Additional fallout from the 2023 collapse of Silicon Valley Bank (SVB) surfaced this month as the Federal Deposit Insurance Company (FDIC) sued 17 former executives, including 11 directors, for billions of dollars in damages related to the bank’s failure. The lawsuit is a reminder that corporate board members continue to be held to very high standards regarding their ability to manage all types of risk for their companies, and failure to make prudent risk management decisions can have serious consequences.
According to a news report from Reuters, former SVB CEO Gregory Becker, six other executives and 11 directors are accused of ignoring fundamental banking standards and their bank’s own risk policies for short-term gains that ultimately led to the bank’s failure. The Reuters report also said the defendants were criticized for making a “grossly imprudent” $294 million dividend payment to its parent company that deprived the bank of needed capital “at a time of financial distress and management weakness.”
The FDIC lawsuit states that the case against SVB represents “egregious mismanagement of interest-rate and liquidity risks by the bank’s former officers and directors.” It also alleges that the conduct of the executives and directors was “grossly negligent, and a breach of the fiduciary duties of care and loyalty owed by each Defendant to SVB.”
In a December 2024 memo, FDIC Chairman Martin Gruenberg supported the lawsuit because it sought “to hold these former officers and directors accountable for their breaches of duty in mismanaging the Bank’s investment portfolios that exposed SVB to significant risks, caused SVB to incur billions of dollars in losses, and resulted in a loss to the Deposit Insurance Fund currently estimated at $23 billion.”
This lawsuit just emphasizes the fact that as the responsibilities of corporate directors continue to expand, the pressure to produce profits is expanding as well. Directors will need to be careful that those additional responsibilities don’t pressure them into taking excessive risks. Unfortunately, even if well intentioned, corporate directors who make riskier decisions or who unintentionally ignore risks altogether are probably more likely to be sued now than ever before.
With the new Trump administration taking over in Washington, D.C., different levels of scrutiny from investors, stakeholders and regulators may emerge. Directors may need to re-evaluate their company’s risk management positions in several areas to avoid major problems that could end in lawsuits or worse. These areas could include:
• Exposure to overseas markets. With the new U.S. President’s fondness for tariffs, each company will need to reassess how their company will be affected by these potential policy changes. Will tariffs affect overseas suppliers’ ability to send companies materials they need at affordable prices? Will retaliatory tariffs affect the ability of U.S. companies to operate in foreign markets? What might be the risks to company profits in the coming years?
• Bitcoin and cryptocurrency risks. With the new U.S. administration apparently supporting the use of Bitcoin and other cryptocurrencies, corporate boards may feel the need to explore the risks and rewards of holding cryptocurrencies on their balance sheets. The volatility of cryptocurrencies will make conversations about financial risk critical for the future of many companies. Determining the correct level of risk to take regarding Bitcoin and other cryptocurrencies will likely be a topic of discussion in many boardrooms.
• Energy and environmental risks. With the new U.S. administration emphasizing its breaking from the Paris Climate Agreement, companies may want to reassess the risks of climate change on their business. Corporate directors will also want to pay attention to compliance with environmental regulations, some of which may change as the new administration begins rolling out new policies. However, directors will need to weigh the risks of ignoring climate-related issues that could potentially affect their business because if a tragedy strikes, they may be held accountable.