Mandatory Retirement Age Policies Not so Mandatory

Posted on November 10, 2011 by joe

Two recent high-profile executive retirements, both citing the companies’ mandatory retirement age policies, raise the question “how can mandatory retirement age policies be legal?”

The truth is, most of them aren’t. Neither IBM CEO Sam Palmisano nor Freddie Mac Chairman John Koskinen had to retire this week. If they wanted to stay, and they wanted to press the point, chances are the courts would have been on their side. That’s because most mandatory retirement policies are, with relatively few exceptions for safety (such as airline pilots) and some institutions of higher education, a blatant violation of the Age Discrimination Employment Act of 1967.

So why don’t more executives dispute them? Because, in a nutshell, it’s much nicer to not work and get paid than it is to keep going to the office and get paid. And most executives are happy to exchange 60 hours a week at the office for 20 hours on the golf course. Consequently, those executives facing their company’s “mandatory” retirement age are usually happy to take that deal.

Of course, some executives may want to keep working and some companies want them to keep working. In such cases, the company is free to grant a waiver to the mandatory retirement age policy.

In cases where the executive’s desire to keep working isn’t reciprocated by their employer, however, they need to seek out a qualified executive employment lawyer for assistance negotiating with their employer.

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Changing Jobs? Here’s What Not to Take With You

Posted on October 25, 2011 by joe

In my last blog, I discussed what executives should take with them when they’re leaving their company. In this blog, we’ll go over something just as important: what they shouldn’t take with them.

VIDEO: Houston Executive Employment Attorney Joe Ahmad says if an executive takes phone numbers and other information when leaving the firm, his company will likely find out.

The short answer is, besides the employment documents you’ve signed (and with which you’ll be expected to comply), any awards or recognitions you’ve received, and personal items such as family photos, your snack stash, and your miniature putting green, pretty much everything else stays with your former employer.

Customer lists? Employee directory? Sales data? Internal marketing memos? Holiday card lists? Yes, yes, yes, yes and yes. It all stays behind. Don’t take hard copies with you, and definitely don’t download anything from your work computer to a zip drive or email those documents to yourself. Anything that could remotely be seen as confidential information needs to stay behind, and you’ll want to err on the side of caution when determining what is and isn’t confidential.

If it’s truly public information, then get it from a public source after you leave.

Companies are hyper vigilant these days about protecting their trade secrets and other confidential information, so it’s not unheard of for companies’ IT departments to scour a former executive’s computer, email and mobile phone to see if the executive (or any employee, for that matter) is attempting to take with them information they shouldn’t.

This also raises the issue of executives using company-owned computers, mobile phones and other company property for purposes of landing another job—or for anything they don’t want their employers to know about it (use your imagination). Misuse of company-owned property has come back to haunt more than a few executives, so, again, err on the side of caution. It could mean the difference between positive relations with your former colleagues and protracted litigation with them.

It should go without saying that retaining the services of an experienced executive employment lawyer is a smart step anytime you’re about to make a big move. A good lawyer will help you navigate the gray area between personal, professional, and confidential and help keep you out of hot water.

Posted in CEOs, Complaints Against Executives, Executive contracts, Legal, Litigation, Trade Secrets, Uncategorized | Tagged , , , , , , , , , | Comments Off

Executives Should Proceed With Caution When Changing Jobs

Posted on October 12, 2011 by joe

One of the biggest, and most likely, legal headaches highly placed executives can give themselves involves their actions just before and just after leaving one company and joining another. An executive’s actions during this time are critical to avoid getting himself (and his new employer) sued by his former employer over breach of a covenant not to compete, theft of trade secrets, breach of fiduciary duty, or any kind of dispute involving duties owed to the former employer.

In this blog and my next one, I’ll share some do’s and don’ts for executives who are pondering jumping ship.

Companies are not shy about suing former executives these days. Whether it’s because of the recession or just a naturally more competitive business environment, businesses are more than willing to take former employees to court over alleged breaches of the employee’s duty to the employer. Most, if not all, of those cases rely on signed agreements the executive herself signed when she joined the company, usually many years (even decades) earlier.

Many employees, particularly executives, can get sued unaware that a few steps in advance can often stave off a lawsuit.

1) Be aware of what you have signed. 

The first thing I tell any executive who is considering leaving (or has already left) her employer to do is get an inventory of any and all documents she signed when she came on-board. Everything from your employment contract to the form checking out your building’s card key could conceivably give rise to litigation if anything you do could be construed as violating the terms of those agreements.

