Protecting Corporate Leadership: A Call to Action for Corporate Boards

The murder of UnitedHealthcare CEO Brian Thompson in New York is a reminder that safeguarding executives is a governance imperative for boards. They should act proactively, recognizing that threats to executives endanger the entire organization, and ensure comprehensive, tailored protections that address the multifaceted threats executives face today.

Why Boards Should Lead on Security

Under the Delaware General Corporation Law and the corporate laws of most states, directors owe the fiduciary duties of care and oversight to the corporation. These duties include ensuring that risks, including the loss or unavailability of key personnel, are actively managed. Failure to protect executives from violent acts is not just a governance failure; it erodes shareholder confidence and organizational stability.

Critical actions that boards should take to help protect executives from violent acts include:

• Developing tailored security protocols. Work with experts to assess threats and implement comprehensive protection strategies for all key executives.
• Overseeing implementation. Monitor the effectiveness of these measures through regular reviews and updates.
• Allocating sufficient resources. Ensure budgets properly reflect the scope and urgency of executive protection.

Building a Comprehensive Protection Plan

Security strategies today go beyond traditional bodyguards. Boards should prioritize multilayered protections, including:

• Threat assessments. Evaluate vulnerabilities tied to travel, events, and public appearances.
• Close protection. Deploy discreet, highly trained professionals to provide day-to-day safety.
• Cybersecurity. Guard against digital threats, such as doxing and phishing, that often precede physical risks.
• Emergency preparedness. Establish crisis response plans, including evacuation routes and coordination with law enforcement.

Tax and Legal Considerations

Boards should also navigate the complexities of legal and tax compliance. Security expenses benefiting an executive personally, such as home protection or family coverage, may trigger Internal Revenue Service reporting obligations and be considered taxable income to the executive if not properly structured. Balancing robust security with potential liability exposure and tax efficiency is critical. Boards should collaborate with advisors to ensure compliance while safeguarding the organization. Key points to address include:

• Residential security. Home security expenses are often taxable unless they meet specific criteria under the Internal Revenue Code (IRC).
• Family coverage. Protection provided to an executive’s family may also create tax obligations.
• Disclosure requirements. Under US Securities and Exchange Commission rules, security expenses may need to be reported as part of executive compensation.

Boards should carefully structure security arrangements to minimize tax and other liabilities while ensuring transparency. However, many employers do not realize that an overall security program that provides for bodyguard chauffeurs, private air travel, or security features on company-provided automobiles may also be excluded under the IRC provisions.

If an employer establishes an overall security program, executives may receive certain personal benefits tax-free. These benefits include a bodyguard for unlimited business and personal travel and the excess cost of travel on employer-provided aircraft.  

Importantly, these benefits also can be provided to the executive’s spouse and dependents. An overall security program is deemed to exist in one of two ways: a 24/7 security program or an independent security study. An independent security study exists if:

• a security study is performed with respect to the employer and the executive by an independent security consultant hired by the employer,
• the security study is based on an assessment of all facts and circumstances relating to the employer and the executive,
• the recommendation of the security study is that an overall 24/7 security program is not necessary under the circumstances and the consultants’ recommendation is reasonable under the circumstances, and
• the employer applies the specific security recommendations contained in the security study to the executive on a regular and consistent basis.

Security threats that the independent security study must find to deem an overall security program necessary may include:

• a threat of death or kidnapping of, or serious bodily harm to, the executive due to the executive’s status as an employee of the employer; or
• a recent history of violent terrorist activity in the geographic area in which the transportation is provided, unless that activity is focused on a group of individuals which does not include the employee or occurs to a significant degree only in a location within the geographic area where the executive does not travel.

There are several added benefits to obtaining an independent security study. Substantively, the security firm conducting the study provides valuable insight and techniques to keep the work environment and the personal life of the employee safer, and the cost of the study is not taxable income to the employee. A further benefit is that tax law disallows deductions for any payments provided to executives by an employer for commuting expenses but provides an exception where there are security concerns, which would very reasonably be the case where an independent security study is in place.

Armed security can pose additional potential exposures for an employer. Regulations concerning the deployment of armed security personnel to protect executives are also important to consider. Boards should ensure that security personnel possess the necessary experience, licensing, and training requirements. Regulations vary significantly across the states or jurisdictions where the security personnel operate.

Lessons from the Brian Thompson Tragedy

The murder of Brian Thompson underscores the need for boards to act urgently and decisively. To fulfill their fiduciary duties, boards should:

• identify gaps in current security measures,
• equip security personnel to respond effectively to evolving threats, and
• partner with experienced professionals to design customized strategies and deploy the necessary personnel.

Safeguarding executives is not just about personal protection: it is about ensuring the stability of the organization, maintaining shareholder trust, and fulfilling the board’s governance responsibilities. Corporate boards should prioritize comprehensive, proactive security strategies.

By addressing physical and digital threats, navigating legal complexities, and allocating appropriate resources, boards can protect their leaders and ensure the long-term resilience of their organizations.

Michael Kosnitzky is coleader of the Private Client & Family Office Practice at Pillsbury Winthrop Shaw Pittman. He advises ultra-high net worth clients and corporate boards on risk management, tax strategies, and estate planning.

Lara T. Gatz is a partner in Reed Smith’s Regulatory & Investigations Practice Group. As a former federal prosecutor with 22 years of experience, she led high profile cases involving securities fraud, public corruption, and organized crime.