TheCorporateCounsel.net

We’ve previously blogged about the potential disclosure issues surrounding security arrangements for corporate executives, but that’s not the only thing that companies looking to implement or enhance those arrangements need to think about. As this Covington memo points out, there are also corporate governance considerations resulting from the increasing threat environment that boards should keep in mind:

As part of its duty of oversight, a board of directors should periodically consider the company’s needs with respect to executive security arrangements. This involves assessing: the potential risks to the safety and well being of executive officers and other employees in light of the company’s location, business and industry; the public profile and roles played by executives; current social, economic and political events; and any significant threats to company personnel.

In light of these risks, the board should assess whether it would be prudent for the company to implement new security measures or modify existing ones. Boards also should understand the policies and procedures that a company has adopted to monitor and respond to potential executive security threats, including escalation to law enforcement. In circumstances where there are material changes to a company’s risk profile or new threats to company personnel, boards should be prepared to revisit their prior analyses and consider changes as circumstances warrant.

The memo suggests that boards may want to consider going beyond traditional arrangements like company-funded vehicles and security staff and implement policies regarding background checks on employees, contractors and business partners, heightened data protection and privacy procedures, including encryption and restrictions on access to sensitive information, cybersecurity training or other procedures designed to address safety risks. It also points out that these security measures may need to extend to employees beyond the C-suite.

One of the interesting implications of the memo’s suggestion that executive security implicates the board’s duty of oversight is the potential that directors might face Caremark claims in the event that lax personal security arrangements lead to the death or injury of a key executive. That’s yet another incentive for companies to take a hard look at their existing executive security arrangements.

– John Jenkins