Business litigation: What Los Angeles boards need to know

Recent news articles have brought Wells Fargo’s Board of Directors under scrutiny. The company is involved in ongoing business litigation due to claims that Wells Fargo management coerced employees into the creation of thousands of fake accounts through unrealistic and even aggressive sales goals. As far back as 2013, the Los Angeles Times began reporting that the company’s Board took no action to address or remedy these fake accounts. Since then, the CEO has been replaced and the Board of Directors restructured.

Other California-based companies can consider using Wells Fargo’s apparent mistakes to avoid future business litigation issues of their own. Many critics suggest that a Board should take responsibility for monitoring a company’s management to protect customers and shareholders. There are several methods that may help companies evaluate and improve their own Board of Directors.

Board structure should be regularly and carefully evaluated to see whether changes could help create greater oversight; this could include, for example, Wells Fargo’s decision to split the role of Chairman and CEO, or could involve deciding a tenure of directors. Another consideration is to evaluate reporting; the board’s job is to oversee management but it cannot do so with incomplete information. A well-defined chain should exist to immediately evaluate and investigate reports of wrong doing and fraud. When a Board does learn of credible allegations, these accounts must be taken seriously, with an established plan to quickly launch investigations.

Companies can use Wells Fargo’s recent situation as an opportunity to evaluate their own Board of Directors. This unfortunate example could serve as a chance to evaluate a Board’s structure and to develop a fuller understanding of its role in governing an organization. If a Los Angeles company is facing a dispute or investigation — whether in regard to alleged wrongdoing by the board of directors, shareholder disputes, contract disputes or other issues — an attorney with experience in business litigation can offer valuable guidance.

Source: jdsupra.com, “Business Litigation Alert: “Lesson Learned from Wells Fargo – What Your Board of Directors Needs to Know”“, Jeffrey Elkin, Nov. 7, 2016