Corporations:
A Contemporary Approach
Chapter 16
Slide
From “Be ambitious to be quiet, engaged
in 1your
Public Shareholder Activism own affairs, and working with your hands”
of (2013)
65
Module VII – Fiduciary Duties
Chapter 19
Board Oversight
• Director functions
Bar
exam
– Who can be on board?
– What is expected of directors?
– “Std of conduct” vs. “std of liability”
• Board supervision - CHC
Corporate
practice
– Pritchard case
– Causation?
• Board supervision - PHC
Law
profession
Citizen of
world
– Caremark case
– Internal controls
• Corporate law
• Sarbanes-Oxley / Dodd-Frank
• Oversight and duty of care
– Stone v. Ritter: legal compliance programs
– In re Citigroup: business risk assessment
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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Director’s functions …
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Slide 3
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Join the board?
New
director
William
Charles
Board
Premium
Payers
Corporations:
A Contemporary Approach
Pritchard & Baird Corp.
Chapter 19
Board Oversight
Reinsurance
Companies
Slide 4
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• Qualifications?
MBCA § 8.30 Standards of
Conduct for Directors
– Natural person
– Need not own stock
– No special expertise
– “should” become familiar
with business
– “financial expert” only on
PHC audit committee
(a) Each director, when
discharging the duties of a
director, shall act: (1) in good
faith, and (2) in a manner the
director reasonably believes to
be in the best interests of the
corporation.
(b) The directors, when
becoming informed in
connection with board’s
decision-making or oversight
function, shall discharge their
duties with the care that a
person in a like position would
reasonably believe appropriate
under similar circumstances.
Corporations:
A Contemporary Approach
• Functions?
–
–
–
–
Attend mtgs / be informed
Set corp policy / strategies
Hire / fire / pay executives
Monitor (business / illegality /
misconduct)
– Inquire /object when necessary
– Manage business in crisis
Chapter 19
Board Oversight
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What should director do when
suspicious?
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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Statement of financial condition
Working
Capital
Shareholders‘
Deficit
Loans
___________ _____________
1970 $389,022
$509,941
1971 not available
not available
1972 $1,684,289
$1,825,911
1973 $3,506,460
$3,700,542
1974 $6,939,007
$7,080,629
1975 $10,176,419
$10,298,039
Net
Brokerage
Income
___________
$807,229
not available
$1,546,263
$1,736,349
$ 876,182
$ 551,598
Your duties?
Your options?
Resign?
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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MBCA § 8.24
Quorum and voting.
(d) A director who is present at a meeting of
the board of directors ... when corporate
action is taken is deemed to have assented
to the action taken unless:
(1) He objects at the beginning of the
meeting ... to holding it ...
(2) His dissent or abstention from the
action taken is entered in the minutes of
the meeting; or
(3) He files written notice of his dissent or
abstention with the presiding officer of
the meeting before its adjournment or
with the corporation immediately after
adjournment ... The right of dissent or
abstention is not available to a director
who votes in favor of the action taken.
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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Directors & Boards e-Briefing (April 2006)
How would you (as shareholder) respond
to a director resignation – specifically,
the kind of “noisy exit” made by a
board member of XM Satellite Radio.
The survey showed:
•
•
•
•
Corporations:
A Contemporary Approach
Buy More on a Market Drop: 4.8%
Sell Immediately:
38.1%
Hold -- Wait and See:
38.1%
Other:
19.0%
Chapter 19
Board Oversight
Slide 9
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Directors & Boards e-Briefing (April 2006)
How would you (as shareholder) respond
to a director resignation – specifically,
the kind of “noisy exit” made by a
board member of XM Satellite Radio.
The survey showed:
•
•
•
•
Corporations:
A Contemporary Approach
Buy More on a Market Drop:
Sell Immediately:
Hold -- Wait and See:
Other (depends on who):
Chapter 19
Board Oversight
4.8%
38.1%
38.1%
19.0%
Slide 10
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Liability of directors
for lack of supervision …
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Slide 11
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Aspirations vs. reality
“A standard of conduct states
how you should play a role.
A standard of review states
whether a court should
impose liability.”
“In the real world, standards of
review in corporate law
pervasively diverge from
standards of conduct.”
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Professor
Mel Eisenberg
Slide 12
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When is “absent” director liable?
Francis v. United Jersey Bank
By the way, who is Francis and
why is United Jersey Bank in the case?
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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NJ Supreme Court:
"Her neglect of duty contributed
to the climate of corruption; her
failure to act contributed to the
continuation of that
corruption. Consequently, her
conduct was a substantial
factor contributing to the loss.
