Michael D. Moberly January 11, 2011
In Stone v. Ritter (but also, In Re Caremark and In Re Disney) Delaware courts drew attention to board/director oversight (management, stewardship) of compliance programs and company assets.
As we know, court decisions carry the potential to serve as favorable precedents as well as a basis for framing litigation arguments. The courts’ opinion in Stone v. Ritter truly carries such potential, particularly when board/director liability is at issue relative to the effectiveness, and even perhaps questioning the depth (comprehensiveness) in the oversight (stewardship, management) of a company’s compliance programs.
An inference I drew from reading the court’s decision (Stone v. Ritter) and Rebecca Walker’s fine paper titled ’Board Oversight of a Compliance Program: The implications of Stone v. Ritter’, is that the decision will come to be viewed (applied) not so much for its specific focus on board oversight of compliance programs per se, as it will for bringing much needed clarity to what actually constitutes ‘board oversight’ of a company’s assets, and by extension, its intangible assets!
And, when 65+% of most company’s sources of revenue, value, and building blocks for future growth and sustainability lie in – are directly related to intangible assets, bringing operational clarity to this increasingly critical and valuable asset class, is certainly a good thing! Particularly when the elements as outlined below will not likely be overlooked by an opposing litigator.
Integral to Stone v Ritter of course is enterprise risk management (ERM) and being ’proactively defensive’ against (company) risks. Therefore, company management/leadership teams, legal counsel, and boards/directors in general, would be well served by becoming familiar with these elements to position themselves to more effectively accommodate a boards’ now fiduciary duties, i.e.,
’…ensuring the board is kept apprised of – receives accurate information in a timely manner that’s sufficient to allow it and senior management to reach informed judgments about the company’s business performance and compliance with the laws…’
This will be achieved by expanding the type, quality and timeliness of information that boards receive by:
- scheduling meetings with members of the management team to inquire about:
- how the company’s (internal, external) reporting system is structured
- the company’s investigation policies relative to suspected incidences of (internal, external) misconduc
- employee perceptions of the company’s reporting – compliance – audit programs, and sufficiency of employee training in this arena.
- structuring the company’s reporting (compliance) programs to include sufficient resources and authority for effective execution.
- examining the manner in which the company actually conducts risk assessments, prioritizes its risks, and actually addresses (prevents, mitigates) those risks.
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