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Your Company's Living Will
Who looks forward to making a will? Under the Dodd-Frank financial reform law, major financial institutions don't have a choice. They're required to pen "living wills" detailing assets and liabilities and how the bank would protect or unwind those assets in the event of a financial crisis. But where some might see a compliance challenge in writing these plans, Abdi Shayesteh, deputy general counsel for Mitsubishi UFJ Financial Group Inc., sees a golden opportunity. "It's a great exercise to look inward, starting with the legal department," he says.
Shayesteh first became interested in financial systems and regulations when his college savings evaporated in a bank scandal. The episode also sparked his deep interest in entrepreneurialism, as he started a T-shirt company to finance his college education. Since then, Shayesteh has worked as the general counsel of a start-up Internet mortgage company, as a regulatory specialist at the Federal Reserve Bank of New York, and as an attorney at King & Spalding. He's now part of his company's Dodd-Frank leadership team. Reporter Catherine Dunn spoke to him; an edited version of their conversation follows.
Corporate Counsel: Tell us about working on the living will requirement.
Abdi Shayesteh: Living wills are one of those exciting opportunities under Dodd-Frank—which may sound surprising, because it's seen as a big challenge. But the premise is that during the financial crisis, significant large financial institutions—for example, Lehman—had assets and entities and liabilities across the globe, and they were interconnected. Nobody had all the information about where things were. Government regulators said, "We need to create a framework where all of the critical pieces of information of these complex organizations are readily available." Then we want to think through, "What would the organization do to prevent itself from going into insolvency? And if that fails, what is the company's strategy?" This is, in essence, a contingency plan.
CC: What does it take to get this done?
AS: This is, first and foremost, a data gathering exercise of going through all the businesses, operations, and legal entities that you have, and assessing what's critical, what's material, and to what extent any of these operations are dependent on one another. In going through that exercise, we get a structural overview of our organization, so that during a crisis, we could make decisions easier. What I mean by that, for example, is being able to sell off assets or businesses or entities that are not as important as others.
This is why I think there's a big opportunity with this living will exercise, rather than just approaching it as a compliance requirement. As you're pulling the data across the entities, you realize where the bottlenecks are for information gathering. Remember, the ability to access information quickly in the middle of a crisis is very important. Then, as you go through these hypothetical scenarios of what action you would take in a crisis, you examine the decision-making process of your organization, including any internal or external impediments. You realize you can make structural and governance enhancements.
CC: How can GCs benefit from this exercise?
AS: The general counsel has an important seat at the table as part of the crisis management team, as well as being a strategic adviser to help structure the company and prepare for the future. The GC can also enhance the legal department through this exercise. For example, you'll have to go through contracts and provisions to identify what it takes to sell the company's assets in the middle of a crisis. You'd be amazed to hear how some people just do not keep track of these provisions.
CC: Could such a plan be useful to in-house attorneys in other industries, too?
AS: Absolutely. Any organization can benefit from having this information quickly, and the legal department is able to provide answers to the management team in a more efficient and effective manner. It's not just about capturing the information once. It's about having a framework, so that this information is updated and becomes relevant on an ongoing basis.
CC: What are some challenges to creating a living will?
AS: A project like this requires a lot of communication throughout the company about what the benefits will be. Yes, it's difficult to sit down with a business leader and say, "Let's pretend we're going through a crisis, and let's review some of issues involved." But it's a matter of how you present it. Knowing this information ahead of time, and keeping it updated, enables people to make better decisions and judgment calls, and actually become better leaders. Whether it's a person or a company, it's only through a crisis that you reveal your character and foundation, and this exercise forces you to strengthen them.