Articles Posted in Corporate Governance

At its Annual Meeting on March 15, 2016, the members of the Belmont Tennis Club (BTC), one of the oldest tennis clubs in America, honored its venerable Groundskeeper – Charles T. “Chuck” Jennings. BTC President Alison Borelli’s remarks follow:

“Chuck, you are the Groundskeeper in name only – yes, you keep the Club in pristine shape, but you give so much more of yourself and your time. This is not part of your job description, nor are you compensated for it.  I wouldn’t be surprised if most members didn’t realize that you are not required to be there whenever the sun is shining! You could show up in the morning, ready the courts, and leave if you wished.

But, you love this place, and you devote much of your time here. You take care of so many small issues that arise that, left unattended, would fester and become much more difficult to address.

The structure of governance in any corporation is of key importance in terms of establishing responsibilities, rights and accountability within the firm. A strong corporate governance structure is one that clearly defines the company’s goals and objectives, specifies the rules and procedures for attaining same, and reflects the context of the industry’s social, market and regulatory environments.
Having this pyramid carefully vetted and consistently re-evaluated by an experienced corporate governance lawyer can help a company avoid a host of issues, including costly litigation and a potentially tarnished public image.

Failure to establish a good corporate governance structure, particularly as it relates to accountability, has resulted in a number of high-profile company collapses in recent years, the corporate financing scandals of Enron and MCI Inc. (formerly WorldCom) are prime examples.
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Legislation that passed in Washington D.C. added consumer protections for those who act as whistleblowers in Massachusetts, providing additional help to ensure they speak up against workplace issues.

Our Massachusetts employment lawyers support these measures for employees because in order to stop discrimination in Boston and others bad acts, insiders often are needed to expose and make public these problems.
Whistleblowers have long held an important role in uncovering scandals of insider trading, discrimination and other corporate misdeeds that outsiders would not have known about had it not been for their bravery. And many employment laws have been written in recent years to address this issue and to ensure that employees don’t face retaliation for making the truth public.

The Securities and Exchange Commission issued provisions to the Dodd-Frank whistleblower rules in the spring. The new rules offer additional incentives to employees to come forward about securities law violations they witness at work.

The provisions went into effect in August and allow individuals to take home between 10 and 30 percent of the company’s penalty if what information they bring forward leads to sanctions of more than $1 million.

The new rules also no longer require employees to report possible SEC violations first to their company before going straight to the Commission. But employees do have an incentive to go to their company first. They can get a greater award if the company’s internal compliance programs uncover more information through their own work that leads to an SEC action.

A whistleblower can also report the claims to the SEC within 120 days, even if it was first reported to the company internally. Some industry analysts believe that employees will look for ways to profit from their company’s wrongs rather than working to find an internal solution.

Whistleblowers have long been needed so that government officials can take action against companies who are breaking the law. But these valuable employees — those who are willing to go against the grain and do the right thing in the face of potential risks — can also be needed in various areas of Massachusetts employment law as well.

For instance, some forms of discrimination at work are obvious — if the company only hires people of a certain gender, race or age. In that scenario everyone in the office, and likely those who interviewed but weren’t hired, sees the problem clearly.

But there are other forms of discrimination that happen behind closed doors. Private conversations with bosses and managers can sometimes lead to a clear bias against certain employees for reasons not based on their ability to do the job well. But, often, these details aren’t brought out to the rest of the staff.

Sometimes, whistleblowers in these situations are the people who can bring to light the discrimination that is going on in board room meetings and private conferences among the administrators. Whistleblowers keep companies on their toes because they are people who are willing to do the right thing when no one else at a company can or will.
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While we won’t say we told you so, the government has announced a slew of Sarbanes-Oxley violations since we wrote about board of director duties on our Massachusetts Employment Lawyer Blog.

The Sarbanes-Oxley Act of 2002 requires companies and boards of directors to obey financial regulations meant to avoid corporate collapses such as Enron and WorldCom. One thing we didn’t mention was whistleblower protections — which is where the government landed with both feet this month on a number of companies. 182576_whistle.jpg

  • The U.S. Department of Labor found Bond Laboratories Inc. and its former CEO in violation of whistleblower protection provisions. The company has been ordered to rehire the employee and pay about $500,000 in back wages, interest and other damages. The company was accused of firing the officer after he objected to sales figures that misrepresented the company’s value to potential investors.

The company has 30 days to appeal the decision which was issued Sept. 15 by the Occupations Safety and Health Administration.

OSHA enforces the whistleblower portion of the Sarbanes-Oxley Act as well as 20 other laws protecting employees who report violations of laws regulating airlines, consumer products, financial reforms, health care reforms, nuclear energy, commercial motor carriers, environmental, railroad and maritime laws.

Employees who report corporate wrongdoing — whether it’s fleecing the government or unfair labor practices — are generally protected from employer retaliation. Though it can often take a Massachusetts employment law attorney to assert your rights. In many cases, back wages and other damages are available to employees who prove they were wrongly terminated.

  • On Sept. 14, the government ordered Bank of America to pay $930,000 in back wages, damages and interest to an employee fired for reporting suspected Sarbanes-Oxley violations. The employee had worked for Countrywide Financial Corp., which was purchased by B of A. The employee headed internal reviews that found widespread mail and bank fraud by Countrywide employees. The employee said those trying to report the fraud to the company’s employee relations department were frequently retaliated against. Ultimately, the employee was fired shortly after the merger. “It’s essential that American’s workers do not have to fear retaliation when reporting wrongdoing,” said OSHA’s Dr. David Michaels.

