Economic Crisis: Opportunity for Corporate Law Students?

Now that the economic crisis is no longer developing and seems to have come to full fruition (no more, please!), many in the legal world are contemplating the changes that will come about in corporate law. No, I am not talking about the lost business that will occur due to cut-backs in legal spending from corporations. Developments in the law will create new responsibilities for lawyers to make sure clients are both compliant and aware of liability for their actions.

Earlier posts have referred to Alan Greenspan’s “affection for deregulation” during his tenure as Federal Reserve Chairman. However, he has recently come around, acknowledging that he was “partially wrong” in opposing regulation of derivatives in an article from Bloomberg.com, and others have called for much heavier regulation. Regulation reform is coming, whether Greenspan likes it or not, but it is not the only change that will be meaningful for corporate attorneys.

The Conglomerate Blog has recently posted about the effect of the economic crisis on corporate boards of directors. The post refers to the shift that occurs in a board’s fiduciary duties when a corporation becomes insolvent. The Business Judgment Rule makes it difficult for a board to be found liable for excessive risk taking; however, this is going to be the prime allegation in upcoming litigation where shareholders are upset over a board’s decision to invest in the poorly collateralized securities that helped spark this crisis (and likely lead to the demise of the corporation in the lawsuit). The Conglomerate post discusses how corporate insolvency shifts the fiduciary duty owed by the board to creditors instead of to shareholders. When someone accepts a position on the board of a corporation, they do not do so with the vision of the corporation going insolvent; likely they assume some level of success.

It is important for corporate attorneys to keep their clients aware of how their roles in the corporation may shift with the potential or actual insolvency. Furthermore, law students should be looking at the impact this economic crisis will have on corporate law; there may be opportunities coming where firms are looking for attorneys who are up to date on these current developments.

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One response to “Economic Crisis: Opportunity for Corporate Law Students?

  1. I think, as noted in the Conglomerate, that enterprise risk management will provide answers to some of the pressing issues that boards will now face. ERM “is geared toward better informing senior management and boards about the overall risk profile of their company and better equipping those individuals to identify, assess and mitigate risk.” Having an ERM model in place will help management and boards see the big picture. And, “understanding the big picture helps determine where to place the various pieces.”

    When the directors of Lehman Bros. were introduced to credit default swaps, an effective ERM model would have enabled management to understand how the swaps could help/hurt them. Instead, of focusing in on individual investment strategies, an ERM model would have forced them to take a step back, asses their risk, and see how they would factor into their firm-wide investment strategy.

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