The VimpelCom FCPA settlement underscored the importance of Compliance 2.0 and the need to reform board deliberations and governance. No one can read the facts without shaking their heads and asking – what was the VimpelCom board thinking?

The VimpelCom board’s failure to act reflects the key driving force inside the corporate boardroom – defense. When a company is not being led by the board but is merely reacting to defensive strategies promoted by the board or its advisers, a company’s governance performance will rapidly sink.

At the heart of the problem is the dynamic in the boardroom – you can bet that the board’s attorney adviser was recommending caution and making sure that the board could “defend” its actions to approve VimpelCom’s acquisition of the two telecomm companies in Uzbekistan.

Can you imagine the conversation inside the boardroom if an empowered and independent Chief Compliance Officer was there to advise the board? I can easily imagine what would have been said and the board would have quickly engaged in meaningful due diligence and revealed what was at the bottom of the acquiring shell company – a corrupt Uzbekistan foreign official, the President’s daughter.

Instead, the dynamic that controlled the situation was based on the simple premise – can we get away with approving this questionable transaction? So, a lawyer, thinking like a lawyer, recommended that the board obtain an opinion from outside counsel.

The board’s antennae were already at alert because of the inexplicable proposal to acquire Unitel and a second, small company, Buztel, in which the corrupt foreign official had an indirect ownership interest. The board appropriately focused on what appeared to be a very strange proposal – why did the company need to acquire Buztel?

The key question that was never asked nor answered was pretty simple – who are the beneficial owners of the companies VimeplCom was considering acquiring?

If the question was answered, the deals would not have occurred. DOJ and VimpelCom go out of their way to explain that the senior executives responsible for the bribery scheme failed to give outside counsel accurate information about the proposed transaction and never answered the board’s questions.

At first glance, this explanation sounds good. But given the vacillating explanations and responses from senior executives to the board on the structure and the justification for the transactions, the board was under a fiduciary duty to dig a little deeper, and confirm that outside counsel, senior management, and everyone who was involved had provided accurate information about the beneficial owners of the transactions.

The board’s focus on a defensive approach directly resulted in the most significant mistake in the entire process – the board approved the proposed questionable transaction. There is no doubt that the board members knew in their hearts and minds that the transaction was troubling. A letter from outside counsel supporting the acquisitions was all they needed to approve the transaction – a convenient excuse and defense.

VimpelCom’s board carries the burden for its failure to properly oversee and monitor the proposed transaction. It breached its fiduciary duty. When sued, the board will quickly grasp the shield of the outside counsel’s letter and defend itself.

This is a case study – a learning moment – for how the board dynamic needs to change to embrace a culture of ethics and compliance. The board needed to investigate this matter further, demand that its legal staff provide information confirming the ownership of the companies given the corruption risks, and then make the proper decision. A proactive board would have avoided a mess and lead the company to reject the transaction.

Compliance 2.0 depends on a new dynamic in the corporate boardroom. When individual directors embrace a new mindset of proactive governance, premised on doing the right thing rather than finding a way to excuse doing the wrong thing, corporate culture, profitability and sustainability will succeed.