On January 2, 2009, Ohio officially launched its specialized commercial docket. This specialized commercial docket, or "business court" as they are sometimes commonly referred to in other states, is an outgrowth of the specialized court dockets used in Ohio for drug, mental health and asbestos cases. The commercial dockets are part of a four-year pilot program to handle complex business litigation in select Ohio counties. 

The creation of specialized commercial dockets is expected to benefit Ohio's business climate by both expediting the resolution of business disputes and boosting business litigants' confidence that their disputes will be resolved fairly in Ohio courts. The enhanced predictability gained through an expanded body of commercial law precedent and the specialized expertise gained by commercial docket judges are each expected to contribute to this increased confidence by business litigants. Given these potential benefits, at least sixteen other states have similarly authorized specialized commercial dockets. 

The "business courts" will operate under temporary rules and Ohio Supreme Court Chief Justice Thomas Moyer will designate one or more sitting common pleas judges in each participating court to act as judges for the specialized dockets. Initially, judges in Franklin, Hamilton, Lucas, Cuyahoga and Montgomery counties will participate in the program. In Franklin County, Common Pleas Court Judges John P. Bessey and Richard A. Frye have been designated as the first judges to handle the new commercial docket. Judges assigned to a commercial docket are required to complete an orientation and training seminar provided by the Ohio Judicial College. Once appointed and trained, commercial docket judges will be assigned to a variety of civil cases involving business disputes, including: 

• Business formation and dissolution 
• Rights or obligations among partners or shareholders 
• Trade secrets 
• Partner, officer or director liability, and 
• Contract disputes among business entities. 

Commercial docket judges, however, will not accept civil cases relating to such cases as: 

• Personal injury or wrongful death matters 
• Consumer claims against business entities or insurers 
• Wage, hour or workers' compensation disputes 
• Environmental claims (except as between business entities) or matters in eminent domain 
• Employment law cases (except as between a business entity and an owner) 
• Cases in which a labor organization or governmental entity is a party 
• Discrimination cases or administrative agency appeals 
• Individual residential real estate disputes, foreclosure or petition actions, and 
• Any domestic, juvenile, probate, municipal or criminal matter. 

The program provides an incentive for new business to incorporate or organize under the laws of Ohio. Historically, the state of Delaware has been a magnet for new business, and one reason for such a draw was its Chancery Court. Additionally, Chicago, Manhattan and North Carolina have successfully run business courts for more than a decade and Rhode Island, Massachusetts, Las Vegas, Atlanta, Boston and Pittsburgh have also instituted business courts in some form. More recently Maine and South Carolina have implemented specialized business dockets. 

The unknown and unpredictable nature of complex commercial litigation can be stressful enough for business owners. With the new commercial docket, businesses involved in legal disputes in Ohio can now take comfort in knowing that such matters will be under the watchful eye of judges familiar with technical corporate governance issues, shareholder and other ownership rights of individuals, intellectual property, and knowledge of sophisticated financial transactions.

AIG, Bear Stearns, Fannie Mae, Freddie Mac, Lehman Bros. et al. are not the failure of internal controls, examination of financials, or Sarbanes-Oxley, but they are the result of a more fundamental flaw in governance: Failure to assess, and advise the board of an understandable assessment of, risks to the enterprise of these organizations.

Nell Minow, editor and chair of The Corporate Library, states in a special to CNN that “[f]ailure this broad and deep takes a village, and regulators, lawyers, compensation consultants, auditors, executives, shareholders, and the press all played a part. But the people who are most responsible for the massive meltdowns of these institutions are the boards of directors.”

The Committee of Sponsoring Organizations of the Treadway Commission in its 2004 report on managing enterprise risk state that it must be effect from the top by an entity’s board of directors.

The failure at the top of AIG, Bear Stearns, et al. starts with the composition of those governing boards: Not enough persons with experience or expertise in risk assessment. Boards need to take corrective steps before Congress attempts to legislate.

Corrective steps for any organization to consider include:

1. Charge nominating committees with identifying and recommending director candidates with experience and expertise in risk assessment.
    