"Sometimes ... a director may
have a duty to take reasonable
means to prevent illegal
conduct by co-directors; in an
appropriate case, this may
include threat of suit.”
Francis v. United Jersey Bank (NJ 1981)
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Slide 14
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Malfeasance vs. misfeasance …
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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Hypothetical
William Jr. and Charles, rather
than evil, are just witless -- a case
of "good genes gone bad."
They make foolish decisions and
run the business into the ground
through sheer incompetence.
Mrs. Pritchard, absent and
intoxicated, fails in her directorial
responsibilities.
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• Would witless William
and Charles be liable for
their lack of care?
• Is Mrs Prtichard liable
for her absence? What
could she have done?
Slide 16
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“True, he was not very suited
to the job, but I cannot hold
him on that account. After all
it is the same corporation that
chose him that now seeks to
charge him.
“Must a director guarantee that
his judgment is good?“
Barnes v. Andrews (2d Cir 1924)
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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Board monitoring
of illegality
When must directors react?
Internal controls required?
What does Sarbanes-Oxley do?
Corporations:
A Contemporary Approach
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Board Oversight
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Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Slide 19
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Delaware law
Caremark
Allis Chalmers
An electrical
equipment
manufacturer, is a
wondrous multitiered bureaucracy.
Its employees, under
pressure to make
profits, conspire to fix
prices.
Shareholders
Board
You are a director of
Allis-Chalmers. What
must you do to
ensure legal
compliance?
X
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
A health-care provider,
engages in referral
kickbacks. This is
illegal under Medicare
and Medicaid.
Regulators and private
payors sue, and
Caremark agrees to
compliance measures
and pays $250 million.
You are a Caremark
director. Are you liable
for not having internal
controls?
Slide 20
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Delaware law
Allis-Chalmers (Del 1963):
Caremark (Del Ch 1996):
… that in 1937 the company had
consented to the entry of [antitrust]
decrees ... did not put the Board on
notice
“... corporate boards may satisfy
their obligation to be reasonably
informed concerning the corporation
[by] assuring themselves that
information and reporting systems
exist in the organization that are
reasonably designed to provide to
senior management and the board
itself timely, accurate information
sufficient to allow management and
the board .... to reach informed
judgment concerning both the
corporation’s compliance with law
and its business performance.
There is no duty upon the directors
to install and operate a corporate
system of espionage …
Only if he has “recklessly reposed
confidence in an obviously
untrustworthy employee. Or has
ignored … obvious danger signals”
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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“Plaintiffs would have to show
Either
(1) that the directors knew or
(2) should have known that
violations of law were occurring
[sustained and systematic failure]
and in either event,
(3) the directors took no steps in
good faith effort to prevent or
remedy that situation [and]
(4) [defendants do not establish
affirmative defense] that such
failure [did not] proximately result
in the losses complained of …
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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Section 404: Management
Assessment Of Internal
Controls.
Requires each annual report of an
issuer to contain an "internal
control report", which shall:
(1) state the responsibility of
management for establishing and
maintaining an adequate internal
control structure and procedures
for financial reporting; and
(2) contain an assessment, as of
the end of the issuer's fiscal year,
of the effectiveness of the internal
control structure and procedures
of the issuer for financial reporting.
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Slide 23
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Good faith and oversight …
Illegal conduct: Stone v. Ritter
Business risk: In re Citigroup
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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Stone v. Ritter
(Del. 2006)
Bank Secrecy Act: complicity
and failure to notice Ponzi
scheme - $50 million fine
Issue: Demand futility? How
likely that directors liable for
oversight of BSA compliance
program?
Holding: approving and
applying Caremark, no
“sustained or systematic”
oversight failure since
“reasonable” compliance
program existed
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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In re Citigroup
(Del. Ch. 2009)
Financial risk assessment: failure
of directors to notice company’s
subprime exposure - $55 billion
in potential losses
Issue: Demand futility? How
likely that directors liable for not
appreciating subprime risk?
Holding: Demand required.