Most executives probably have no idea what documents they signed last week, let alone 10 or 15 years ago, so it’s imperative to get a complete inventory from your old employer’s HR department (which should have all those documents in your employment file). That request must be in writing, by the way.

Once you have all those documents, it’s time to make a fresh pot of coffee and read them all, taking special note of any and all obligations or expectations on your part.

Chances are, you will find even a cursory glimpse of those documents enlightening. They should provide clear guidance on what is expected with regard to trade secrets and other confidential information, ability to work for competitors, ability to solicit other employees or company clients, and other duties to the former employer.

Once you know what you’ve signed, it’s much easier to comply with those agreements. But without having those documents in hand, you (and your new employer) are flying blind.

 2) Get professional help.

OK, I am biased on this one. But if there is any doubt, having a lawyer analyze your particular situation is invaluable.  Also, if you have signed a contract, it inevitably contains legalese, so it’s  important to have a qualified executive employment lawyer review it to go over all of your post-employment obligations.

3) Get your new employer involved.

It’s also a good idea to show these documents to your new employer, since the company would probably be a defendant in any potential litigation arising from your employment.

If you don’t show the documents to your new employer, and your new company is sued, it’s entirely possible that your new employer may choose not to defend you—particularly if they suspect you were withholding information about such agreements during the hiring process. Full disclosure is always a good idea.

Of course, some of the documents may themselves be confidential, so if there’s any doubt, you’ll need to get permission from your old employer to show the documents to your new employer. Most of the time, your old employer will comply with this request, at least enough to give your new employer the information it needs.

4) You can’t take it with you.

So we’ve talked about what executives should take with them. My next blog will discuss what executives shouldn’t take with them. Here’s a hint: if it’s not either the documents discussed in this blog post or pictures of your children, you probably should not take it with you.

Posted in CEOs, Complaints Against Executives, Covenants Not to Compete, Executive contracts, Fiduciary Duty, Legal, Litigation, Trade Secrets | Tagged , , , , , , , , | Comments Off

Executive Deposition Tips, Part 7: Practice Makes Perfect

Posted on September 27, 2011 by joe

The most important step in preparing for a deposition is a full-blown cross examination dress rehearsal—minus opposing counsel, of course. After I’ve coached my client on all the do’s and don’ts of depositions (click here to see previous Executive Deposition Tips), it’s time to bring in a videographer and see if my client has absorbed all my guidance. Deposition training, as it turns out, is not a spectator sport.

VIDEO: Executive Employment Attorney Joe Ahmad says he prepares his clients for legal proceedings by staging mock depositions.

What am I looking for? Among other things, whether my client listens to and understands the question and whether he or she falls for ambiguities or false premises. A lot of lawyers will lead up a question with a false premise before they go on to the question, and the witness needs to be on his toes and point out that the premise of the question is false. But you have to practice that.

I also want to make sure the executive understands the theory of our case and can articulate the evidence we have to support our position. Depending on the circumstances, saying “I don’t know” can be just the answer the other side is looking for.

The videographer is a crucial part of this exercise, even if it makes the client uncomfortable. After all, there’s going to be a videographer in the real deposition, so it’s better to get used to it before game time. The real reason to videotape the mock cross examination, though, is that most people don’t realize how they appear on camera. Are they sitting up straight? Does their striped tie look like a test pattern? Is the executive’s hairstyle distracting?

It’s vitally important that executives watch themselves on video before the real deposition in order to correct what may very well be cosmetic impediments that can nevertheless prejudice a jury.

Finally, I like to reverse roles with my clients and let them be the opposing lawyer and I’ll be the executive. I want my clients to have a chance to pose their own false premises and inject their own ambiguities and see how I correct them. This exercise is good on many levels and makes tangible and concrete what had previously been a fairly intangible and amorphous concept.

Depositions are difficult and, more often than not, at least a little unpleasant. But the better prepared an executive is before heading into one, the more likely she is to come off as trustworthy, honest and sincere.

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Executive Deposition Tips, Part 6: Lose the Ego

Posted on September 13, 2011 by joe

Executives face several perils in a deposition, but perhaps none more perilous than their own egos. Few executives got where they are by being shy, retiring types. They probably achieved success the old fashioned way: by being disciplined, demanding, type A workaholics.

That can be great for a company’s bottom line, but it doesn’t always play with juries. So when I’m working with an executive who is going to be deposed, I remind him or her that, in the court’s eyes, they’re no more or less important than a custodian. Reining in one’s ego is sometimes the hardest part of witness preparation, but it pays off.

