The punch line to the joke is that Churchill will be sober tomorrow.  But the Board of Directors of insurer Horace Mann will still be clueless.  Over at Conglomerate , Illinois lawprof Christine Hurt posts about CEO Louis Lower having pleaded no contest to drunk driving in Florida and being sentenced to 60 days in jail.

Lower pleaded no contest to drunken driving Sept. 8 and was given a 60-day sentence after a May incident where he drove on the wrong side of the road and crashed head-on into a sport-utility vehicle containing two teenagers. He refused a police request to perform a field sobriety test at the scene, and was found to have a blood-alcohol content of 0.21 when police drew his blood more than three hours later. The legal limit in Florida is 0.08.

It happens.  Thankfully, no one was killed, but a head-on wrong-way collision is bound to garner some attention locally, though it may not make it all the way from Florida to Illinois.  While there’s no information on the date of the crash, it’s clear that Lower copped out on September 8, and apparently went in immediately.  The Board of Horace Mann was told of all this on September 9, though some execs knew about it from the time of arrest, and Lower resigned his position as CEO.  The Board disclosed this publicly on September 13th.

Before turning to the point of this post, you’re no doubt deeply concerned that Lower will be able to transition from jailbird to law-abiding citizen when he’s released.  Rest easy.

The board said Wednesday it will take no further disciplinary action against Lower because of his resignation. Horace Mann, based in Springfield, Ill., sells car, home and life insurance.

In a filing with securities regulators, the company said Lower’s retirement makes him eligible for a cash bonus of about $250,000 and stock-based awards of about $3.7 million.

Whew.  That will keep him in Ripple for a while.  Facetiousness aside, it’s a shame that Lower’s name comes across the ticker only because of the grave misfortune of being involved in a drunk driving accident.  He could be a brilliant CEO and a wonderful humanitarian.  But for the sheer luck of having attempted to defy the laws of physics, he would have made it home, slept off his dubious judgment and no one would be the wiser, just like so many others have done. No harm, no foul.  Lower, unfortunately, caused harm.

The scenario raised a question as to whether the Board of Directors of Horace Mann Educators Corp. was required to make immediate disclosure of this information, and a reporter contacted Lawprof Hurt (because reporters adore getting quotes from lawprofs, who are just the most credible sources ever when it comes to writing a compelling story).  Apparently Hurt wasn’t familiar with the time of newscycles, and failed to get back to the reporter quickly enough to be relevant.  Not wanting to waste her hard work thinking, she wrote a post.

I think jail could be material; arrest maybe not.  The reporter’s email asked if the CEO was like Martha Stewart.  Due to the fact that Google doesn’t recognize Louis Lower’s name when I type it, I’m going to say the answer is no.  Martha Stewart is MSLO.  No doubt about it.  Steve Jobs may be Apple.  Louis Lower does not appear to be Horace Mann.  So, the fact that he was arrested for misdemeanor DWI (no injuries in the accident), might not be material.  Item 401(f)(2) would require in any mandatory filing that the company diclose if an executive officer “is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses.”  Man, I wish that this were a little more specific. 

Is DWI a traffic violation?  I don’t think running down your cheating spouse with the car is, but DWI might be.  And, Horace Mann filed no mandatory filings during this time.  Is it material enough that it would have to be disclosed otherwise, perhaps on Form 8-K?  The form does not list this as an area for disclosure.  However, is there a substantial likelihood that a reasonable investor in Horace Mann would think this important in the total mix of information?  I just don’t see it.  Courts have held that when the CEO is the alter ego and the pending proceeding, even if not criminal, points to integrity and capability (fraud, breach of duty, etc.), then it is material.  Yes, DWI has a moral turpitude angle to it, but I’m going to say no because no injuries, etc.

Forgive me for breaking up her single paragraph and adding emphasis, but it’s just too difficult to read otherwise.  To almost anyone reading here, the flaw in her analysis is obvious and painful.  Perhaps Hurt could be forgiven for being clueless as to the definition of a traffic violation, as she might have missed that day in first year crim law, but that she nonetheless thinks it’s up for grabs, a subject of her personal opinion, is deeply troubling.  It was a misdemeanor.  That’s a crime.  Speeding tickets are violations.  Crimes are crimes.  There’s no wiggle room.

Despite her neither knowing, nor having the good sense to ask someone who does know, what she’s talking about, Hurt goes on:

But yet he was sentenced to 60 days.  Thankfully, I have no priors about length of sentence for first-time (as has been claimed) DWI, so I’m wondering if the sentence tells us that there are more facts here that would make the arrest material.  Was there anything else egregious that made jail time a probability or near certainty?  If so, then I’m closer to materiality there.

But once your CEO is in jail, that seems like its material to me.  What has caught the media’s attention is that he did not resign at first.  He was an incarcerated sitting CEO.  Since then, he has retired as CEO.  The resignation, termination or retirement of the CEO is per se material and would have to be reported within four business days on Form 8-K.  Here, the board disclosed the fact that the non-terminated CEO was in jail within four business days.  So, the board seems to have thought it was material and so properly disclosed.

It’s been my position, and something I’ve been explaining in excruciating detail whenever presenting to in-house counsel, that the vast mysteries of criminal law aren’t really all that vast.  Rather, there is some monumental disconnect between the corporate lawyers (and corporate lawprofs) upon whom corporations rely for advice and criminal law. 

The dirtiness and nastiness of such banal problems are so fundamentally distant from their preferred counsel’s knowledge and background that they are incapable of providing the most basic sound advice.  In other words, they are so clueless as to devolve into the arrogance of thinking they get to just make it up, 

Did it dawn on the Board of Horace Mann that there might be a bunch of lawyers who, in the course of a brief telephone call, could have provided them with precise advice, that their CEO was convicted of a crime, and that crimes are, by definition, material and must be reported?  Did it dawn on their general counsel, who was no doubt the first person asked when this came to light?  It obviously didn’t occur to Lawprof Hurt to ask a lawprof teaching criminal law.

Of course, materiality is a curious thing when it comes to corporate governance.  Following the announcement of CEO Lower’s conviction and incarceration, the stock price of Horace Mann dropped precipitously didn’t do much at all, suggesting that no one really cared that Lower got drunk, pleaded guilty, went to jail and resigned.  Talk about adding insult to injury for the poor fellow.

At least he has his cash bonus and stock awards to comfort him upon his release.\

As for Christine Hurt, perhaps she will consider asking someone with just a wee bit of knowledge in an area with which she’s completely unfamiliar before spouting off her opinion.  Even professors who teach corporations would do well to have some idea what they’re talking about before opining, and then perhaps we can work on corporate executives, officers, boards and counsel taking their obligations seriously enough to realize that criminal law isn’t something you just get to make up as you go along.

Yes, criminal law can be dirty and nasty, far beneath the dignity of corporate culture.  But there are times when your good folk find themselves in our neighborhood, and we might just have a little something to offer.

H/T Ed at Blawg Review