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The CEO as Witness: Super Hero or Arch Villain

By Gerald A. Klein, P.C.

In recent months, there have been numerous trials where jurors have had to ask this question: "Was the boss in the know, and if so, what did he/she know?"  The overwhelming lesson learned from these jury trials is whether or not a chief executive officer ("CEO") claimed to have been in the dark about what his or her underlings did.  The overwhelming assumption of jurors was that the boss must have known.  This juror mind-set is something attorneys must recognize whether they are attacking or defending a CEO at trial.

THE REALITY

Anyone who works with CEOs of large companies knows the CEO is often not familiar with the details of what is going on in the company.  The reality of a large company is there is too much information for any one person to absorb, let alone analyze.  The larger the corporation, the more difficult it is for CEOs to know every aspect of what is happening inside a company.  Even managers with "hands on" management styles cannot be on top of every new development happening in a company.  This is a business reality.

THE PERCEPTION PROBLEM

Whatever the objective reality might be, jurors come into trials with distinct perceptions about what a CEO should know.  From the recent jury verdicts regarding corporate mismanagement and misconduct, jurors have sent a message: whether or not the CEO had actual knowledge of certain events, he or she should have known about them and responded appropriately.  This perception - valid or not - is something every lawyer should recognize whether attacking or defending the CEO.  Accordingly, the following are eight lessons lawyers should learn from the recent jury verdicts regarding corporate wrongdoing.

A. Jurors Demand Accountability.

Harry Truman had a plaque on his desk which said, "The buck stops here."  He believed that while his underlings could "pass the buck" to avoid accountability, the President of the United States could not.  As President, Truman believed he was ultimately responsible for whatever happened beneath him and there was no one to whom he could "pass the buck."

In several of the recent corporate scandal cases, senior executives contended they were not responsible for the wrongdoing everyone agrees occurred at their companies.  Instead of accepting responsibility, they blamed underlings.  This type of blame attribution understandably does not sit well with jurors who are often the underlings blamed (rightly or wrongly) by their supervisors for things that went wrong at their place of employment.  Accordingly, one lesson learned from recent cases is refusing to acknowledge accountability is not likely to be a defense jurors will accept.

B. CEOs Must Not Insulate Themselves from the Truth.

The concept of "plausible deniability," so prominent in politics, does not appear to work in a business environment.  Jurors seem unimpressed by CEOs who contend they were somehow insulated from critical knowledge at a company.  The more important the information seems to be (even with only the benefit of hindsight), the more likely jurors will find the CEO must have known about the true facts.  Accordingly, denying knowledge of events - whether true or not - will likely fall upon deaf ears.

C. Victims Matter.

Where jurors perceive a company has victimized people (especially when the victims number in the thousands), jurors seem more willing to hold the CEO accountable for the pain the company inflicted.  The worse the victimization, the more likely the CEO will be blamed for the consequences of the company's actions.

D. The Best Defense May Be Strong Offense.

Since denying knowledge and blaming others does not appear to be an effective defense to alleged CEO wrongdoing, the CEO's best plan of attack may be to defend the policy that was set by others.  While in certain cases - for example where the fault is obvious - this strategy may not work, commercial disputes and product liability cases are rarely cut and dry.  In the majority of cases, the CEO may do very well getting on the stand to defend a company's actions (and by doing so, defend his or her actions).

E. The CEO Must Be Prepared.

For whatever reason, jurors seem to believe CEOs are supermen and superwomen, who wear business suits rather than spandex.  They seem to expect CEOs to remember details of events and be on top of facts and figures.  As set forth above, the reality may be otherwise as many talented CEOs take a bird's-eye view to management rather than immerse themselves in the details.  Nevertheless, because jurors seem to believe CEOs are extremely knowledgeable, CEOs must prepare diligently when they testify.  Repeated assertions of "I don't know" or "I don't remember" are likely to come off as evasive.  That being said, CEOs must avoid the temptation to testify about facts where their knowledge is flimsy at best, since they are likely to be proved wrong when their testimony is based upon speculation.  In such a situation, jurors may perceive the erroneous CEO as a liar or incompetent.

F. CEOs Are Not Necessarily Viewed as the Darth Vader of the Boardroom.

Although most juries will not have CEOs on the panel, this does not mean there is a natural jury bias against CEOs.  Certainly, there are jurors who will have a bias against the powerful.  For some jurors, the deliberation room will be an avenue of retribution against CEOs who have harmed them in the past.  Yet, most jurors seem to be open-minded about whether a CEO is a credible, decent person or not.  In preparing to defend a CEO, lawyers must be ready to humanize the CEO as much as possible.  In contrast, those attacking the CEO should depict that person in typical stereotypes of an undeserving, unappreciative and callous boss, who takes credit for successes and blames others for failures.

G. Know What Is in the Documents.

In many companies, the CEO may be copied on e-mails, memoranda, letters, etc.  This is a dangerous situation as it creates the inference the CEO reads all the documents sent to him or her.  While the reality may be the CEO is inundated every day with hundreds of scraps of paper and electronic documents no one would have time to read, jurors may well believe the CEO must have read the "smoking gun" memo - especially when it is an important document in the case.  Corporate counsel and executives should be very careful to limit who is listed on distribution documents.  However, once the documents are generated, it is essential the CEO become familiar with those documents he or she received so as not to be surprised in deposition or trial.

H. "I Am Sorry" Goes a Long Way.

Most lawyers cringe at the concept of a CEO admitting the company has done something wrong and apologizing for it.  However, especially in a punitive damage case, jurors who perceive a company and its CEO are genuinely repentant about misconduct are more likely to minimize punitive damages or deny them altogether.  In contrast, jurors are more likely to find a need to "send the message" to CEOs who "just don't get it" when a jury has already determined liability exists.  This does not mean a CEO must always admit culpability.  It may be enough to admit things could have been done better, so long as they genuinely express regret regarding the consequences of given conduct.  However, the ostrich approach to culpability will often backfire.

CONCLUSION

As a result of the corporate scandals of the past several years, CEOs have become the boogeymen of the new millennium.  The public - and, therefore, jurors - have had their psyches indelibly scarred with visions of CEOs doing "perp walks" on television.  Lawyers attacking and defending CEOs must recognize the challenges CEOs face when they testify at trial.  More than ever, the public's current perception of CEOs will have a tremendous impact upon how jurors view any CEO who testifies as well as the company he or she represents.  Lawyers who understand the strengths and vulnerabilities of CEOs as witnesses will be in the best position to undermine CEO credibility at trial or, when defending the company, defend those CEOs and the companies they represent.

This article first appeared in ABTL Report, Summer 2005.

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