Prepared for the risks associated with serving on boards.

Author:Longmore, Ann

Directors are practical people, looking for practical advice. The sea change in corporate governance that began around the globe roughly 10 years ago, kicked off with the collapse of WorldCom Inc. and Enron Corp. in the United States, and the proliferation of local examples around the world has been further fueled by the global financial crisis, which has put investments and boards of directors further at risk.

Against a backdrop of almost unparalleled financial instability, corporate crises, increasing regulation and public resentment over the perceived power of big business, directors of large companies (especially in the financial-services sector) are the subject of intense scrutiny.

Serving on the board of a company has never been so risky and the stakes for directors have never been higher, which is why this is such an important time to explore in-depth the range of risks and responsibilities that accompany the role of a global director today.

Key Risks

So far as the U.S. is concerned, the most significant ruling emanating from the Supreme Court on directors' liabilities occurred in June 2010 in Morrison v National Australia Bank. This decision has fundamentally changed the "conduct or effects test" under which a U.S. court had previously been able to claim jurisdiction over a case involving foreign plaintiffs, foreign defendants and securities listed on non-U.S. exchanges.

The Supreme Court ruled that the relevant securities laws did not apply extra-territorially but only to transactions on U.S. domestic exchanges or domestic transactions in other securities. The decision has not, however, put paid to the extra-territorial reach of the U.S. courts. The Foreign Corrupt Practices Act (FCPA) is still alive and well. Moreover, the Supreme Court ruling itself has been and continues to be the subject of much case law winding its way through the U.S. courts on the vexed question of the meaning of the phrase "domestic transactions in other securities."

There are other ways in which the U.S. courts and regulators exert influence beyond their shores. In October 2011, the U.S. Securities and Exchange Commission issued guidance in relation to liability for cyberattacks. The guidance recommends that specific disclosure be provided by public companies on (among other things) cyberincidents, pre-attack exposure analysis and the implications for financial statements.

While no similar guidance yet exists elsewhere in the developed world, the risks and...

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