Dominion Lawsuit Against Fox News Is Warning To Boards To Act Fast Against Misconduct

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The board's failure to take swift action could result in shareholder lawsuits, an SEC investigation and loss of insurance protection.

Corporate directors across the country may want to pay attention to developments surrounding the Dominion Voting Systems’ $1.6 billion defamation lawsuit against Fox News. According to news reports from CNN, governance experts are warning that testimony recently made public in court filings could cause significant problems for the Fox Corporation board of directors.

Jeffrey A. Sonnenfeld, professor and associate dean of leadership studies at Yale School of Management told CNN that disclosures from the lawsuit could result in possible shareholder lawsuits, an SEC investigation and the potential loss of insurance protection. The disclosures suggest that the board may have had knowledge of “misconduct with material adverse impact,” but failed to take action to correct or stop it.

“It shows a failure of management oversight and jeopardizes their own directors and officers insurance protection with such gross conscious failure of diligent management oversight,” Sonnenfeld said.

The case revolves around Fox News being accused of broadcasting claims of election fraud involving Dominion Voting Systems to millions of viewers that evidence now suggests the company knew were false. Those false claims were broadcast for months, and some argue are still being endorsed today. Corporate board members may want to ask themselves, “What measures would they need to take and how fast would they need to act if faced with a similar issue where their management team was allegedly providing false information to customers?”

Corporate boards are under intense scrutiny these days, and as the Dominion lawsuit makes its way through the courts, there will be plenty of questions about what the Fox Corporation board’s responsibilities were to its investors and other stakeholders (its customers). Why it failed to act quickly once evidence that misconduct had taken place will be a huge issue the Fox Corporation board will be confronted with.

The outcome of the Dominion lawsuit will likely play a role in determining the Fox Corporation board’s future, as a billion-dollar judgement against Fox News will certainly hurt Fox Corporation’s stock price and its reputation as a trusted news organization. The company and the board will almost certainly be the targets of lawsuits. Some board members may be asked to resign. In the meantime, corporate directors may want to consider the following:

Review and revise policies and procedures regarding misconduct. A periodic review of governance principles regarding misconduct is always a good idea. Making certain that everyone in the company understands what constitutes misconduct and that the company will aggressively move against anyone guilty of misconduct will demonstrate to regulators and others that the company is serious about stopping that type of activity. Clarifying the procedure for the board to take action against the CEO and other executives that are accused of misconduct will also ease the minds of investors.

Re-emphasize company whistleblower policies and protections. It takes everyone in the company to fight against misconduct. Making sure employees know how to file whistleblower complaints can help the board stay on top of potential misconduct and other problems before they turn into crises.

Review and update/upgrade insurance coverage. Companies may want to review and update their directors and officers insurance policies to make sure they are covered for new types of misconduct that have emerged over the last few years. Is your company covered for executives spreading misinformation? Such a question was not thought of a decade ago, but some boards may need to ask that question now. Better to upgrade insurance before a crisis happens.

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