think of the question. The right way to approach the issue is to ask what is the legally correct way to deal with a given subject. In my experience, the best way to avoid personal liability is to focus on doing the right thing. We have substantial experience in working with general counsel in advising directors and officers with respect to the best manner of complying with their fiduciary and other legal responsibilities. In that sense, I suppose we also have substantial experience in assisting general counsel in helping directors to avoid personal liability.

We also have attorneys with substantial experience respecting the numerous and complicated legal issues surrounding D&O coverage, indemnification, as well as "advancement." In fact, in addition to advising clients, one of our partners has widely written and lectured nationally on the subject.

Editor: The general counsel is called upon to advise with respect to technical areas of the law. Do you have lawyers in critical technical areas, such as law and accounting, executive compensation, and IP, who provide the input required by the general counsel to give such advice? Provide examples.

Silverstein: We are a full service business law firm. We have lawyers with experience in a number of technical areas, including tax issues, executive compensation, and IP. We also have what may be the largest bankruptcy practice in Delaware, which can be a benefit to corporate clients in a number of ways - including providing counsel to companies that run into financial difficulties, as well as advising clients who are creditors and even clients that wish to acquire another company that is in bankruptcy or may need the assistance of the bankruptcy system to accomplish a transaction.

Additionally, as a Delaware law firm, we have substantial experience with corporate governance issues, issues of fiduciary responsibility, and issues surrounding mergers, acquisitions and other extraordinary transactions. We also provide litigation support in connection with the foregoing matters when it becomes necessary to prosecute or defend a matter in the Delaware Chancery Court. Every now and then, we also are asked to assist in a matter arising outside of Delaware, but which implicates Delaware law.

Editor: Is your firm available to act for boards of directors, audit committees and special investigation committees of the board where there is a need for independent counsel? Is the firm retained also to act as ongoing counsel to boards or independent directors? What is your relationship to the general counsel under such circumstances?

Silverstein: We are routinely retained to advise boards and board committees in connection with various matters in which there is a need for independent counsel. Among other things, we have advised special transaction committees, special investigation committees, and provided separate counsel to independent directors outside the committee context. Our relationship with general counsel depends upon the nature of the representation. In many situations, where there is no perceived conflict between the interests of management and outside directors, we will work closely with general counsel. Where there is such a perceived conflict, however, we often are charged with working independent of general counsel, looking to general counsel as a resource for institutional legal knowledge, but not working with general counsel in the same way as we would where the interests of management and outside directors are perceived to be aligned.

Editor: Do lawyers for your firm, when requested, accompany general counsel to meetings of the board and board committees, including the audit committee? What about meetings with the CEO or management committees?

Silverstein: We often accompany general counsel to meetings of the board and board committees. We also have frequent interaction with general counsel and senior management outside the formal board meeting context. This can be in person or telephonically. As Delaware counsel, our involvement with audit committees is less frequent. We do, however, have frequent involvement in advising directors in just about every other context.

Editor: How does your firm handle issues which require up the ladder reporting?

Silverstein: Thus far, we have been fortunate in that we have not been faced with this issue. More often than not, we are engaged by non-Delaware counsel who have a more direct relationship with the corporate client that is confronted with an issue arising under Delaware corporate law. Moreover, in cases where we have been retained directly by general counsel, we have yet to run into a situation where we perceived that a corporate employee, officer or director was acting in a manner that required up the ladder reporting. And by saying this I don't mean to suggest that we have even had any close calls.

In the event we were to be confronted with a circumstance that did require up the ladder reporting, I have no doubt that we would handle the situation in a responsible and appropriate manner. Even before the advent of up the ladder reporting, we always have understood that our client is the corporate entity, and not any specific individual in the chain of command.

Published August 1, 2007.