Teaching "Corporate Governance" Differently in 2020

by Cheryl Wade, Harold F. McNiece Professor of Law, St. John's University School of Law

I decided to teach my Corporate Governance seminar slightly differently this semester in light of all that is happening in 2020. We have discussed the nuts and bolts of corporate governance – the roles of officers, directors and the process for nominating them; fiduciary duty; compliance; and shareholder democracy, among other things – but our discussion is taking place in the context of the corporation’s position and status in civil society. Some of my students will explore the role of public companies in addressing existential issues such as the global pandemic as a matter of social responsibility. We discussed the ability and appropriateness of public companies in addressing climate change. We considered the corporate governance failures at financial institutions that exploited consumers. Our approach this semester acknowledges the inextricable link between even the most mundane corporate governance issues on one hand and environmental and social matters on the other. 

Earlier this semester, I asked my students to think about the role of the corporate lawyer in helping companies avoid the public relations nightmares that sometimes ensue socially irresponsible behavior. Zach Sobel wrote, “imagine this, a corporate lawyer pushes their client to accept responsibility for whatever actions were alleged (assuming they actually did do what they are accused of). The public would be left with nothing to complain or hypothesize over, and the conversation moves from what the company did to how the company will respond.” Ricardo Gray agrees with Zach about the benefits of a corporation admitting wrongdoing “The corporate attorney serves the corporation so advice to have the corporation admit wrongdoing may seem backward, but after a corporation is caught red-handed remedial steps that do not leave those injured with a bad taste in their mouth, will only improve the likelihood of the corporation's success in the future.” Then Ricardo waxed poetic. “Specifically, once the corporation has caused harm to stakeholders, a corporate attorney becomes both a shield of the corporation, in that he or she will attempt to minimize liability and defend it from lawsuits and a sword, in that he or she will cut a path forward for the corporation to continue operations after the harm is caused.” 

I asked my students how firms can avoid litigation in the first place? Chris Gaine suggested that risks may be mitigated “by creating and implementing robust legal compliance systems.  In seeking to comply with the law, companies should look at relevant legal standards and aim to exceed them instead of just adhering to them.  Companies should also aim to comply with the “best practices” of a given industry, which manifest ideal ethical standards beyond what the law requires.” Greg Kramer also focuses on the potential of adequate corporate compliance. “One lesson from the spate of fraudulent, coercive, and otherwise illegal behavior of financial institutions leading up to the Great Recession (as well as more recent examples like Wells Fargo) is that these crises were not merely the result of a handful of bad actors at the top of an organization.  They involved systemic misbehavior of frontline employees across different parts of the organization.  But obviously, a board is incapable of monitoring every single operational activity of a company where the potential for misconduct exists.  Thus, boards must sift through this “noise” and focus their monitoring on key “signals” of systemic misconduct.” Federica Marini mentioned another crisis-avoidance structure that complements what Chris calls “robust” compliance. Federica writes that “while solving crises focuses on ending on-going emergencies and limiting damages to a client’s business, risk management is about finding solutions to avoid loss altogether prior to the occurrence of crises.”

Ryan Smith was concerned about another context with which public companies grappled in recent years – sexual harassment allegations. Ryan considers this problem in light of companies’ public disclosure about their investigation of harassment claims. “In the course of investigation, the firm should ask outside counsel to assess whether the company’s public statements require correction or updating based on what the investigation reveals.” Alexa Major also wrote about disclosure but did so in the context of COVID-19 and admonished firms to be careful about disclosing information about “the impact of the current pandemic on ‘business as usual’.”

All of my students submitted answers that reflect hopeful perspectives concerning the roles and obligations of public corporations. I have shared the ideas from just a few of them in this post.