b) If so, next check for Tuesday, February 29, 2000, followed by Wednesday, March 1, 2000. Do they appear?
c) Look at the year 2001. Does it contain 365 days?
d) If you pass all these tests, your CMOS is compliant.* If not, your CMOS must be updated. Contact your hardware manufacturer.
6. Now, check each and every software program on your computer, starting with your critical programs. One by one, open them, enter and retrieve data, run reports, do a monthly billing, log onto the Internet, check your Web browser, e-mail and Web site. Then check the dates, the leap year date and the day of the week. Does it pass every single test? If so, you're probably okay.* If not, you need to contact the software manufacturer for each program that failed any part of these tests. See your manufacturer's Web site for Y2K compliance information.
7. If your computers are networked, do not perform this test on your own. Arrange a time to test the entire network with your network administrator and Y2K team, or hire a professional. But each computer on the network must be tested. There's no shortcut here. If only one computer is noncompliant, it could infect all the others.
* On some computers, you may need software to test the BIOS and CMOS. Some software will also need special test software. See "Resources" below.
b. Hire a professional. If you do hire a professional computer consultant, determine what services you want him to perform--test only? Test and fix? Test and consult? Make certain that you can live with the contract terms. Remember that many Y2K consultants are asking clients to sign contracts without warranties or performance standards of any kind, and disclaiming any responsibility for anything that might go wrong. Make sure your lawyer reviews and makes appropriate changes to any contract presented to you.
4. Determine your priorities; set time deadlines for repairs.
This determination will depend very much on your type of business, and perhaps what work is in progress. Start with the work that needs to be done to stay in business. Work first on critical systems; expand to others as time and resources permit. Repair or replace hardware first, then software. Don't forget your programmable devices.
5. Review purchase contracts to determine who pays for repairs.
If you purchased your hardware or noncompliant software recently, it may still be under warranty. Even if it's not under warranty, the manufacturer may be responsible for the repair pursuant to other contracts or laws, and you may have a cause of action against the manufacturer or others. If you recently purchased the business, including its now noncompliant equipment, you may have a cause of action against the seller. Your lawyer will be able to advise you.
6. Review insurance contracts to determine coverage.
With your lawyer, review your insurance policies to determine if these losses are covered. Review comprehensive general liability, property, business interruption, D & O, and E & O policies, product liability, and any other policies you might have. As the Y2K problem has been unfolding, insurers have been attempting to exclude Y2K issues. But check. Your policy may be one that has not been modified yet, so that Y2K losses are covered.
Even if Y2K losses appear to be excluded, don't take what the policy says at face value. In Illinois, the Director of Insurance has sent notice to all Illinois insurers advising generally that blanket exclusions on commercial policies for Y2K losses are prohibited unless supported by valid underwriting data. Since this problem has never happened before, there is no valid underwriting data. Some commercial insurers are sending their customers "surveys" regarding their Y2K status, in an attempt to gather information for underwriting purposes. If you respond, and depending on your response, the insurer may have obtained valid information to assess the underwriting risk, and may exclude coverage. If you don't respond, they may be permitted to terminate your coverage altogether. Each case will be different, and how this requirement will be interpreted, exactly, is unknown.
7. Analyze the readiness of third parties on whom your company relies.
Make a list of all of the third parities upon whom your company relies. Note those that are critical to your company's survival. What do you know about their Y2K readiness? Have you asked them? Have they sent you a Y2K disclosure statement? Should you verify what they tell you independently? You might want to consider doing so if their operation if critical to your survival. Is your agreement with them in writing? You might want your contract to include their promise that their Y2K readiness will not interfere with their meeting their obligations to your company.
8. Document your company's efforts toward Y2K compliance.
Make sure that you document, in the corporate records, all of the steps taken to analyze and deal with the Y2K problem from the time you first began to work on it. Meeting minutes of directors and shareholders should reflect all of the discussions of the topic, and the plans to take action. Your meetings with department heads and others may also be evidence of the work you've been doing. Make sure your work is on the record.
