Does the Buck Stop Here? Board Responsibility for FCPA Compliance

Abstract

This article focuses on the corporation law aspect of “corporate compliance,” i.e., how the legal structure of the corporation should, but often does not, ensure compliance. It explains that a corporation’s board of directors, legally obligated to manage the business in the interests of the corporation and its shareholders, should run the firm in order to avoid costly violations of the U.S. Foreign Corrupt Practices Act (FCPA) or other laws. In addition, the article explains that because the fiduciary duties of directors are in principle enforceable by shareholders, the specter of shareholder suit against directors who violate their duties and allow the firm to operate illegally should result in corporate compliance with the FCPA, or at least should provide a remedy to shareholders if directors fail, and violations occur. This article shows, however, that the fiduciary duties of directors are at best weak reeds in practice. Although there are certainly many fine directors, fiduciary duties in fact legally require directors to do very little and it is nearly impossible for a shareholder to obtain a judicial remedy against a faithless director. This article argues that several decades of Delaware court decisions, combined with legislation enabling director exculpation in nearly every state, have resulted the evisceration of director fiduciary duties and remedies for their violation. This article then looks closely at the allegations of FCPA violations and a cover-up of the same in the mid-2000s by Wal-Mart Stores, Inc.’s Mexican subsidiary. This article looks at the ill-fated shareholder derivative suits claiming breach of fiduciary duties by the Wal-Mart board members that were filed in the wake of the FCPA allegations. This article concludes that a return to the basics of corporation law, with enforceable fiduciary duties imposed on board members, might improve compliance with the FCPA.