What you need to know about personal Y2K liability.

• Author: Campanella, Joel
• Position: Year 2000 computer date transition problem

Mishandling the millenium bug could put you personally at the mercy of the court. But there are some steps you can take to minimize the risks.

Okay, since directors and officers are stewards of the assets of the corporation they represent, it's their fiduciary duty to exercise care and diligence as reasonably as they can. But if Company A addresses the Y2K problem and its competitor, Company B, doesn't, Company B's negligent directors and officers could be held personally liable for their possibly harmful actions - or inactions. Therefore, directors and officers should make reasonable inquiry to determine the facts and take appropriate action to solve the problem.

Standards for acting in the best interest of the company will vary state by state, and the issues differ between public and private companies. Here's a primer.

If You're Public

Public companies have a long list of possible compliance requirements in connection to any Y2K problem. Some reporting requirements could include the annual report; SEC forms 8-K, 10-K, 10-Q; FASB 5; Sections 6(a) and 11(a) of the 1933 Securities Act; and Section 10(b) of the Securities Exchange Act of 1934. If the information in these isn't handled properly, directors and officers may face liability.

Disclosure is a central issue in addressing the millennium bug. Failure to disclose "material" information may create liability in connection to securities law. If the company has nothing material to disclose, it's a non-issue. It's reasonable to conclude, though, that public firms are likely to be materially affected by the Y2K problem. The corporation's size will influence the cost of having a Y2K-compliant company - and, relatively speaking, the cost could be material. The steps required to become Y2K-compliant and the effect they have on corporate functions could be material. Further, effects of non-compliance and the risk of non-compliance also could be material. Thus, if the information is material and not revealed, directors and officers face potential liability.

The SEC has stated it believes public companies may have an immediate obligation to reveal their Y2K status. Even if your firm is addressing the issue, it would appear you need to say so - and include a list of any concomitant problems. The SEC has indicated a company's year 2000 costs or consequences may reach a level of importance that prompts it to consider filing a Form 8-K, used to report material events as they occur. One could conclude...