Training for Tomorrow: 2021 Checklist for Entity Counsel Supervising the Creation or Renewal of an Executive Protection Program in the Age of “Cooperation”

By: James Wing, Geoffrey Fehling, Brian T.M. Mammarella

The corporation laws of every U.S. jurisdiction permit corporations on the “clear day” (i.e., before an adverse claim arises) to agree to advance defense costs, indemnify, and insure presumptively innocent directors and officers against risks of liability that arise out of their good faith service to the corporation. States’ laws governing alternative entities generally leave the matter of “executive protection” for managers to the law of contracts. In both situations, courts justify protection programs as encouraging responsible and talented individuals to accept the weighty responsibilities these positions impose.

In 2012 and 2013, Business Law Today published checklists created by the Business Law Section’s Director and Officer Liability Committee to assist counsel in supervising the creation or renewal of executive protection programs. Both before and after its first publication, the checklist was vetted through exposure to and comment by attendees at ABA live and webinar programs and at a webinar given to members of the Association of Corporate Counsel. Case law, commentary, and further education in this area have continued to evolve since 2013. The Committee promised that it would update the checklists periodically to reflect changes in the law and insurance markets. This is the 2021 update.

The checklist was initially created by the Committee in response to requests by corporate counsel of major U.S. entities. These counsel had communicated their practical inability to master the nuances of this ethically dangerous, highly complex, and specialized area and to keep up with new developments in the law and the insurance market. They asked for a compendium of issues that they could give their risk manager, insurance broker, and outside counsel so that entity counsel could vet the adequacy and breadth of the entity’s protection program. The goal was to permit entity counsel to meet their ethical duty to advise the entity’s unrepresented “constituent” board members, executives, and managers of the extent to which the program might meet their future needs or might fall short.

This need has become increasingly urgent over time. In particular, the personal exposures of corporate directors and officers and entity managers (sometimes referred to here collectively as “executives”) to governmental administrative and criminal risk have expanded through the “cooperation revolution” in white-collar criminal law that formally began in 1999.[1] The Committee believes that if an executive protection plan is adequate to address the increasing criminalization of executive and managerial risk, it ought to be sufficient to protect against non-criminal legal risks as well.

The updated checklist highlights issues and suggests alternatives intended to meet the legitimate goals of executive protection from the standpoint of the protected individuals and independent of the “stormy day” potential that the entity may “cooperate” against a protected individual with a governmental enforcement authority. The checklist attempts to do so in a commonsense and balanced manner. It is intended to provide entity counsel with some comfort that he or she has met the “clear day” duty to both the entity and protected managers to provide protection to affected individuals to the “fullest extent permitted by law,” while suggesting possible ways to scale back such protection if such is the desire of the board or other governing authority. The suggestions are designed to meet the ethical rules that govern entity counsel whom the board or other managing authority has charged with creating or supervising the renewal of a protection program for the benefit of otherwise unrepresented entity directors, officers or managers. A comprehensive article on the ethical aspects of “clear day” protection programs was published in The Business Lawyer in 2022.[2]

This checklist was originally published in Business Law Today as an article in November 2021. It has been updated with further enhancements as of March 15, 2023.

  1. See Bennett, LoCicero & Hanner, “From Regulation to Prosecution to Cooperation: Trends in Corporate White Collar Crime Enforcement and the Evolving Role of the White Collar Criminal Defense Attorney,” The Business Lawyer, Vol. 68, p. 411 (Feb. 2013). For fulsome discussion of the professional ethics dimensions implicated when entity counsel advises on executive protection issues in this environment as well as in the ordinary course, see Sarah H. Duggin, Shannon “A.J.” Singleton & James D. Wing, The “Cooperation Revolution” and the Professional Ethics of Giving Advice on Executive Protection Issues, 77 Bus. Lawyer 1079 (2022), discussed in the DOLC Flash Alert of December 2, 2022.

  2. For a summary of court opinions issued in 2021 addressing issues of director and officer insurance liability, see Troutman Pepper’s publication entitled “D&O Professional Liability 2021: A Year in Review,” covered in the DOLC Flash Alert of February 28, 2022. A 2022 sequel of that publication is linked and covered in the DOLC Flash Alert of February 16, 2023.

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