9. Assess your company's risk for liability from Y2K matters.
Depending upon your business and its product or service, you can have an idea whether any third party is likely to make a claim against your company if it fails to achieve complete Y2K compliance. Make sure your insurance coverage is in place. Draft contracts whenever possible, to shift the risk to others.
10. Before January 1, 2000...
Before the year end, make hard copies of all important data. Retain bank statements and other financial records. Print calendars, important dates. Meet any time-sensitive deadlines before January 1, 2000. Back up all key data before the end of the year, and print it out. Get out those old manual typewriters in case the power goes out, and be in the office over the big weekend.
Resources
Y2K testing software programs & Web sites
Software designed to test (some are free)
National Software Testing Labs, the standard endorsed by many major hardware makers, will test your PC's CMOS and its BIOS for Y2K compliance. Software can be downloaded from www.nstl.com/downloads/y2000.exe
Test2000 from www.rightime.com
Millennium/Pro Check from www.unicore.com/ milenium.html
get Check 2000 from www.gmt-uta.com/welcome.cfm
Web sites; Y2K information & links to vendors
Peter deJager's Year 2000.com at www.year2000.com
Software designed to test
Norton 2000; MacAfee's Toolbox 2000; Check 2000; many others
Millennium Now promises to correct both the BIOS and the CMOS, but sits resident in memory, taking 5-6 Kilobites.
Software designed to test and fix
Shield 2000 - This software/hardware program, recommended to me by my own computer consultant, promises to test and fix hardware, software and even data files, and warrants the hardware fix.
Donna J. Cunningham
Cunningham & Colleagues, P.C.
18-3 E. Dundee Road, Suite 208
Barrington, IL 60010
Telephone: 847/381-2200
Web site: www.bzlaw.com
e-mail: cunning@bzlaw.com
**PLEASE NOTE: Every effort has been made to provide accurate information regarding Y2K, but I am not a Y2K computer consultant. Please be sure to seek the advice of a computer professional. Any legal advice contained in this article is general in nature, and each legal situation is different. Please see your attorney or this office for specific legal advice.
Sample Year 2000 readiness disclosure statement
In letter format, sent on letterhead
March, 1999
Our Company is providing this update to our Year 2000 preparedness status to keep you informed of our progress.
The most critical issue is our customer records systems for orders and payments. In early October, 1998, we successfully converted all of our customer records to software that has been remediated for use at the millennium change and beyond. Our daily processing has been handled by the remediated software since that time without a problem.
In March and April, 1999, in a test environment, we will be testing crucial dates in 1999 and the early part of year 2000. We don't anticipate this to be a problem, but have sufficient time to make repairs and retest, as necessary, if we uncover a problem.
When our Y2K testing is complete, we anticipate end to end testing between our site and our mainframe processor, where customer processing takes place.
In addition to these efforts, we are surveying all outside vendors, suppliers, data exchange partners and clients to determine their Year 2000 efforts. We are making appropriate business decisions as necessary after determining their status.
Please note that given the nature of this problem and the potential for hidden problems, we cannot guarantee that we, and our business partners, will not suffer some damage due to the Year 2000 issue. We are, however, making every reasonable effort to reduce those risks and encourage our business partners to make the same efforts.
Please contact me if you would like further information,
Sincerely,
John Smith,
Chief Operating Officer
American Bar Association issues guidelines for attorneys serving on corporate boards of directors
By James J. Moylan, Arnstein & Lehr, Chicago
I. Introduction
The issues surrounding an attorney serving on the board of directors of a corporate client have existed since the first time a lawyer accepted an invitation to join his corporate client's board. As the problems have evolved over time, these issues have been magnified. Finally, two bodies within the American Bar Association ("ABA") have done something to address them.
