Director as deponent: a survival guide; Here are the keys to a successful and (relatively) stress-free deposition.

• Author: Korpus, Sheron
• Position: LIABILITY AND LITIGATION

NO ONE ENJOYS BEING DEPOSED. For directors, it can be a particularly unpleasant experience. When a company comes under fire, whether in the context of a private lawsuit or a regulatory investigation, its directors may find their actions subject to an unexpected level of scrutiny. While directors have always been subject to private breach of fiduciary duty claims by disgruntled shareholders, they are increasingly finding themselves implicated in federal securities law claims. The Sarbanes-Oxley Act has raised the stakes appreciably. As a result, directors--especially those serving on audit or compensation committees--are expected to know more about their companies and to exercise greater oversight over management.

Regardless of the precise nature of the lawsuit or legal claim involved, the most invasive aspect of any action brought against a director or his or her company (short of trial) is the deposition. Being deposed is never easy, but understanding the ground rules will make the process go much more smoothly.

The first determination

A deposition is an out-of-court proceeding in which one party's counsel questions a person (the "deponent") believed to have information relevant to the examining party's claims or defenses. Examining counsel may depose the other party and its representatives (if the party is a corporate entity, for example), and may also issue subpoenas to obtain the deposition testimony of third parties.

Deposition testimony is given under oath; a deponent who offers false testimony may be prosecuted for perjury. The lawyer defending the deponent may make evidentiary objections, but in most cases such objections do not justify a refusal to answer the question posed. (See sidebar for more on the purpose of a deposition and the procedures involved.)

When served with a deposition notice or subpoena, a director must first determine whether he or she needs separate counsel. In many (if not most) cases, it is appropriate and more efficient for the firm representing the company to represent its board members as well. However, when the interests of the director and the company are potentially adverse, separate legal representation may be called for.

Be prepared

The key to a successful and (relatively) stress-free deposition is preparation with counsel, and this is no less true when the deponent is a director. Preparation sessions with counsel may seem unnecessary or tedious, but it is time well spent. These sessions not only will...