Further fallout from the 2023 failure of Silicon Valley Bank (SVB) came this month when the Federal Deposit Insurance Corporation (FDIC) sued 17 former executives, including 11 directors, seeking billions of dollars in damages related to the bank's failure. It came to light because of what I did. This case continues to challenge corporate board members to extremely high standards regarding their ability to manage all types of risk in their companies, and that failure to make wise risk management decisions can have serious consequences. It's a reminder of something.
Reuters reports that former SVB CEO Gregory Becker, six other executives and 11 board members have compromised fundamental banking standards and the bank's own risks for short-term gain. He is accused of ignoring policies and ultimately leading to the bank's failure. The Reuters report also said the defendants were criticized for paying $294 million in dividends to the parent company, depriving the bank of much-needed capital “at a time of financial hardship and deterioration.”
The FDIC's lawsuit says the case against SVB represents “gross mismanagement of interest rate and liquidity risk by the bank's former officers and directors.” It also alleges that the actions of management and directors were “grossly negligent and breached the fiduciary duties of care and loyalty each defendant owed to SVB.”
In a December 2024 memo, FDIC Chairman Martin Gruenberg said the lawsuit “exposes SVB to significant risks and concerns about the bank's mismanagement of its investment portfolio, which cost SVB billions of dollars in damages. It said it supported this lawsuit with the goal of “holding these former officers and directors accountable for their breaches of duty.” Losses were incurred, resulting in losses to the Deposit Insurance Fund currently estimated at $23 billion. ”
This case only highlights the fact that as the responsibilities of corporate directors continue to expand, so too do the pressures to generate profits. Directors need to be careful that these additional responsibilities do not put them under pressure to take on excessive risks. Unfortunately, even with good intentions, corporate directors who make riskier decisions or unintentionally ignore risk altogether are now more likely than ever to be sued.
With the new Trump administration in Washington, D.C., there may be varying levels of scrutiny from investors, stakeholders, and regulators. Directors may need to re-evaluate their company's risk management position in several areas to avoid serious issues that could lead to litigation or worse. These areas include:
• Exposure to foreign markets. With the new US president favoring tariffs, companies will need to reevaluate how these potential policy changes will affect them. Will tariffs affect the ability of foreign suppliers to send needed materials to companies at affordable prices?Will retaliatory tariffs affect the ability of U.S. companies to operate in foreign markets? What risks may arise to the company's profits in the coming years?
• Bitcoin and Cryptocurrency Risks. With the new US administration appearing to support the use of Bitcoin and other cryptocurrencies, corporate boards may feel the need to explore the risks and benefits of holding cryptocurrencies on their balance sheets. The volatility of cryptocurrencies makes conversations around financial risk important to the future of many companies. Determining the appropriate level of risk to take with Bitcoin and other cryptocurrencies will likely be a topic of discussion in many boardrooms.
• Energy and environmental risks. With the new US administration emphasizing its withdrawal from the Paris Climate Agreement, companies may want to reassess the climate change risks to their businesses. Corporate directors also need to pay attention to compliance with environmental regulations, some of which may change as the new administration begins to roll out new policies. However, directors need to consider the risks of ignoring climate-related issues that could impact their business, as they could be held liable in the event of a tragedy.