II. The ABA formal opinion
On March 12, 1998, the American Bar Association's ("ABA") Standing Committee on Ethics and Professional Responsibility issued Formal Opinion 98-410 (dated, February 27, 1998). The formal opinion addresses the ethical issues of an attorney serving as a member of a corporate client's board of directors. It identifies the concerns such dual roles can create, e.g. conflicts of interest and the loss of the attorney client privilege, to highlight two. The formal opinion also articulates certain precautions to assist the attorney in avoiding such problems.
Interestingly, close on the heels of the formal opinion, the ABA's Litigation Section's Task Force on the Independent Lawyer ("task force"), issued a 20 page report entitled, "The Lawyer-Directors: Implications for Independence" (April 17, 1998). This article will concentrate on the guidance found in the formal opinion. However, there is much similarity between the formal opinion and the task force report. Material differences between the two will be highlighted.
A. "Pre-boarding"
Before an attorney accepts an offer to join the attorney's corporate client's board of directors, the attorney should have a candid discussion with the board chairman, the directors, the chief executive officer and the chief in-house counsel identifying some of the problems that could arise.
It would also be beneficial if the attorney memorialized this discussion in a memorandum. The memorandum should also spell out that as a lawyer, the lawyer represents the corporate entity, not the corporation's other constituents, e.g. the board of directors, its officers, its shareholders, etc. There are significant distinctions between the lawyer's role as counsel to the corporation and the lawyer's role as a director. It is essential that these distinctions be thoroughly explained, in writing, for the corporate client and its constituents' education and for the lawyer's protection.
The ABA committee concluded that as long as there is informed consent from the corporate officials and no existing disqualifying conflict, an attorney can accept an invitation to join the corporate client's board of directors.
B. "On board"
The lawyer must be ever mindful that the lawyer/director always wears two hats. Others in the corporate environment will not always appreciate the distinction and will approach the lawyer as if his "hats" are either indistinguishable or interchangeable.
Virtually any advice the lawyer/director communicates will have both business and legal implications. When company management consults the lawyer/director for legal advice, the lawyer/director is admonished to assure that all parties understand the lawyer has donned his "legal hat" and put his "business hat" back on the hat rack.
The opposite is usually the case in the board meeting. Unless the board topic is a legal issue, where the lawyer/director's legal advice is being sought, it is better to make clear that the lawyer is outfitted with his "business hat."
C. Here is where things get interesting!
ABA Model Rule of Professional Conduct 1.7(b), in pertinent part provides:
RULE 1.7 Conflict of Interest: General Rule
...(b) A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after consultation...
Contemplate the application of Rule 1.7(b) to the following all too likely real-life scenarios identified in the formal opinion:
1. Lawyer/director, as director, opposes a particular board of director action in the board meeting. However, as outside counsel, lawyer/director is asked to represent the company in that particular matter. Consider the inherent conflict between a director's duty to maximize corporate profit for the shareholders against a lawyer's obligation to exercise independent professional judgment on behalf of a client.
2. Same scenario as above, only this time, lawyer/director, as director, concurs in the business plan. However, as an attorney, bound to give independent legal advice to his client, the attorney has qualms about the corporate plan from his perspective as counsel.
3. On another common situation: How comfortable would you suppose is the lawyer/director's board seat, when the board must decide on retaining or terminating outside counsel, including the lawyer/director's own law firm?
4. Consider also: Doesn't the lawyer/director's presence on the board create disqualification issues for the lawyer/director's law firm if litigation arises (derivative suits, class actions), especially if the individual board members are named, or could be called as witnesses? See, e.g., Harrison v. Keystone Coca Cola, Bottling Co., 428 F.Supp. 149 (M.D. PA 1977). Cottonwood Estates, Inc. v. Paradise Builders, Inc., 624 P.2d 296 (AZ. 1981) cited in BNA Sec.Reg.L.Rep., Vol. 30, No. 18, Special Report at 673-674 (May 1, 1992) ("Special Report").