Attorneys know how prickly executives can be, and they use that to their advantage by trying to get under their skin in hopes of throwing the witness off balance. They want the executive to forget all the good advice her lawyer has given her (see our previous deposition tips) and lose her temper, be sarcastic, or just generally lose her cool.

Smart executives—or, at least, executives who have been deposed a couple of times—don’t fall for it. They keep their cool, listen to the question, and give a well thought-out answer. They don’t try to come off as know-it-alls, and they’re not afraid to say they don’t know the answer to a question they honestly don’t know the answer to.

They also don’t take potshots at the other side or the other side’s attorney. This is one of the greatest disservices Hollywood has done to the justice system. They make courtroom testimony seem like a battle of wits, an opportunity to make cutting remarks aimed at the other side.

Those remarks may work on film, but real juries seldom appreciate them. Juries actually prefer humility, honesty and sincerity—traits that many executives may find hard to access in themselves.

The most important reason to resist the temptation to make a cutting remark or a negative insinuation is that a good lawyer will call you on it. He’ll make you identify every reason you said what you said and give facts to back up any allegations. It’s usually not a gamble that pays off, and only the witness ends up looking bad.

Most executives are used to asking the questions, not answering them. But in a deposition, an attorney can (and will) follow up on an answer given by the executive. The attorney, not the executive, decides when to stop the discussion about an issue, so the executive does not get the last word—something that causes many executives to be poor witnesses in a deposition, because they just are not accustomed to it.

Of course, thinking they have it all figured out only exacerbates the problem. It takes preparation to give a deposition, and no one, no matter how smart, can just walk into an important deposition and expect to do well. Unfortunately, many executives do not appreciate this and limit the time they prepare for the deposition. The executive has to lose the ego to give a good deposition.

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Executive Deposition Tips, Part 5: Ambiguities and Ventriloquism

Posted on August 30, 2011 by joe

When I’m preparing an executive for a deposition, I have to remind him or her that even though the deposition may be held in a run-of-the-mill conference room, it may as well be in a courtroom because what’s said there has the same weight as testimony before a judge.

And that’s just the beginning of the differences between a deposition and a conversation.

VIDEO: Executive Employment Attorney Joe Ahmad discusses the role that ambiguous words play in executive depositions.

When you’re having a conversation, unless you have particularly difficult friends, the other person isn’t trying to get ammunition against you. But that’s precisely what’s happening in a deposition. The lawyer who’s questioning you wants to use your words, either against you or against whatever side you’re on.

The lawyer will use all the ambiguities in the English language, as well. Even words like “meeting” or “document” can be ambiguous. Is an informal chat in the hallway a “meeting”? Is an email a “document”?

Another thing that frequently happens in depositions is that those being deposed claim that the lawyer doing the questioning is “trying to put words in my mouth.” But not even the most skilled ventriloquist can do that. If you remember nothing else, remember this: the witness controls the answer. And nobody can use your testimony against you without using both the question and the answer.

What lawyers will often do in a deposition is try to get you to agree to their interpretation of what you’re saying. But that’s a very simple move to combat. Here’s how:

Lawyer: “So, what you’re saying is ABC?”

Witness: “I wouldn’t say that. I would say XYZ.”

Even if XYZ is only slightly different from ABC, if you’re more comfortable with XYZ, then by all means say that and don’t in any way agree with ABC. The deposition may be running long and you may be getting hungry, but those short term concerns pale in comparison to your words being used against you at trial.

Simply put, be careful about allowing the other side to characterize what happens.  Often times it helps to put it in your own words. After all, the lawyer on the other side has a motivation to put it in the worst possible way. And even if the lawyer is being completely innocent, you have the personal knowledge and you take the oath; the lawyer doesn’t.

You may hear your lawyer tell you not to use “conclusory phrases.” That just means don’t make a conclusion in your statement. Instead of saying “we had a meeting,” say “he came by my office and we talked for a minute or two.” Instead of saying “we had a deal,” describe the facts that led you to believe you had a deal. It’s a subtle difference, but it can be critical in a legal setting.

So when in doubt, rely on the factual.

This is a good time to remind you to control the tempo of your deposition. Even though the lawyer who’s questioning you may be rushing you or using words you wouldn’t choose to characterize your testimony, you don’t have to let that happen. The witness controls the answer and the tempo.

So take that power and use it to your advantage.