2. Charge appropriate members of management with responsibility for assessing, and reporting to the board their assessments of, enterprise risk. Two such persons in most organizations would be the chief legal officer who is trained to assess and report risks and the chief financial officer who often must quantify risks.
    
3. Empower the identified risk assessors with direct access to, and with the responsibility to be available upon call of, the board and its committees. This access and availability should include periodic meetings of each of these identified risk assessors separately with the board in executive session.
    
4. If the risks are complex, hire independent counsel to review and explain the risks to the board. A board that fails to take care for each of its members to understand such risks is likely in breach of its duties.
    
5. Order periodic assessments of risks to the enterprise by someone independent of management. Consideration should be given to have the periodic assessment lead by independent counsel for the board because the risk assessment will likely be enhanced if protected by the attorney-client privilege controlled by the board in its collective capacity as the governing board.

Risks to assess include legal risks; unexpected hazard or calamity risks; operational risks; financial risks (including investment risks); strategic risks; and reputational risks.

Corporate America, public and private, taxable and tax-exempt, can do better.

To understand the platform upon which all future posts on this blog will be built around, we must first lay down the foundation for this blog.

So what is corporate governance? Simply put, corporate governance is the aggregate of an organization’s culture, methods, processes, systems, and controls for:

• Providing direction to the business, operations and other affairs of the organization and;
• Executing or carrying out that direction.

Corporate governance determines both the authority and accountability within the organization by creating separate roles in the organization for the board of directors and management. These roles provide for the board to give direction, by granting authority and setting limits; and for management to execute that direction under that authority and within the limits set by the board.

The basic principles of corporate governance today derive from state corporation law and the basic principle of the Sarbanes-Oxley Act of 2002 (“SOX”). 

Ohio, and most states’, corporation law provide that 

1. All authority for:

• decision making as to matters of policy, direction strategy, and governance; and 
• oversight as to matters critical to the health of the organization is to be exercised under the direction of the organization’s board (i.e. the organization's highest authority); 

2. A board functions only as a board as determined by a majority of its members at meetings in which quorum is present; and 
    
3. Matters in which directors or officers have a personal or economic interest should, to the extent possible, be approved by directors disinterested in the matter.

While not directly applicable to privately-held or nonprofit organizations, the basic principle of independence from SOX provides additional guidance for good corporate governance for all organizations (and a requirement under the federal securities laws for publicly traded corporations). The basic principle of SOX is that the first and best line of defense against corporate mismanagement and fraud is oversight of management by directors independent of the organization with the assistance of independent advisers, including independent audits of financial statements by independent auditors, and with accountability of executives for information provided.

Finally, and returning to the simple definition of governance at the outset of this post, one constant theme that all organizations should remember is that because governance of an organization is an aggregate of many things, including its culture, what may be appropriate in terms of governance of one organization may not be appropriate for another.

Welcome!

Welcome to our weblog!  The Counsel for Boards and Executives’ Corporate Governance Blog is published by Bricker & Eckler LLP in conjunction with the Acredula newsletter.

For the last 10 years, the Counsel for Boards & Executives practice group has published its Acredula newsletter for clients and friends of Bricker & Eckler LLP and others in the business community. Since its inception, Acredula’s subscription list has grown to over 4,000 recipients. We are now we embarking on a new vehicle to provide our subscribers and other readers with the latest news affecting corporate governance.

Our weblog will supplement the Acredula newsletter and will provide current updates on issues of importance to boards, directors and executives of private and public companies, and nonprofit organizations. Specifically, we will discuss regulatory updates, recent court decisions, provide commentary on the industry, and also provide a forum for communications regarding corporate governance by individuals associated with the practice group––as well as by guest contributors and others.

All views expressed on this blog should be attributed only to the individuals expressing them and should not be construed as legal advice. Please see our disclaimer for additional information related to postings on the blog. 

As the blog’s editor, I am interested in your thoughts on how we can make this blog your “go-to” resource on corporate governance issues. Please send your comments and suggestions to me at kkinross@bricker.com. Additionally, you may also receive regular updates on new postings by clicking the RSS link on the right-hand side of the blog. 

We look forward to providing you with the most current updates on issues and topics effecting corporate governance today. 

Thanks for visiting and welcome to Corporate Governance Blog!

Kevin