The foregoing highlight just some of the routine issues that can arise on any given day when the lawyer takes on a dual role as a director on his corporate client's board of directors.
D. Guidelines
The ABA formal opinion sets forth the following guidelines once the dual role is undertaken.
1. Make sure the corporate officials understand the difference in responsibilities that counsel and a director have to the corporation.
2. When acting as counsel, your client is only the corporation, not any of its other constituents, individually or collectively. See e.g., U.S. V. Vehicular Parking, Ltd., 52 F.Supp. 751 (Del. 1943).
3. Address the fact that conflicts will inevitably arise. Consequently, there will be a need for the lawyer/director to abstain, recuse himself, or recommend retaining independent counsel.
4. Be sensitive to the scope of the attorney-client privilege especially in board meetings or when communicating with the various corporate constituents. This privilege is fragile and the lawyer/director must do all that the lawyer can to preserve the attorney-client privilege for the corporate client.
a) Consider suggesting that the corporation bring in counsel to board meetings to serve as counsel to the board.
i) Consider discovery of board of director meeting minutes--and attorney-client privilege waiver issues that could arise in litigation.
ii) Consider also the unintentional disclosure by other directors of legal advice, thinking it was business advice from the lawyer/director and the waiver issues that scenario creates. See also, Vehicular Parking, supra.
5. Recuse yourself when corporate issues involve matters pertaining to your law firm, its representation, fees, etc.
6. Maintain independent professional judgment at all times.
7. Exercise professionalism and diligence when assigned legal matters for the corporation.
8. Decline representation when the lawyer's interest as a director conflicts with the lawyer's obligations as counsel.
E. Additional considerations
From the task force:
1. If a lawyer from the law firm must be on the board, find one who does not have a dual role.
2. Have independent counsel for the board and that individual should attend board meetings in that capacity only.
3. However, note that the corporate client may receive better overall legal and business advice and service because the lawyer/director is more informed about the corporation, its business, and related issues. Thus, the lawyer/director may be in a better position to anticipate legal issues at the forefront rather than reacting to legal problems that arise, which typically becomes more costly.
4. The lawyer/director's credence is improved because of his share of liability as a director.
5. Attorney-client; director-shareholder - appreciate differences in fiduciary duty issues.
6. Note also that the lawyer/director is typically held to a higher standard of care than other directors.
7. Also consider, section 11 of the Securities Act of 1933 - Liability for false registration statement - lawyer/director. See e.g., Escott v. Barchris Construction Corp., 283 F.Supp. 643 (S.D. NY 1968); Feit v. Leasco Data Processing Equip. Corp., 332 F.Supp. 544 (E.D. NY 1971), cited in "Special Report," supra.
8. "Control Person" - federal securities law liability issues.
9. Exposure to legal malpractice claims - vicarious liability to law firm.
10. "Deputization" of lawyer/director - law firm's representative serving on board of directors. See, Deutsch v. Cogan, 580 A.2d 100 (Del. Ch. 1990) cited in "Special Report."
11. Directors and Officers' Liability Coverage v. Professional Malpractice Coverage. See, FSLIC v. Maraht, 97 B.R. 293 (E.D. La. 1988) aff'd, 907 F.2d 546 (5th Cir. 1990), cited in "Special Report."
III. Conclusion
There is little doubt that corporate clients are best served when their lawyers serve them as lawyers, providing independent legal advice. Therefore, the best advice is to not accept an invitation to join a corporate client's board of directors because of the sharp conflicts that inevitably arise.
If you must serve as a corporate director, then you or your law firm should not serve as the corporation's outside counsel. Then the conflicts issue is avoided as is the danger of jeopardizing the attorney-client privilege for the corporate client.
If you must do both, then follow the guidelines. While the guidelines are not a "fail-safe," it is safe to say that failure to follow the guidelines could result in disaster for all concerned.