Court applies Caremark to
business risks (compared to
compliance risk), but says BJR
teaches against hindsight bias
and for informed risk-taking /
ARM Committee existed
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Meredith Whitney
25 Most Powerful on WS
Slide 26
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Pop quiz – MBCA S 8.31
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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§ 8.31. STANDARDS OF LIABILITY FOR DIRECTORS
(a)
A director shall not be liable to the corporation or its shareholders for any decision to take or not to take action, or any
failure to take any action, as a director, unless the party asserting liability in a proceeding establishes that:
(1) no defense interposed by the director based on (i) any provision in the articles of incorporation authorized by
section 2.02(b)(4) or, (ii) the protection afforded by section 8.61 (for action taken in compliance with section 8.62 or
section 8.63), or (iii) the protection afforded by section 8.70, precludes liability; and
(2) the challenged conduct consisted or was the result of:
(i) action not in good faith; or
(ii) a decision which the director did not reasonably believe to be in the best interests of the corporation, or as
to which the director was not informed to an extent the director reasonably believed appropriate in the
circumstances; or
(iii) a lack of objectivity due to the director's familial, financial or business relationship with, or a lack of
independence due to the director's domination or control by, another person having a material interest in
the challenged conduct which relationship or which domination or control could reasonably be expected to
have affected the director's judgment respecting the challenged conduct in a manner adverse to the
corporation, and after a reasonable expectation to such effect has been established, the director shall not
have established that the challenged conduct was reasonably believed by the director to be in the best
interests of the corporation; or
(iv) a sustained failure of the director to devote attention to ongoing oversight of the business and affairs of
the corporation, or a failure to devote timely attention, by making (or causing to be made) appropriate
inquiry, when particular facts and circumstances of significant concern materialize that would alert a
reasonably attentive director to the need therefore; or
(v) receipt of a financial benefit to which the director was not entitled or any other breach of the director's
duties to deal fairly with the corporation and its shareholders that is actionable under applicable law.
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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MBCA § 8.31 – stds of liability
Case facts
No director personal liability
unless:
1. Challenged conduct not in good
faith
2. Decision not reasonably
believed best interests
3. Decision not informed in
circumstances
4. D’s lack of objectivity due to
relationship / domination
5. D’s sustained failure of director
to be informed
6. D’s receipt of financial benefit
for which not entitled
A. EBay litigation (inside Ds pocket
IPO allocations)
B. Francis v United Jersey Bank (D
absent and inattentive)
C. Shlensky v. Wrigley (Ds unreas
on day-only baseball)
D. Caremark (Ds knowingly
accept/ indifferent to illegality)
E. Smith v Van Gorkom (Ds fail to
be informed about merger)
F.
Answers: 1-D / 2-C / 3-E / 4-F / 5-B / 6-A
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Aronson v Lewis (Ds dominated
by major Sh/CEO)
Slide 29
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Apply Caremark framework…
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Slide 30
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You are general counsel of Fly Away
Airlines, a low-fare airline that’s facing
competitive pressures and shareholder
demands for more profits
Group hypo
The FAA board of directors is considering :
PLAN A: The company's employees
will comply scrupulously with the law,
and their efforts will be carefully
monitored – though this is expensive.
PLAN B: The company’s employees
will work aggressively to cut costs – of
course, compliance with all safety rules
may not always be “cost-effective.”
Advise the directors on their duties.
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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General Counsel's advice to board:
(1)maybe the Board should not even discuss B in its present form. Such
discussion risks breaching the duty of good faith – evidence Board knows of
specific improprieties that are likely to occur, making directors complicit.
(2)Plan A might be too rigid and substantially hinder the function of the
Airline. Whether the Board accepts Plan A is up to you the directors.
(3)Directors' fiduciary duty goes beyond direct duty to
shareholders. Although B might have cost cutting benefits today it opens the
board to several avenues of becoming liable. See Caremark (effectively
requires monitoring system). The exact form and effectiveness of compliance
program is up to the Board.
In conclusion, Board needs a plan that meets compliance requirements, but
that also balances the costs and benefits. Recommend that Board investigate
how other small airlines comply (and monitor compliance) with safety rules.
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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The end
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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Trends in corporate
governance …
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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10 trends that will shape governance landscape (2006):
1. Majority voting will become the norm, replacing the plurality vote standard
2. Executive compensation will be brought into line: enhanced SEC
disclosure, advisory shareholder votes,, and recognition of internal pay equity.
3. Separating the roles of chairman and CEO
4. The model of the imperial, celebrity CEO will be replaced by the
stewardship model
5. Sustainability and corporate social responsibility, formerly relegated to
gadflies, will be recognized as key corporate governance responsibilities
6. Shareholder communications and proxy voting systems will be revamped
by the SEC to make better use of technology,
7. Shareholder resolutions will be overtaken by other forms of constructive
engagement, and shareholder activism will become less confrontational
John C. Wilcox,
Head of Corporate Governance
(TIAA-CREF)
8. The definition of beneficial ownership will become more complicated
9. The spotlight will shift from the governance of companies to the
governance of institutional investors
10. Companies will come to recognize that corporate governance is not just a
matter of regulatory compliance and accountability but a strategic goal
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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10 trends that will shape governance landscape:
2. (3.1) Executive compensation will be brought into line: enhanced SEC disclosure, advisory
shareholder votes,, and recognition of internal pay equity.
