In the context of the financial crisis, a couple of measly million is chump change, but on the face of it the severance bonus for AIG’s Anastassia Kelly has super outrage leverage per dollar. The main stockholders decided to limit bonuses and salary increases for management this year: not a surprise given performance: I mean, when a company requires over $80B in express Fed cash to keep it from tanking the whole financial system, some people might question the qualifications of the management team. But Ms. Kelly was so upset that she complained and she advised other members of top management about “their rights”. In response AIG opted to give her a nearly, $4,000,000 (FOUR MILLION DOLLAR) “severance package”. Well, none of us know the details, but it’s mighty curious that a senior officer and an attorney can apparently act against the interests of her client/employer and get paid for it.
The Wall Street Journal headline is “AIG’s General Counsel Scores Millions In Severance Pay”
Kelly, the Journal reports, drew scrutiny for advising other AIG executives, who were also considering leaving because of the pay cuts, what they could do to protect their rights to collect severance benefits.
AIG’s board hired Orrick Herrington to review Kelly’s actions in advising the executives over severance pay, but the firm concluded her conduct should not prevent her from receiving severance benefits.
Here’s some background
Ms. Kelly, AIG’s general counsel, has been at the insurer since 2006 and was appointed vice chairman in January under former CEO Edward Liddy. Several people familiar with the matter say Ms. Kelly asked other employees to join her in indicating they were prepared to resign. Four executives agreed, and Ms. Kelly retained outside counsel to advise the group on their legal options, says one person familiar with what happened.
A spokesman for Ms. Kelly says she didn’t “instigate or encourage” the other four, but “only advised the other executives of what they needed to do to protect their rights” under AIG’s executive-severance plan, and helped them arrange for outside counsel.
So, she’s the lawyer for AIG and she “only advised executives” who work for her employer how to “protect their rights” and assisted them in hiring legal representation, presumably to potentially sue her client. By the way, here’s what Orrick Henderson law firm says about their own values:
We provide the highest quality of legal service to our clients, while observing the highest standards of integrity and ethics at all times.
Did Ms. Kelly act improperly? I don’t know – perhaps the news reports are wrong or there are some factors we don’t know about. But on the face of it, AIG, which is mostly owned by the public, has some explaining to do.
Just for the record
NY DR 7-101(A)(3) prohibits a lawyer from “intentionally . . . prejudic[ing] or damag[ing] [his or her] client during the course of the relationship.” cite
and from the same source
Canon 7 does not use the term diligence at all. Instead, it describes a lawyer’s obligation to the client as one of zealousness. “[A] lawyer should represent a client zealously within the bounds of the law.” This direction is reiterated in NY EC 7-1.
Does assisting senior management find counsel to potentially sue your client seem like representing “zealously within the bounds of the law” to you? But Ms. Kelley was an officer of the corporation, not just an attorney. And there are laws about what duties officers owe the company
Directors’ discharge of their fiduciary duties is measured against the “business
judgment rule,” a presumption that in making business decisions directors acted on an informed
basis, in good faith and in the honest belief that the action was taken in the best interests of the
corporation.[cite]
And note from the same source:
Generally, officers owe the same fiduciary duties as directors.
1. Officers may owe duty to keep the Board informed.
2. Officers with greater knowledge and involvement may be subject to higher
standard of scrutiny and liability.
But note:
The business judgment rule thus provides significant protection to
directors (and officers) from personal liability for their good faith, informed, business decisions.
The presumption may be rebutted where it is shown that a director had a personal financial
interest in a transaction,
Ooops! I’m wondering if a situation involving ones own salary might include personal financial interest. And on the same note:
It is generally accepted that when a corporation becomes insolvent, directors owe
fiduciary duties to creditors.6 See, e.g., Geyer v. Ingersoll Publ’n Co., 621 A.2d 784, 787-90
(Del. Ch. 1992) (Directors of insolvent corporation have fiduciary duty to act for benefit of
corporate creditors). As set forth below, the existence of a duty to creditors does not necessarily
mean that duties to shareholders are eliminated. In addition, a Delaware court has stated that
when a corporation is in the “vicinity of insolvency” directors owe their duties to the corporate
enterprise, which the court described as a “community of interests” that includes stockholders,
creditors, employees and any other group interested in the corporation
In general, one of the most annoying things about this whole meltdown is that there seems to be nothing that a corporate officer, a lawyer, a bond analyst, or anyone else involved in the fiasco can do that involves any personal responsibility.
Who did AIG pick for the replacement for Ms. Kelly? Why the former corporate counsel for Lehman Brothers a close friend of the old CEO Fuld, a lawyer whose judgment after his firm collapsed is to – get this blame the government.
AHHHHHH!!!!!