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Executive Deposition Tips, Part 4: Know Your Role in the Corporate Defense

Posted on August 16, 2011 by joe

If you work in the C-suite, then it is assumed that you have a thorough understanding of the workings of your company. So, it would make sense that executives would feel well equipped to handle any questions regarding the operation of their company in just about any scenario. However, a wealth of institutional knowledge can give executives a false sense of security – especially if they’re heading into a deposition related to company litigation.

If a company faces a lawsuit, it’s crucial that its executives know the context in which they will be testifying and how their legal team wants them positioned in relation to the company’s defense. Legal counsel can play an important role by making sure executives have key documents and by emphasizing which filings are especially important to the testimony executives are being asked to provide. Further, company attorneys are invaluable in explaining the theory behind their legal defense of the company, and exactly how executives fit into the defense strategy.

All too often, an executive will provide information through their testimony that fails to mesh with the corporate defense strategy simply because he or she was unaware of exactly what areas were already covered in prior testimony or because the defense planned to make the information available through other witnesses. Companies can save future legal headaches by requiring executives to work closely with legal counsel to determine exactly what information they will and will not be relied upon to provide during the deposition process, and by clearly defining the executive’s role in the legal defense strategy well before they are called to testify.

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Executive Deposition Tips, Part 3: Steer Clear of Innuendo

Posted on August 2, 2011 by joe

Executives might be tempted to aim disparaging comments at the opposing side during a deposition. Avoiding this urge can be difficult when opposing counsel is peppering an executive with questions impugning his or her credibility, competency and intellect. But resisting the temptation can prevent depositions from careening into chaos. (This is a continuation of discussion of a prior Executive Depositions Tip about remembering that talking in a deposition is nothing like being engaged in a normal conversation.)

VIDEO: Executive Attorney Joe Ahmad says don't give in to the urge to cast barbs at the opposing side in depositions.

When executives stray into the land of implication and scuttlebutt, they can open a Pandora’s box that can cause as much damage to their reputation and their case as they might hope to inflict on the opposing side. Expect every snide comment and offhand remark launched against the opposing party to be hurled back, accompanied by demands of specific dates, times and locations of where these offenses occurred. If executives had forgotten that they were being deposed, this is the time they remember.

The best advice in this circumstance is to take a deep breath before answering any deposition question, especially if the question is fraught with prejudice. If necessary, restate the question in a way you would like it to be fashioned. Then, simply state the facts as they would appear on any court record. After all, any answer given in a deposition is admissible in court.

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“Say on Pay” Hasn’t Hurt Exec Compensation–Yet

Posted on July 8, 2011 by joe

There’s clearly some nervousness among executives these days, given that shareholders now have a “say on pay.” But by most accounts, they don’t need to be all that nervous.

Video: Executive Employment Attorney Joe Ahmad speaks on 'Say on Pay'

“Say on pay” is a provision of Dodd-Frank that allows shareholders to cast an advisory vote on executive compensation at least once every three years. The provision was a response to shareholder frustration at so-called lavish executive compensation even when shareholder returns were plummeting.

According to the proxy advisory firm Institutional Shareholder Services, Inc., of the 1,600 executive compensation packages offered so far in 2011, shareholders have approved 98 percent of them. And they voted in overwhelming margins: on average, each of those pay packages passed on a 92 percent vote.

So much for shareholder outrage.

With the gradual recovery of the economy, executive compensation is clearly back on the upswing after two years of declines. According to an AP/Equilar study, the typical 2010 pay package for a CEO in the Standard & Poor’s 500 was $9 million—up 24 percent from 2009.

So, executive compensation is going up, and shareholders seem to be just fine with that. Why worry, right? Wrong. Shareholders have been happy to approve compensation packages because their stock value is rising. They have reason to be optimistic, so they want to keep top execs happy. But if we see another downturn—and depending on which economists you listen to, that’s not out of the question—shareholders may not be so supportive.

If you’re an executive negotiating your compensation, you may want to take steps to prepare for shareholder pushback in the event of a downturn that affects your company’s stock price.  Comp packages should be clearly tied to objective, measurable performance—and not just annual stock price, which by definition rewards short-term performance over long-term value.

Among the factors executives should ask to be considered when determining their compensation packages are:

  • Tenure: Stable management and profitability are clearly linked.
  • Indispensability: How critical are you to the company’s performance? Also, how many hats are you wearing? If you’re a CEO and your company doesn’t also have a COO, you are probably wearing two very different, but very important, hats, and should be compensated accordingly.
  • Willingness to defer: If you receive restricted stock or stock that doesn’t fully vest for several years, it shows that you’re invested in the company for the long haul.