10. (3.9) Companies will come to recognize that corporate governance is not just a matter of regulatory
compliance and accountability but a strategic goal
6. (4.1) Shareholder communications and proxy voting systems will be revamped by the SEC to make
better use of technology,
5. (4.3) Sustainability and corporate social responsibility, formerly relegated to gadflies, will be
recognized as key corporate governance responsibilities
1. (5.1) Majority voting will become the norm, replacing the plurality vote standard
9. (5.1) The spotlight will shift from the governance of companies to the governance of institutional
investors
7. (7.0) Shareholder resolutions will be overtaken by other forms of constructive engagement, and
shareholder activism will become less confrontational,
8. (7.2) The definition of beneficial ownership will become more complicated
4. (7.2) The model of the imperial, celebrity CEO will be replaced by the stewardship model
3. (8.0) Separating the roles of chairman and CEO
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
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Role of directors
NC Bus Corp Act § 55-8-30 General
standards for directors.
(a) A director shall discharge his duties as a
director ... :
(1) In good faith;
(2) With the care an ordinarily prudent person in a
like position would exercise under similar
circumstances; and
(3) In a manner he reasonably believes to be in
the best interests of the corporation.
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Slide 37
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Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Slide 38
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Federal legislative
response in 2002 to
Enron
WorldCom
Adelphia
Tyco
Xerox
Global Crossing
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Slide 39
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Sarbanes-Oxley
• Outside auditors fail to discover or
report accounting fraud
• Outside auditors’ non-audit services
undermine their independence
• Outside auditors become too cozy
with execs of audit clients
• Corporate boards (esp audit
committees) fail to watch auditors
• Corporate execs oblivious to “truth”
of company filings, fail to supervise
• Companies fail to report riskiness of
true financial position
• Corporate cultures encourage
irresponsibility
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• Create PCAOB
• Audit firms must
register with Board
• PCAOB to set new
audit rules
• SEC authorized to
go after bad or negligent
conduct
Slide 40
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Sarbanes-Oxley
• Outside auditors fail to discover or
report accounting fraud
• Outside auditors’ non-audit services
undermine their independence
• Outside auditors become too cozy
with execs of audit clients
• Corporate boards (esp audit
committees) fail to watch auditors
• Corporate execs oblivious to “truth”
of company filings, fail to supervise
• Companies fail to report riskiness of
true financial position
• Corporate cultures encourage
irresponsibility
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• Ban auditors from most
non-audit services
• Audit committee must
approve non-audit
services
Slide 41
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Sarbanes-Oxley
• Outside auditors fail to discover or
report accounting fraud
• Outside auditors’ non-audit services
undermine their independence
• Outside auditors become too cozy
with execs of audit clients
• Corporate boards (esp audit
committees) fail to watch auditors
• Corporate execs oblivious to “truth”
of company filings, fail to supervise
• Companies fail to report riskiness of
true financial position
• Corporate cultures encourage
irresponsibility
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• Rotate audit partner
every 5 years
• No “revolving door” for
audit team to company
Slide 42
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Sarbanes-Oxley
• Outside auditors fail to discover or
report accounting fraud
• Outside auditors’ non-audit services
undermine their independence
• Outside auditors become too cozy
with execs of audit clients
• Corporate boards (esp audit
committees) fail to watch auditors
• Corporate execs oblivious to “truth”
of company filings, fail to supervise
• Companies fail to report riskiness of
true financial position
• Corporate cultures encourage
irresponsibility
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• Stock exchanges must
change listing standards
• Audit committee
all independent Ds
• Audit committee
“financial expert”
• Audit committee
hires/fires auditor
Slide 43
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Sarbanes-Oxley
• Outside auditors fail to discover or
report accounting fraud
• Outside auditors’ non-audit services
undermine their independence
• Outside auditors become too cozy
with execs of audit clients
• Corporate boards (esp audit
committees) fail to watch auditors
• Corporate execs oblivious to “truth”
of company filings, fail to supervise
• Companies fail to report riskiness of
true financial position
• Corporate cultures encourage
irresponsibility
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• CEO/CFO must certify that
financials “true/complete”
• SEC rules on disclosure
of internal controls
• Execs certify
• Execs can’t improper
influence auditors
Slide 44
of 53
Sarbanes-Oxley
Section 404: Management Assessment Of Internal Controls.