For those serving as a corporate board member, these cases illustrate the need to ensure compliance with the law. Sarbanes-Oxley also allows for the personal liability of board members in some situations. The whistleblower statute makes it that much more likely that the government will ultimately find out.

As an employee, you need to understand your rights. In many cases, you are protected from retaliation when reporting a dangerous or illegal condition. However, consulting an experienced Boston employment lawyer is your best bet when it comes to ensuring that those rights are protected.
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Our Massachusetts Employment Lawyer Blog recently touched on the issue of a board’s responsibilities under the Sarbanes-Oxley Act of 2002. The issue of corporate responsibility is at the forefront of public discourse.

Through our General Counsel on Call services, our Massachusetts business attorneys provide legal counsel to boards and corporate leadership. Ignorance is not bliss — nor is it an excuse for noncompliance. What often happens is a board or corporation does not even realize they are not in compliance with the law until a legal issue arises and they find themselves liable. Under Sarbanes-Oxley board members may be held personally liable. Seeking legal advice in a proactive manner by conduct a thorough review of your board or company procedures is an excellent way to help ensure you are in compliance.
Make no mistake about it, mega-corporate collapses like Enron and WorldCom brought the issues to the forefront. And the anti-Wall Street sentiment that has brewed since the economic collapse has only served to further position corporate management in the crosshairs.

Corporate governance litigation is at an all-time high. And regulator enforcement emphasis is on preventing problems before they arise. A board’s responsibilities under Sarbanes-Oxley must be taken seriously. The 2002 law provides for personal liability of a public company’s directors.

Among the obligations of a board member of a publicly held company:

-Fiduciary Duties: A director can face civil liability for breaches of fiduciary duty, care and loyalty owed to a corporation and its stockholders.

-Duty of Loyalty: Directors are required to act in good faith in the best interests of a company. Potential conflicts of interest should be avoided or else fully disclosed and waived by the corporation.

-Business Judgment Rule: This rule presumes a director was duly informed and acted in good faith in the belief that actions were in the best interests of the corporation.

-Oversight and Monitoring: A director has an obligation to see that a corporation is operating within the law and striving to achieve its purposes.

Responsibilities and Restrictions of Sarbanes-Oxley:

Audit Committee:
Regulations give significant power to the audit committee and also go into detail regarding the committee’s responsibilities. The committee must be directly responsible for the appointment, compensation, retention and oversight of the accounting firm. At least one director must qualify as a “financial expert.”

-Obtain and review an annual report.

-Review and discuss annual and quarterly financial statements with management and independent auditor.

-Discuss earnings and financial information provided to ratings agencies, analysts and the press.

-Discuss risk assessment and risk management policies.

Nominating Committee
New director and board committee nominations must be made by independent directors — except for situations where a third party has a right to nominate. The committee must have a written charter addressing its purpose and responsibilities, including:

-Identify potential board members.

-Select or recommend that the board select a director.

-Develop and recommend corporate governance guidelines.

-Oversee the evaluation of management and the board.

Sarbanes-Oxley has numerous other requirements and prohibitions, including a prohibition against director loans, the establishment of a compensation committee, pension fund blackout periods and trading restrictions and accelerated filing requirements of beneficial ownership reports.
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A New York Investment Fund has made an unsolicited bid to acquire Cambridge-based AMAG Pharmaceuticals, the Boston Business Journal reports.

AMAG’s board of directors said it would evaluate the offer and make a recommendation to shareholders. MSMB Capital Management, a New York fund that invests in health care and biotechnology, made the $378 million bid to block the proposed merger of AMAG and Allos Therapeutics.
When it comes to mergers and acquisitions in Massachusetts, the actions of boards of directors will be scrutinized. A board’s responsibilities when it comes to planning and corporate finance are to act in the best interest of the company and its shareholders.

Our General Counsel on Call service provides legal advice to corporations in Massachusetts. Properly fulfilling the duties of the board can be particularly complicated during a merger or acquisition or when dealing with possible issues of employment discrimination, liabilities or financial issues governed by Sarbanes Oxley.

The deal between Allos and AMAG is worth $686 million and would give Allos about 40 percent of the new joint venture. AMAG Pharmaceuticals is focused on the development of therapeutic iron to treat iron deficiency anemia. Allos Therapeutics is focused on anti-cancer therapeutics. The merger was announced in July. “We are very excited about this merger as it creates a combined company with an enhanced commercial presence in attractive market segments supported by a more efficient organizational structure,” said Brian J.G. Pereira, CEO of AMAG.

MSMB Capital Management is a long-term shareholder of AMAG and said it does not believe shareholders would be best served by the merger.

The Boston Business Journal has since reported that AMAG’s board has rejected the “white knight” bid and reaffirmed its intentions to merge with Allos. The journal also reports that AMAG has come under some pressure this year after reporting lower-than-expected sales of its anemia drug.

The board announced that the “previously disclosed proposal by MSMB Capital is not reasonably expected to result in a superior offer to the merger with Allos Therapeutics, Inc.”

When boards often run into problems is when it’s revealed that board members stand to profit substantially from one course of action. Conflicts of interest and other legal issues must be thoroughly explored and resolved — to protect both the merger and the integrity of all involved.
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