I would also advise executives not to fear a “clawback” provision if shareholders or the compensation committee insist on it. Such provisions give shareholders assurance that they can hold executives accountable in the event of poor performance. A willingness to accept a clawback tells shareholders that your interests are aligned with theirs, and it could boost the executive’s credibility.

Executives would be wise to come prepared to their compensation negotiations. Even though shareholder “say on pay” is only an advisory vote, it’s likely that the transparency and accountability it prompts will make compensation committees more cautious.

That may already be happening, according to ISS, citing companies’ responses to a negative recommendation from ISS:

Several companies have chosen to respond to these negative recommendations by filing additional proxy solicitation materials outlining their disagreement with the methodologies and analysis of ISS and other proxy advisors, while defending the decisions of their respective compensation committees.  Although these additional proxy materials have taken various forms … they have often served as a useful tool for many companies seeking to provide additional insight with respect to the decisions of their compensation committees.  Several companies that have filed these additional proxy solicitation materials, including Morgan Stanley, ConocoPhillips and General Electric Company, have been successful in defending against a negative recommendation for their respective say-on-pay proposals. In addition, The Walt Disney Company’s direct negotiations with ISS and the company’s ensuing decision to drop the tax “gross-up” provisions from the employment agreements of its chief executive officer and three other executive officers appear to have contributed to ISS’ decision to reverse its recommendation against the company’s say-on-pay proposal. [emphasis added]

Executives would be well-advised to anticipate their employers’ caution, but they also need to be sure they get paid what they’re worth.

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Radio Shack Knew of Monster Risk When Hiring Exec

Posted on June 9, 2011 by joe

 A few weeks ago, I wrote about the phenomenon of individual executives being held criminally liable for the acts of their employers. Now, we have a case that opens the possibility of the opposite happening: an executive who is the alleged wrongdoer putting the company at risk.

It’s the case of Radio Shack executive Dawn Callahan-Kettlewell, who has been indicted in Ohio on charges of fraud stemming from her work at the now-bankrupt InkStop. She was hired shortly before the indictment was handed down, but Radio Shack knew of her legal troubles (including several civil suits) before hiring her.

The Fort Worth Star-Telegram’s Mitchell Schnurman quoted me as being shocked that Radio Shack would take such a risk – particularly given how fiercely Texas businesses fought for and defended the state’s at-will employment doctrine. 

Texas employers have the right to fire employees for good reasons, bad reasons, and no reason at all. Under our criminal justice system, the accused is presumed innocent until proven guilty, but the employer does not have to take that risk.  Employers can, and often do, fire someone based on allegations long before a criminal conviction.  So it confounds me that Radio Shack wouldn’t fire someone based solely on these allegations.   

After all, according to the Star-Telegram’s Schnurman, “she was part of a group accused of cooking the books and now works closely with senior executives at a publicly traded company.” (For more background on this case, I strongly recommend reading Schnurman’s excellent article.)

Surely, in this economy, there must be someone with the qualifications to do this job who doesn’t face a fraud indictment.

Why do I find this case so troubling? Here are just a few of the reasons:

Morale issues galore: You would think that the rank-and-file workers at Radio Shack undergo criminal background checks, and it’s hard to imagine that some of them haven’t been penalized for much smaller offenses than what Callahan-Kettlewell is accused of doing. How do you say to the guy in the mailroom who got arrested for a bad check that, although there’s a Senior VP indicted for fraud, the mailroom guy has to go?

SEC issues: If Radio Shack were to ever end up on the wrong side of an SEC investigation, then the SEC certainly would be salivating at the notion of one of the company’s senior executives already having been indicted for fraud.

Shareholder lawsuits: What if, down the line, Callahan-Kettlewell commits fraud while at Radio Shack, and the company’s shareholders sue? Do you tell them “We knew that she’d been sued and indicted, but we thought we’d roll the dice on her”? Even the best defense lawyers would cringe at trying to make that case.

This is one of those cases that simply leave me shaking my head in disbelief – and when you’ve been a lawyer as long as I have, there’s almost nothing that will do that anymore.

I’m sure there’s more than meets the eye here, and I plan to stay tuned to see how it all unfolds.

Posted in Criminal Background Checks, Criminal Prosecutions, Fraud, Legal | Tagged , , | 3 Comments