Talking Your Way Out of Litigation: A Practical Guide for Corporate Communications

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Investor lawsuits challenging management’s public statements continue to reach record highs. Here are some useful tips for boards to keep in mind for communicating with investors and colleagues, retaining necessary backup, and managing incoming shareholder requests.

Keep the Receipts

Conscientious recordkeeping pays dividends.  If litigation arises, the keys to any defense will be evidence supporting that the statements were accurate when made and that the individuals making the statements had sufficient information to reasonably believe that the statements were true. Public statements should all be supported by internal backup.  Additionally, the external statements should match the internal analyses, and preliminary drafts (which may contradict the final conclusion) should be clearly labeled as such.  Memorialize the processes used to prepare the analyses and how those analyses are served up to executives speaking on the company’s behalf. Avoid being a corporate hoarder, however, and save only what you need.

Board minutes and materials warrant particular attention. These documents are easy for shareholders (and plaintiffs’ lawyers) to obtain even before a lawsuit is filed. Courts expect that board materials can be produced in short order. Judges have little patience for companies that have issues locating and disclosing these documents in a timely fashion.  Have a designated person who transmits materials to the Board, and have that individual maintain the minutes and materials in a central repository.  As for their contents, while Board minutes should not include a transcript-like level of detail, it is important that they accurately reflect the use of established processes. The Board should take action only after being provided with relevant information, and the Board’s receipt of that information should be documented. Privilege merits attention here as well. Counsel often advise the Board on both legal and business matters. Emphasizing which portions of the minutes and Board packages are privileged helps to ensure that they are treated properly later, such as in the midst of fast-paced litigation. As with other internal documents, the contents of the Board minutes should match the company’s public disclosures.

You’ve Got Mail

The mail still matters. Given the emphasis on email in our day-to-day, it can be easy to overlook old-fashioned snail mail.  But many legal documents are still sent in hardcopy, particularly at the start of a case.  When it comes to shareholder matters, these documents are often directed to the CEO or the Chairman of the Board—busy individuals who travel frequently or may not even have an office at the company. Without clear instructions to support staff about how to treat incoming mail, these documents can sit unopened, resulting in a later scramble, or even prejudice to the company’s legal rights and defenses.

Demands to inspect corporate “books and records” are among the types of legal papers that often come in by mail and require prompt attention. These were once a rarely-used corporate formality.  That has changed in recent years. After the courts encouraged shareholders to use this tool before initiating litigation, the frequency of these requests has grown substantially.  These demands often signal the start of a larger matter. Responses should be handled strategically to set the proper tone at the outset, and should be tailored to the specific requirements of the applicable statute(s).  While these requests often cannot be denied outright, the statutes typically impose threshold requirements—the requesting shareholder must demonstrate his or her stock ownership and seek only a limited inspection related to a proper purpose. Moreover, courts have supported the use of conditions such as confidentiality agreements, forum selection clauses, and agreements that limit shareholders’ ability to cherry-pick soundbites from the documents in later litigation.

Read more: Why Boards Need To Keep An Open Line Of Communication


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