Photo by Laura Barisonzi.
When harassment or discrimination in a company is proven to be systemic and lacking proper oversight, stockholder litigation can be a powerful tool for change. Gustavo Bruckner, head of the Corporate Governance group at Pomerantz, handles derivative actions, bringing cases on behalf of the company against primary directors and officers for harm caused to the company.
“We use the tools of stockholder litigation to bring about corporate reform,” says Bruckner.
Much of the work at Pomerantz involves securities class actions, where, following a stock drop caused by fraud, they bring litigation to secure a recovery for investors. Gustavo’s work is differentiated in a key way.
“In my world,” he says, “it doesn’t matter if there’s a stock drop. It only matters if there's misconduct that caused harm to the company. We try and hold the directors accountable for that harm.”
Bruckner has a natural talent for this work. A first-generation immigrant from Argentina, he was the first lawyer in his family, and in fact, the first college graduate. He’s long been dually interested in the power of the law to effect change, as well as the complexity of finance. He received an MBA in Finance and International Business from NYU before heading to Benjamin N. Cardozo School of Law.
As a young associate, Bruckner was closely involved in the sweeping securities class action against tech firms, issuers and underwriters accused of rigging IPOs during the 90’s “dot-com” tech bubble. He served as secretary to the executive committee on the plaintiffs’ side, and the experience gave him a crash-course in the nuts and bolts of complex litigation.
Lawdragon: What trends are you seeing in your practice?
Gustavo Bruckner: We’re seeing an increase in multi-jurisdictional litigation. There are similar suits brought in multiple forums. There's also a tremendous backlog in Delaware, even though they've expanded the Chancery court from five to seven members. The number of cases and filings has increased exponentially. We're seeing many more delays in Delaware where we’ve always been accustomed to very quick attention from the Court.
There's also been a proliferation of 220 litigation, which is the books and records statute in the Delaware code. It used to be that a company would grant a books and records request without fanfare, but now companies realize that if they can stop you before you've gotten any books and records and make it expensive and costly, they may prevail before any litigation is brought. So books and records inquiries have become contentious. We’ve had some success there. We were involved in the Gilead case where the Court actually forced defendants to pay our fees because of the overly aggressive tactics they took.
There's also clearly more interest in ESG litigation.
LD: Are you seeing any particular focus in the ESG space?
The truth is, private right of action is incredibly important because the government just can't have eyes on everything.
GB: Over the last few years, there’s been a lot of focus on harassment. Cases related to the #MeToo movement, and we were involved in some of those. There's going to be more attention on climate issues. One problem with bringing litigation in that area right now is that there are still no uniform rules on climate disclosures. The SEC has proposed rules, but there’s a lot of pushback.
One thing we're seeing, which mirrors what the country is dealing with, is that there's a lot of politicization of ESG issues. You're seeing elected officials frame ESG issues in terms of left versus right. That’s new.
LD: That’s depressing. Less will get done the more politicized it gets.
GB: Correct. It's just also a sad commentary on how that permeates everything.
LD: Can you tell me about your workplace discrimination case against Nike?
GB: Our case wasn’t exactly a discrimination case, it was about the board not taking action in the face of known complaints about the toxic workplace environment. There was a strong boys’ club atmosphere and there was a flight of female talent. And there were executives who were continuously rewarded, even though they behaved very, very badly. Harassment lawsuits were filed. We were approached by a client who read an article in the New York Times. We availed ourselves of Oregon’s books and records statute to get internal confidential company documents. We then brought a lawsuit which was heavily redacted because of the confidentiality agreement we had entered into with the company.
Still, it garnered a lot of attention in the local press. We had also relied heavily on information we had obtained independently from the Oregon Bureau of Labor. These local reporters used our lawsuit to conduct their own investigation with similar inquiries. They were able to write about what they found.
Even though we lost our lawsuit, we were able to shine a light on what was going on. As a result, the company instituted a top to bottom diversity and sustainability review and set quantitative diversity goals to achieve by 2025. They now periodically formally report on how much success they're having in reaching these goals.
LD: Do you often employ the power of the fourth estate in pressing for change?
GB: Sometimes. But many of our cases, maybe even half of them, get resolved without any publicity whatsoever. One of the biggest cases we had, we never even filed a lawsuit. The threat of the litigation was enough to get the company to implement significant corporate-wide reform – retraining on harassment issues, implementing hotlines, whistleblower opportunities, installing a structure where people can make their complaints, regular reviews by the general counsel's office, regular review by the board of directors on these complaints. And nobody will ever know except the company and our client.
LD: Is there a gold-standard case you can talk about where you were able to enact strong corporate governance reforms that cleaned up the culture of a company?
GB: The State Street case, which we settled a few months ago, is a good example.