Requires each annual report of an issuer to contain an "internal
control report", which shall:
(1) state the responsibility of management for establishing and
maintaining an adequate internal control structure and procedures
for financial reporting; and
(2) contain an assessment, as of the end of the issuer's fiscal year,
of the effectiveness of the internal control structure and procedures
of the issuer for financial reporting.
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
Slide 45
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Sarbanes-Oxley
• Outside auditors fail to discover or
report accounting fraud
• Outside auditors’ non-audit services
undermine their independence
• Outside auditors become too cozy
with execs of audit clients
• Corporate boards (esp audit
committees) fail to watch auditors
• Corporate execs oblivious to “truth”
of company filings, fail to supervise
• Companies fail to report riskiness of
true financial position
• Corporate cultures encourage
irresponsibility
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
•
Real-time “plain English”
current disclosures
• Disclosure of off-balance
sheet arrangements
• SEC reviews company
filings every 3 years
Slide 46
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Sarbanes-Oxley
• Outside auditors fail to discover or
report accounting fraud
• Outside auditors’ non-audit services
undermine their independence
• Outside auditors become too cozy
with execs of audit clients
• Corporate boards (esp audit
committees) fail to watch auditors
• Corporate execs oblivious to “truth”
of company filings, fail to supervise
• Companies fail to report riskiness of
true financial position
• Corporate cultures encourage
irresponsibility, bad practices
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• Disclosure of code
of ethics
• SEC can ban or remove
“unfit” directors/officers
• Ban on “Personal loans”
to directors and officers
• Exception for
“regular lending”
Slide 47
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Sarbanes-Oxley
• Corporate execs sell company stock
while aware of fraud, Eees can’t
• Outside lawyers “papered” illegal
deals and failed to intercede
• Securities analysts prepared biased
research reports for clients
• Courageous “whistle blowers”
exposed many frauds
• Company officials destroyed
documents to cover up
• Company officials did not take
responsibilities seriously
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• Execs forfeit pay gains
when company restates
• Execs barred from
selling during “blackout”
• Insiders must disclose
trades w/in 2 days
Slide 48
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Sarbanes-Oxley
• Corporate execs sell company stock
while aware of fraud, Eees can’t
• Outside lawyers “papered” illegal
deals and failed to intercede
• Securities analysts prepared biased
research reports for clients
• Courageous “whistle blowers”
exposed many frauds
• Company officials destroyed
documents to cover up
• Company officials did not take
responsibilities seriously
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• SEC requires lawyers
to “report up ladder”
• “Securities lawyers”
• to CLO or CEO
• even to board
• not to SEC
• SEC enforcement
action for malpractice
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Sarbanes-Oxley
• Corporate execs sell company stock
while aware of fraud, Eees can’t
• Outside lawyers “papered” illegal
deals and failed to intercede
• Securities analysts prepared biased
research reports for clients
• Courageous “whistle blowers”
exposed many frauds
• Company officials destroyed
documents to cover up
• Company officials did not take
responsibilities seriously
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• SEC rules on analyst
objectivity/ independence
• SEC rules protect
analysts from retaliation
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Sarbanes-Oxley
• Corporate execs sell company stock
while aware of fraud, Eees can’t
• Outside lawyers “papered” illegal
deals and failed to intercede
• Securities analysts prepared biased
research reports for clients
• Courageous “whistle blowers”
exposed many frauds
• Company officials destroyed
documents to cover up
• Company officials did not take
responsibilities seriously
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• Criminal liability for
retaliating
• Private action for whistle
blowers, if retaliated
• Audit committees set up
(anonymous) procedures
• Longer statute of
limitations for fraud
Slide 51
of 53
Sarbanes-Oxley
• Corporate execs sell company stock
while aware of fraud, Eees can’t
• Outside lawyers “papered” illegal
deals and failed to intercede
• Securities analysts prepared biased
research reports for clients
• Courageous “whistle blowers”
exposed many frauds
• Company officials destroyed
documents to cover up
• Company officials did not take
responsibilities seriously
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• Higher criminal sanctions
for -• destroy documents
in fed investigation
• violate document
retention policies
• New crime for obstruction
Slide 52
of 53
Sarbanes-Oxley
• Corporate execs sell company stock
while aware of fraud, Eees can’t
• Outside lawyers “papered” illegal
deals and failed to intercede
• Securities analysts prepared biased
research reports for clients
• Courageous “whistle blowers”
exposed many frauds
• Company officials destroyed
documents to cover up
• Company officials did not take
responsibilities seriously
Corporations:
A Contemporary Approach
Chapter 19
Board Oversight
• Higher criminal
sentences for -• retaliating
• mail/wire fraud
• false certification
• New crime of “knowing
securities fraud” (25 yrs)
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