Litigation stemming from the credit crisis increasing: the credit crisis has amplified the focus on corporate governance issues in litigation, and there are literally hundreds of cases that have been filed--particularly securities class action lawsuits, SEC enforcement actions and breach of fiduciary duty actions. Many more can be expected, as a result of an invigorated SEC.

• Author: Hopkins, Sheryl
• Position: LEGAL ISSUES - Securities and Exchange Commission

Twenty years ago, the words "corporate governance" were almost never mentioned in business litigation. Since the late 1990s, however--beginning with Former U.S. Securities and Exchange Commission Chairman Arthur Levitt's speech, The Number's Game, followed by the Enron Corp. and WorldCom Inc. meltdowns--there has been a steady increase in the focus on corporate governance issues in the C-suite and in the boardroom, and as importantly, in the courtroom.

The recent credit crisis has sharpened the focus on corporate governance issues in litigation. Currently, there are literally hundreds of cases filed that involve corporate governance issues, and many more can be expected as a result of an invigorated SEC and the new whistleblower provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Business litigation includes corporate governance matters ranging from common law fraud actions to sophisticated securities class actions that claim violations of the fraud provisions of the Securities Exchange Act of 1934. SEC enforcement actions, securities class action litigation and breach of fiduciary duty actions are three critical types of lawsuits that will be addressed.

In the most basic sense, in each case something "bad" has happened--or at least the plaintiff thinks something bad has happened. Frequently, the stock price has dropped, maybe because of a restatement or the credit crisis. There may even be a bankruptcy. Plaintiffs are looking for someone to blame, and the business judgments and decisions made by directors and C-suite officers--as well as other financial executives such as controllers and treasurers--are frequent targets.

Claims against these executives often include very serious allegations of fraud and mismanagement. There's a tendency for these cases to be tried by hindsight. But all business decisions involve risk. Management and directors are not prescient--none of them have a crystal ball.

So it's important in defending these claims--regardless of whether they are called fraud or breach of fiduciary duty--to explain the context in which the business decisions in question were made. This includes both the roles and responsibilities of management and the board, organizational structure and the processes and procedures in place to govern decision-making.

The most common corporate governance and management practice questions that may arise in these claims are:

* What are the roles and responsibilities of the corporate officers and directors?

* What processes and procedures are in place to govern decision-making and management and board oversight of the operations of the company? At what level are decisions made or approved?

* What processes and procedures are in...