Corporate Governance in the Aggressive FCPA Enforcement Environment


Corporate Board members face even more risks in today’s aggressive FCPA enforcement environment. They have adjusted to the new post-Sarbanes-Oxley environment. Today, they face the perils of FCPA enforcement.

As the Justice Department and the SEC bear down on more and more companies, Board members have to be even more sensitive and careful when it comes to FCPA enforcement.

If you read between the lines of recent DOJ and SEC settlement filings, the message is clear that corporations that cooperate fully will be rewarded versus those companies that resist acknowledging potential violations and cooperating with the government. With so much at stake, the actions of the Board are critical.

The Board has a fiduciary duty to the company to ensure compliance with the law. The Board’s initial response to potential FCPA violations is critical. If the Board is divided on this issue, the possible risks multiply.

For example, what if he Board disagrees as to whether or not company employees’ conduct violated the FCPA? What if top management is divided? The General Counsel may conclude one way, while he CEO reaches a different conclusion. What if top management is alleged to participated, or reviewed the conduct?

A divided board and management raises very significant risks for each player. The company’s actions can devolve into individual actions taken by Board members and top management to protect themselves. Board members and management may seek individual representation and prosecute their positions through aggressive internal disclosures and claims. This is a nightmare scenario.

This is not an unheard of situation. But the risk to the future of the company is significant. The Justice Department and the SEC are likely to view this dysfunction with suspicion, and it will certainly undermine company claims that it will comply in the future.

In this situation, the Board needs to seriously consider hiring special counsel or creating a special committee to review and report back to the board. The Board’s fiduciary duties demand some kind of action. Corporate cover ups are not unheard of, but are rarely successful given the risk of detection, of a leak or a possible whistleblower claim. Board members have to recognize that and seek to resolve the problem through outside counsel.

One other possible protection against this nightmare scenario is the creation of a “Blue Ribbon” panel within a company which will resolve any disagreement as to whether or not the conduct is prohibited by the FCPA.  Several companies have utilized an independent panel to review such issues, and the Justice Department recently listed such a committee as a component of an “enhanced” FCPA compliance program.

Whatever vehicle is used — a special counsel, independent committee or “Blue Ribbon” panel, the Board has to act to protect the future of the company.  Any delay will result in possible loss of cooperation benefits and a loss of credibility with the Justice Department and the SEC. The stakes are high and any company which moves slowly will definitely end up paying a price.

Corporate Governance in the Aggressive FCPA Enforcement Environment


Corporate Board members face even more risks in today’s aggressive FCPA enforcement environment. They have adjusted to the new post-Sarbanes-Oxley environment. Today, they face the perils of FCPA enforcement.

As the Justice Department and the SEC bear down on more and more companies, Board members have to be even more sensitive and careful when it comes to FCPA enforcement.

If you read between the lines of recent DOJ and SEC settlement filings, the message is clear that corporations that cooperate fully will be rewarded versus those companies that resist acknowledging potential violations and cooperating with the government. With so much at stake, the actions of the Board are critical.

The Board has a fiduciary duty to the company to ensure compliance with the law. The Board’s initial response to potential FCPA violations is critical. If the Board is divided on this issue, the possible risks multiply.

For example, what if he Board disagrees as to whether or not company employees’ conduct violated the FCPA? What if top management is divided? The General Counsel may conclude one way, while he CEO reaches a different conclusion. What if top management is alleged to participated, or reviewed the conduct?

A divided board and management raises very significant risks for each player. The company’s actions can devolve into individual actions taken by Board members and top management to protect themselves. Board members and management may seek individual representation and prosecute their positions through aggressive internal disclosures and claims. This is a nightmare scenario.

This is not an unheard of situation. But the risk to the future of the company is significant. The Justice Department and the SEC are likely to view this dysfunction with suspicion, and it will certainly undermine company claims that it will comply in the future.

In this situation, the Board needs to seriously consider hiring special counsel or creating a special committee to review and report back to the board. The Board’s fiduciary duties demand some kind of action. Corporate cover ups are not unheard of, but are rarely successful given the risk of detection, of a leak or a possible whistleblower claim. Board members have to recognize that and seek to resolve the problem through outside counsel.

One other possible protection against this nightmare scenario is the creation of a “Blue Ribbon” panel within a company which will resolve any disagreement as to whether or not the conduct is prohibited by the FCPA.  Several companies have utilized an independent panel to review such issues, and the Justice Department recently listed such a committee as a component of an “enhanced” FCPA compliance program.

Whatever vehicle is used — a special counsel, independent committee or “Blue Ribbon” panel, the Board has to act to protect the future of the company.  Any delay will result in possible loss of cooperation benefits and a loss of credibility with the Justice Department and the SEC. The stakes are high and any company which moves slowly will definitely end up paying a price.

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7 Responses

  1. Anonymous says:

    Recently asked by investigating counsel whether in-house had sufficiently explained to a GC of a sovereign whether said in-house had explained and tutored GC regarding the FCPA, in-house responded, I would expect as a minimum that a GC of a company with assets in excess of USD30 Billion would have some basic understanding of anti-bribery concepts and principles. Especially, given all the magic circles wine and dine the GC on a regular basis. Q: does excessive hospitality, gifts etc from Outside Counsel for the benefit of sovereign GC's and IC's fall fowl of the FCPA and UK acts?

  2. michael volkov says:

    Outside counsel may be in trouble on this issue. In face, major firms are now developing thier own FCPA and UK Bribery complaince programs. Assuming GC works at sovereign wealth funds, or some other sovereign, then he is a "foreign official" for purposes of the FCPA and modest entertainment expenses are okay but does not sound like that is what is going on. Feel free to write me here or at my email — mvolkov@mayerbrown.com

  3. Anonymous says:

    Is there any record-keeping of the number of in-house counsels that have disclosed under the Dodd Frank Act or similar Acts i.e. SOX, as a Whistleblower?

  4. michael volkov says:

    No I am not aware of any record-keeping, although I expect the number to increase with new Dodd-Frank rules. But certainly a large number of whistleblowers have been in-house atoorneys. In today's world, I would highly recommend that such a whistleblower retain counsel before doing anything. Dodd-Frank increased ability of whistleblowers to suw for retaliation.

  5. Anonymous says:

    The concerns with the DFA is how loud and long should you shout before resorting to reporting? Counsel representing corporations, typically milking the corp on investigative fees, portray the WB as an opportunist and failing to shout loud enough internally yet the WB has a broad duty to discharge beyond the corp. How far should outside counsel go in defending a corp before they themselves are complicit? The highly competitive market that firms work in today has seriously compromised their broader duties beyond the corporation.

  6. michael volkov says:

    I think there is a lot of truth in your comment — counsel become complicit when they sacrifice thier judgment for milking fees and keeping thier mouths shut. I ahve found only a few counsel who are willing to stick to their principles and sometimes sacrifice larger fees; in the long run they are mnore successful

  7. Anonymous says:

    There needs to be a far bigger stick with respect to outside counsel, especially in the US, acting on behalf of super conglomerates, look at Weatherford and Fulbright! glaring deficiencies as they self-report every quarter yet still continue unabated. I guess you have to earn the fines to pay the fines. Was Billy, Bernard's get out of jail card????