The most significant development for Boards and compliance continues to come from the Delaware courts, which have been expanding the civil law obligations of Boards through a series of court decisions involving the expansion of the Caremark Doctrine for the past several years. These developments began with the Marchand (Blue Bell Ice Cream) decision which required Boards to manage the risks their organizations face. Next was Clovis Oncology which required ongoing monitoring by the Board. Finally, the Boeing case stands for the continuing proposition that a Board cannot simply have the trappings of oversight, it must do the serious work required and have evidence of that work (Document, Document, and Document).
The decision in Boeing is yet a further expansion of the Caremark Doctrine, once again beginning with Marchand. Boeing also states that a company must assess its risks and then manage them right up through the Board level. Finally, a Board must be aggressive in their approach and not passively take in what management has presented to them.
The DOJ has also made clear its thoughts on the role of the Board of Directors. The role of the Board is different than that of senior management. The 2020 Update and DOJ Antitrust Division’s 2019 Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations were even more explicit in announcing their expectation for robust Board oversight of a corporate compliance function.
Name any of the most recent corporate scandals; Wells Fargo, Theranos, Volkswagen, Boeing, FTX, etc., and there was no compliance expertise on the Board. It is now enshrined as a best practice for companies to have a seasoned compliance professional on the Board. I would also add that the DOJ may soon expect a Compliance Committee separate from the Audit Committee.
The DOJ continually speaks about the need for companies to operationalize their compliance programs. Businesses must work to integrate compliance into the DNA of their organization. Having a Board member with specific compliance expertise or heading a Compliance Committee can provide a level of oversight and commitment to achieving this goal. The DOJ enshrined this requirement in the FCPA Corporate Enforcement Policy. This means that when your company is evaluated by the DOJ, under the factors set out in the 2020 Update and FCPA Corporate Enforcement Policy, to retrospectively determine if your company had a best practices compliance program in place at the time of any violation, you need to have not only the structure of the Board-level Compliance Committee but also the specific subject matter expertise on the Board and on that committee.
This means that every Board of Directors needs a true compliance expert. Almost every Board has a former Chief Financial Officer, former head of Internal Audit, or persons with a similar background. Often, these are also the Audit Committee members of the Board. Such a background brings a level of sophistication, training, and SME that can help all companies with their financial reporting and other finance-based issues. So why is there no such SME at the Board level from the compliance profession?
Three key takeaways:
1. The 2020 Update required active Board of Director engagement and oversight around compliance.
2. Board communication on compliance is two-way, both inbound and outbound.
3. The Delaware courts have been expanding Board’s roles through the expansion of the Caremark Doctrine.
