SENIOR EXECUTIVE ISSUES Legal Considerations: Best Practice Overview EMPLOYMENT GROUP: DLA Piper UK LLP
Senior executives have a massive impact on all aspects of a business: from setting and delivering corporate strategy to creating the right organisational culture to maintaining strong staff and investor relationships. You need to ensure you attract top talent and then develop and reward senior management in appropriate ways ensuring they stay with you, helping to provide you with a competitive advantage. The flip side is that if things don t work out, the termination of employment or settlement of a boardroom dispute may have significant consequences, especially if handled incorrectly. The situation is complicated further when you add an international dimension, with different jurisdictions each having their own rules and regulations. The challenge is to ensure you have access to the appropriate insights, expertise and experience when dealing with individuals at the most senior levels. Moving quickly is often essential, with decisions having to be made within short time scales. Where multiple jurisdictions are involved, the need for clear communications across diverse national and corporate cultures is paramount. In light of these requirements, supporting legal services have to combine proven legal skills with a high degree of commercial know-how of senior executive, boardroom and HR issues. The capabilities of any legal services provider under consideration should therefore combine: Experience: risk reduction, the ability to handle sensitive matters, be trusted known to deliver successful outcomes Breadth: knowledge, cross-border coverage, cost efficiency legal skills across the board to handle any issues as they arise Depth: the right people, proven expertise and teamwork the ability to focus on the detail whilst also addressing the bigger picture Service: client focused at all times highly responsive but also proactive to highlight unforeseen opportunities and new risks A lack of understanding and fast action in this complex area can lead to companies facing litigation, financial loss and reputational damage: it pays to be prepared 02 Senior Executive Issues
Challenges Organisations face many challenges when managing senior executives, including: Hiring and packages (including incentives, pensions and shares) Many businesses are founded on employing and developing talented people, with remuneration and rewards in line with an individual s experience, skills and performance: the more senior the post, the larger the sums and the more complex the negotiations and arrangements. While it is no great surprise that drawing up a contract and agreeing terms with individuals and executive teams is a critically important issue, why is it that so many problems occur further down the line from unenforceable covenants to wrangles over final payments and corporate governance pressure? Getting it right from the outset with advice on terms, benchmarking and best practice from a legal as well as a commercial and HR perspective is common sense, and an investment well made. Bonuses and rewards In tough market conditions, bonus payments to senior executives come under even greater scrutiny. Care must be taken to avoid claims of breach of contract or discrimination when deciding how to award payments. Redundancy issues Redundancy law is complex and the process requires sensitivity. Failing to implement programmes correctly can lead to substantial legal liability, with the risk of litigation, financial penalties and reputational damage. In senior teams, reorganisations effecting few or single parts can often be the most challenging. Protect yourself: restrictive covenants and more It is always advisable for a business to protect confidential and sensitive information. Protection should be expressly provided for in contracts of employment and service agreements and should be tailored for each individual. Many existing contracts are simply inadequate to effectively protect the business. Compensation and reputation Executive claims and disputes often hit the headlines, which suggests top business leaders don t always have a good understanding of key employment law risks in this area. This is particularly true in cases of corporate whistleblowing and discrimination. In such cases, compensation can be unlimited and reputational damage substantial. Control and communications It is essential to assert control and to communicate effectively, ensuring all parties directly involved understand what is happening, and making sure external messaging to investors and media is regular and consistent. A single point of control in terms of communications, information sharing and, in some instances, crisis management is vital for a successful outcome particularly if organisations or individuals are already in the spotlight, or if high-profile brands or cross-border activity is involved. www.dlapiper.com 03
Some recent case examples handled by DLA Piper DLA Piper has gained extensive experience working for national and international clients on senior executive, board-level and HR-related issues across many industry sectors and for companies of varying sizes. Communications we advised a listed company on compliance with the Listing Rules, Combined Code and NAPF/ABI guidelines on the terms of service agreements for executive directors. Financial Services we advised a major investment bank on the resignation of a senior executive and subsequent claim for a bonus payment and restricted stock award, including the legal position and settlement strategy. IT Services we advised a multinational plc on the implementation of an innovative growth share arrangement designed to deliver benefits to employees taxed at the 18% capital gains tax (CGT) rate across a number of jurisdictions, including the UK, US, India and Europe. Manufacturing we advised a major employer on the impact of the Government s anti-forestalling measures under the Finance Acts 2009 and 2010 on their high earning employees, including advising on contractual measures to limit pensionable earnings so as to fall within the annual allowance and/or the special annual allowance. Media we advised a global media and entertainment company on the implementation of a stock incentive plan for senior executives across Asia Pacific. Professional Services we advised a firm of actuaries and consultants on restrictions required in their template employer-financed retirement benefits schemes (EFRBS) documentation to obtain exemption from liability to UK National Insurance Contributions on the EFRBS benefits and from UK Inheritance Tax on the EFRBS death benefits. We also advised on appropriate amendments to the balance of power under the template documentation to ensure the employer and high-earning members retained control over the trusteeship and the investments of the EFRBS and over the form in which benefits are to be paid under the EFRBS. Recruitment & Staffing we successfully obtained an injunction and damages when two out of four