Board members’ awareness of personal liabilities increasing – PLMJ

Due to the explosion of corporate scandals over the last two years and the ensuing criminal and civil litigation, there is a growing awareness among board members of the personal liabilities they potentially face in relation to the “stakeholders of the companies they manage, such as creditors, workers and tax authorities”, according to Duarte Schmidt Lino, partner at PLMJ.

Schmidt Lino also points out that the past few years have seen several important legal changes that have impacted corporate compliance. “While this has generated work for lawyers as corporations’ adapt to these new laws, a knock-on effect has been that the trend for commoditising compliance work is now slowing down.” Schmidt Lino adds that clients are generally only becoming aware of the benefits of compliance when they suffer the consequences of not dealing effectively with the issue, or when they see “another entity to which they can relate” in the same situation.
Schmidt Lino says the first and most crucial step clients can take is a thorough and effective assessment of the regulatory environment and the risks associated with non-compliance. He adds: “With the results, they should then design and implement a compliance plan, and do a periodic review of the risk assessment and the regular internal controls to make sure they remain operative.”
Companies involved in highly regulated activities face the biggest compliance-related risks, says Schmidt Lino, who adds that the biggest opportunities for law firms in the area of compliance lies in the financial, pharmaceuticals and energy sectors. “In an economy facing severe overleverage problems and a high percentage of companies in financial distress, board members are personally liable for breaching their fiduciary duties, which tend to become more and more complex and broad,” he explains.