State Street got into trouble for a number of different issues. They were over-billing clients. They were involved in a pay-to-play scheme with certain pension funds, they had undisclosed commissions on billions of dollars of securities trades and there was a foreign exchange fraud issue. Overall the company expended over a billion dollars in fees, penalties, fines and reimbursements. This was wrongdoing that in various forms had gone on for more than a decade. So it was cultural. It was systemic.
We got State Street to institute a slew of reforms to prevent this kind of behavior in the future. Now the company had already made good on the overcharges; they had paid their fines and made their customers whole. We were no longer looking for money, there was no point. What we were trying to do was to completely overhaul the culture at the company, so you wouldn't have the same situation ever again. The pattern of bad behavior had to stop.
Among the things that we obtained was formal board-level oversight on compliance issues. Surprisingly, there hadn't been any. We got a cultural training program for all new hires designed to promote high ethical standards and conduct.
In total, we got 38 new policies and procedures involving billing contracts, marketing, client invoicing and ethics. We got the company to implement them for at least three years. The hope is that this will in fact significantly reduce if not outright eliminate the risk of recurrence of any of these underlying issues of misconduct.
We use the tools of stockholder litigation to bring about corporate reform.
LD: Then how much do you stay in touch or keep an eye over the years to make sure they’re staying compliant?
GB: We do go back and follow up. There's one instance where we had entered into a settlement with a company which required them to disclose certain pay numbers. We did not see that they were continuing to do this, about three years thereafter, and we alerted them to it. So we do try and keep tabs on the implementation of the reforms.
At some point though, once you've implemented the reforms and there is a new board, then it becomes the responsibility and the business judgment of the new board to follow through. But for the most part, we believe that they are in fact implemented and maintained.
LD: You’re a strong advocate for corporate clawback policies. Can you talk to us about why that's so important?
GB: There has to be a mechanism whereby the company can clawback compensation given to those who behave badly. Many clawback policies only kick in when there is a financial restatement. The vast majority of misconduct does not result in financial restatements.
I'll give you a good example. My firm was involved in the Petrobras case, which was essentially a bribery case. There was no financial restatement. The company ended up paying $3B to settle the litigation. If a clawback policy does not allow for recoupment for misconduct that harms the company’s reputation and not just causes a restatement, there'd be no tool to hold the directors and officers accountable. So we, almost universally, seek reform of a company’s existing clawback policy. It should be applicable in every circumstance and frankly it should not even be discretional. But that's my view.
LD: You probably get a lot of pushback on this.
GB: Yes. An enormous amount of pushback. There was one case we had with United Continental where they said to us that if they had implemented a robust clawback policy, they wouldn't be able to attract top talent.
LD: Oy vey.
GB: Exactly. My response to that is – where are you hiring from? The white-collar section of the prison? If you want the best, most ethical talent, no one should be worried about strong clawback policies.
LD: How did you first decide to become a lawyer?
GB: From a very young age, I wanted to be a lawyer. I wanted to help people. I had a very strong sense of right and wrong as a child. I'm an immigrant and child of immigrants. I wanted to help people who I thought needed that kind of assistance, who didn't have the power. I want wrongdoers in corporate America to be held accountable for misconduct.
LD: Someone’s got to be doing this work.
GB: The truth is, private right of action is incredibly important because the government just can't have eyes on everything.
LD: How would you describe your style as a lawyer?
GB: Civil. I don't think you need to be nasty. I think my adversaries realize that I am someone you can have a conversation with, without entering into a screaming match. I don't believe in that. I like to think outside the box, I like to try and get to a resolution, even if it's not necessarily a conventional one. And I will be aggressive if I need to be aggressive, but not aggressive just for the sake of trying to fulfill some stereotype. At the end of the day, it's a business.
LD: You are head of the Corporate Governance group at your firm. How much of your time is spent on management versus your practice?
GB: A lot goes into management. I joined Pomerantz over a decade ago. What I thought would be a handful of cases quickly became an entire department. We are a very busy group and sometimes I feel like an air traffic controller.
LD: What’s your management style?
GB: I want the people who work for me, to work with me. I want them to learn. I don't like when everyone agrees with me. That means we are all doing something wrong. I value diversity of thought, and I like to be challenged. When my colleagues are working on a case and they're very close to it, they will have insights that I won't. At the end of the day, it's better for the prosecution of the matter when we can have an honest and robust discussion on litigation strategy.
Folks who work in my practice group are the first ones to have the opportunity to take depositions, go to court, deal with defense counsel, talk to the clients. If they're capable of doing any of that, we let them do it because it enables us to take on more cases.
LD: Do you have a favorite book, movie or TV show about the law?
GB: I’m not sure about a favorite, but I read a really good book recently about the law called "Mine!" It's about property rights and how they were developed and how changing technology changes the definition of ownership. It was fascinating.