directors in a company resigned with immediate effect, alleging repudiatory breach of contract, and set up a competing company in breach of restrictive covenants. The directors were prevented from competing against our client during the restrictive covenant period and had to pay our client damages arising out of the breaches of their contracts to cover the loss sustained as a result. We advised the non-executive directors of a leading provider of staffing solutions on the terms of remit of the Remuneration Committee, and the role and responsibilities of independent nonexecutive directors. Retail we advised one of the world s largest and most internationally recognised luxury goods company on hiring a senior executive, including advising on the enforceability of the individual s post-termination restrictions with his former employer, and assisting with structuring the employment relationship upon commencement of employment. We advised the CEO of a global clothing company in a claim for sex discrimination brought against him by another employee. Telecommunications we advised a listed company on its share incentive plans, including implementation of a new Executive Incentive Plan, a one-off plan designed to reinforce a recovery in share price and reward growth in shareholder value in the short term. 04 Senior Executive Issues
Benefiting from best practice reducing the risks When executive issues or boardroom disputes arise, three requirements are key to helping ensure opportunities are maximised and pitfalls avoided: Gaining an informed understanding of the situation, business context and principal issues as quickly as possible Developing effective plans to deal with those issues and the major risks faced including timing, costs, media coverage and investor reaction Executing those plans in a methodical and focused yet flexible and cost-effective way, based on industry, HR and legal best-practice Key areas to consider include the following (this checklist is not intended to be exhaustive): Legal Advice Strategy Planning Coaching, advising on timing and communications issues; advice and planning for multi-cultural/multi-jurisdiction issues for cross-border requirements Understanding and Mitigating Risk Avoiding compensation payments and/or reputational damage (e.g. for issues such as discrimination or whistleblowing) Confidentiality Trade Secrets Advising on protecting the business; tightening up contracts; anticipating and planning for expected executive team moves as economies recover Bonuses and Rewards Negotiations and set-up; revisit terms of schemes regularly to ensure flexibility to reduce or restructure payments based on changes in performance Redundancy and Severance Advice, professional insights, planning and a sensitive approach for this complex and often highly delicate area, particularly in a challenging economic climate A business and by extension shareholders and investors should expect trusted advice and expert representation based on in-depth knowledge of employment law and commercial risks, wherever they operate and often cross-border such insights become even more acute during times of economic uncertainty and major structural change. Communications Crisis Management Employee engagement; executive engagement; effective lines of communications in place; PR and media skills/training; stress-tested contingency plans Rapid Response Teams Dispute Management A legal team with the right skills sets ready to respond to your call 24/7 to, for example, negotiate severance terms; the ability to manage disputes including High Court contractual claims; investigations into fraud, inappropriate behaviour, etc. Litigation Litigation is sometimes unavoidable, so organisations also need fast access to a trusted resource for expert support and representation www.dlapiper.com 05
Why DLA Piper? DLA Piper has supported clients on a vast number and wide range of senior executive, boardroom-level and HR-related issues both domestically and crossborder. Bringing independence of thought and a fresh perspective, our strengths include: Proven expertise and many years experience in senior executive issues, nationally and internationally A combination of in-depth legal knowledge and commercial/hr know-how, to help control costs and reduce risk at every stage Understanding the need to protect the business and how to handle sensitive issues taking into account the views and likely impact on all key stakeholders Substantial experience in developing remuneration packages including incentives, pensions and share schemes, and experience in advising clients on how to deal with executives who are not performing A single point of contact and accountability for all areas and other specialisms that may be required to achieve your goals we have global reach backed by local and location-specific legal knowledge and cultural insights For more information please contact: Tim Marshall Joint Global Practice Group Leader EMEA Employment Group tim.marshall@dlapiper.com Pattie Walsh Head of Asia Pacific Employment Group pattie.walsh@dlapiper.com Michael J. Sheehan Joint Global Practice Group Leader USA Employment Group michael.sheehan@dlapiper.com Visit www.dlapiper.com/employment_contacts to find a principal contact in an office near you. employment group DLA Piper s Employment group is a market leading global practice with a strong reputation for delivering solutions-based advice and supporting clients in the day-to-day management of their people legal issues and risk. It includes over 300 specialist lawyers working globally on a strategic and operational level on both contentious and non-contentious matters across the private and public sectors. The group advises on all areas of employment, trade union and employee relations, discrimination and diversity management, global mobility and data privacy. Working closely with our tax group, we advise on the legal, tax and regulatory aspects of remuneration, employee share incentives and other benefits and assist clients generally in designing and delivering their reward strategies. Our Pension lawyers cover every aspect of pension provision including the creation, operation, regulation and restructuring of all types of pension funds in the private and public sectors, as well as the management of pension disputes. We also have a specialist employment law training team called Advance, which delivers training on a commercial basis. For details of all our services and to obtain a copy of our training directory, visit www.dlapiper.com www.dlapiper.com This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not be used as, a substitute for taking legal advice in any specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of this publication. If you would like further advice, please email emp_marketing@dlapiper.com or your DLA Piper contact on +44 (0) 8700 111 111. DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of these entities can be found at www.dlapiper.com Copyright 2013 DLA Piper. All rights reserved. JUN13 1899908