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D&O lawsuits as a tool

D&O lawsuits as a tool

Recently the entire board of directors of a professional organization resigned en masse, along with the executive director. This came as the culmination of years of efforts of a single member who wished to change the direction of this popular organization. This member had, in fact, eventually been elected to the board, but was forced to resign by popular vote of the general membership at an annual conference.

The de-frocked director subsequently ran for office again, and was again re- elected, giving them, no doubt, the mandate of the people. The director then began a series of costly lawsuits against the organization.

Eventually, the organization’s insurance company said they would not cover any further costs for lawsuits from this individual. The board members, being no fools, recognized that they served in order to help the organization be more professionally fruitful, rather than for money or for anything else central to their lives. Therefore, the risk of personal impoverishment through legal fees was simply not worth it, and they resigned.

We are not concerned here in whether the member was right or wrong, or whether what they did was good or bad, or whether fundamental changes were or were not needed or desirable, or whether the organization will survive. We are only concerned with how the board failed to deal with this novel technique for using the system as a tool of attack.

As always, when looking at any policy measures, what should be done must be judged by the five basic criteria:

1. What problem is the policy or measure trying to solve?

2. How can it fail in practice?

3. Given the failure modes, how well does it solve the problem?

4. What are the costs, both financial and social, associated with it, and flowing from its unintended consequences?

5. Given the effectiveness and costs, is the policy or measure worth it?

In this case, the organization simply did not recognize that it faced a long term, well-organized, ongoing threat. Because the measures they took didn’t address the problem (as so often happens, nobody ever asked the first question), they were simply inadequate to deal with the threat.

Because there was not a recognition that a threat was faced, the board did not dignify the attacks with a meaningful public response. Since, in the minds of many, silence is taken as guilt, this put them at a perceptual disadvantage.

Additionally, and again because the attack was not taken seriously (largely, on a guess, because the board members knew they were not doing anything wrong, nor acting for their own gain), the board did not take measures to either throw the member out, or put in a prophylactic bylaw change to prevent members who were expelled from the organization or forced to resign from the board from future participation.

When faced with legal action, the board apparently (we have had no contact with board members, and can only make assumptions based on our experience and what we observed) responded, but did not counterattack. In fact, our experience tells us that in cases such as these, if there is no countersuit there is no reason for the attack to stop.

This last issue points out a final problem: While not all attorneys are bad (one attorney pointed out that their firm was very good, but that they were so overworked that they never had time to do an adequate job), if you actually become involved in litigation it is important to have a good lawyer. Good lawyers sometimes cost more per hour than bad lawyers, but keep in mind the truism that the only thing more expensive than a good lawyer is a bad lawyer. Lawyers, however, don’t exist in vacuuo.

By this, we mean two things. The first is that all lawyers don’t know all the same stuff. The body of law is so enormous that lawyers specialize and the more specialized your problem the more specialized the lawyer you should seek out. Thus, a lawyer, who is a great collections attorney, may not be a good attorney for a libel action.

The second is that you have to explain your problem to a prospective lawyer, make sure that they understand your problem, and that they can help you solve your problem. You then have to work with your lawyer to make sure that they are doing what is needed to be done, and that what they are doing makes sense. If it doesn’t make sense, you need to have them explain to you why what they are doing makes sense. If it still doesn’t make sense, you need to change lawyers.

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