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Law Times • February 22, 2010 NEWS Directors exposed to greater liability BY TIM SHUFELT Law Times collapses, directors and offi cers are now exposed to liability in more ways than ever. A mid calls for corporate governance reform re- sulting from fi nancial Many of them, in fact, don't even know it. After a corporation becomes insolvent, the liability insur- ance policy of individual direc- tors will end up in the hands of a lawyer like Frank Spizzirri, a member of Baker & McKen- zie LLP's fi nancial restructuring 'Priority of profit' a barrier for women: Charron BY TIM NAUMETZ For Law Times OTTAWA — Th e speech that Supreme Court of Canada Jus- tice Louise Charron decided not to give at a recent sympo- sium on women in the legal profession might have sent shock waves through the ranks of Bay Street lawyers. As it is, just the text of her prepared speech, included in the literature taken home by more than 100 female lawyers, will likely stir debate through the legal community for some time to come. Th e text, prepared for and recovery practice. "I get this policy on my desk and I read it and I go, 'Wow, there's no coverage,'" Spizzirri said. Typically, the best protection for a director is off ered by an ex- ternal policy, he told participants at last week's Ontario Bar Associa- tion Institute conference. "I can't tell you how many times I get the policy, and we un- fortunately have to tell the director there isn't much coverage there. And sometimes the exclusions are in bold and all caps," he said. Spizzirri explained that the months leading up to a corpora- tion's insolvency are a crucial pe- riod of time that can give rise to many liability issues. "When you're advising direc- tors of a company, and the com- pany is on the eve of insolvency, it's important to ensure they don't get themselves caught up in potential litigation over transactions." Whether dealing with the is- suance of dividends or the sale of shares or property, such trans- actions may come under intense scrutiny, said Lydia Salvi, also with Baker & McKenzie. "It's very important in this sce- Justice Louise Charron Charron by a former Supreme Court law clerk who now lectures at the University of Ottawa, criticizes the desire for profi t and long billing hours that drive big fi rms in private practice. Th e speech, undelivered but still circulated under Charron's name as part of the literature for the Women Lawyers' Symposium in Ottawa earlier this month, adds the "priority of profi t" to a list of reasons for why a third of women lawyers quit within 10 years after their call to the bar. "Th e 'priority of profi t' represents a signifi cant barrier to insti- tutional change in the private practice environment," the text of Charron's speech said. "Many law fi rms are so focused on profi t that they may be unable to appreciate the value of apparently 'com- peting' priorities like shorter hours, fl exible work schedules or pro bono legal work." Th e speech was prepared "at the direction" of Charron by for- mer law clerk Jena McGill, an attribution says. Footnotes cite sever- al recent reports and data from Canada and abroad to demonstrate that progress has been slow since former Supreme Court of Canada justice Bertha Wilson led a Canadian Bar Association task force on gender equality in the legal profession in 1993. Th ough Charron pointed out the prepared speech to her audi- ence, all but a handful of whom were women, she decided to focus her remarks instead on her own experience balancing her career as lawyer and judge, her personal and professional lives, and the need for fl exible work arrangements. Alison Dewar, a labour lawyer with Raven Cameron Ballantyne & Yazbeck LLP in Ottawa, agrees demands for long billing hours and time pressures are a barrier for women who want to start fami- lies. "You get judgments about whether you're suitable for a part- nership in your fi rst maybe seven years or so," says Dewar, pointing out maternity leave aff ects billable hours during that key period. "Th e pressure for profi t is an enormous systemic barrier." Laurie Pawlitza, co-chairwoman of the Law Society of Upper Canada's Retention of Women in Private Practice project, says the need for transforming the traditionally male-dominated environ- ment at many law fi rms surfaced at symposium workshops. She tells Law Times one of the panellists noted her fi rm off ers Toronto Raptors tickets to partners for business and client devel- opment but said she would prefer taking clients, along with their spouses, to an activity like the Toronto International Film Festival. "So, it's about recognizing that it's perhaps time to broaden our horizons about things like business development and client devel- opment and what women will access in the fi rms with respect to that," says Pawlitza. But one of the more high-profi le fi gures in Canadian law, Clay- ton Ruby, says it's time the LSUC addressed the problem more directly. "We've been talking about it for over a decade, and it's time for the governing body to actually make some changes," he says. "While it's good and important to talk about it and to approve programs that people are having and to make sure that we communicate what things can be done, it's time to take it more seriously." 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During that period of time, when cash starts to dry up, as it did for many companies dur- ing the recession, boards may be inclined to temporarily dip into other funds to pay the bills. Since the government is gener- ally slow at collecting, that money usually comes from GST and provincial sales tax remittances and source deduction payments, Spizzirri said. It's a tempting but ill-conceived move, he added. "Well, what did they just do? Th ey just created this massive exposure to themselves. Th ey're on the hook for all three of those things." In addition, cash-strapped pension plans are possible sources of signifi cant liability, he added. "Folks are going to be looking for deep pockets to try to collect to try to boost up those pensions." All liability for directors stems from the duties of care and loyalty they owe to the corporation. Ultimately, a director is bound to do what's best for the survival, continuation, and enhancement of the corporation, Spizzirri said. Th ey are, however, entitled to make honest mistakes. "We don't punish people for making an educated decision that turns out to be ultimately wrong." While the job may well come with some inevitable exposure, there are ways to limit, if not elim- inate, liability, he added. Th e fi rst is to understand one's risk profi le. Th at means reading the policy and ascertaining the options available, he said. He also advises clients to par- ticipate in the decision-making process rather than letting oth- ers make choices that may ex- pose them. Salvi, meanwhile, pointed out that an individual not offi cially on the board could ultimately be considered a de facto director. "If you're a person in control, that's calling the shots, making the decisions. It doesn't matter if you're not an offi cially elected director." At the same time, getting in- volved will help to establish due- diligence procedures that may preclude a director from liability. "It's worth a try to try to build a due-diligence defence, and you try to do it in advance," Spizzirri said. He also encourages clients to demand the "Cadillac" of protec- tion policies from the corpora- tions they serve. "No one's obliged to incur li- abilities for the sake of the com- pany. So, either you're protected or consider resigning." LT PAGE 5