Organizational Resilience Standards and Stone v. Ritter: Is There Be A Connection?

Michael D. Moberly   July 22, 2010

In Stone v. Ritter (as they did in In Re Caremark and In Re Disney) Delaware courts brought attention to board and director oversight of regulatory compliance programs and company assets by stating…

 ‘boards must be kept apprised of and receive accurate information, in a timely manner, that’s sufficient to allow them and senior management to reach informed judgments about the company’s business performance and compliance with the laws…’ 

Some court decisions can be precedent setting with the arguments presented by the winning side replicated in the form of framing points for (oral, written) arguments in future (similar) cases.  The prevailing arguments in Stone v. Ritter being no exception, I presume will be replicated in other cases in which board-director fiduciary responsibility (liability) is at issue, e.g., assessing the effectiveness of board and director efforts relative to ensuring their company is compliant with certain regulatory mandates and how personally engaged they are in the oversight (stewardship, management) of their company’s compliance program.

A close and admittedly desirous reading of the Stone v. Ritter decision suggests the ruling may go a long way toward eliminating some of the ambiguities associated with board and director fiduciary responsibilities and liability by bringing clarity to what actually constitutes ‘board oversight’ of a company’s assets which presumably include, both the tangible and intangible variety.

It’s certainly not a stretch then, at least in my view, in light of the collective and recent mishaps of BP, Massey Coal, Toyota, Johnson and Johnson, etc., and the on-going legal wranglings, to anticipate that the Stone v Ritter decision is being closely reviewed with the not so improbable possibility that new litigation will be framed to extend Stone v Ritter concepts to now encompass the newly adopted ASIS/ANSI American National Standard on Organizational Resilience.  

It’s just not out of the real of possibilities to see litigation being brought by stakeholders, in fact they may be remiss if they did not do so, arguing board fiduciary responsibilities should now encompass the highly proactive  ‘organizational resilience’ practices as detailed in the ASIS/ANSI Standard.  That is, in lieu of putting more lipstick on existing business continuity and contingency approaches which remain largely reactive. 

My views are that the prudent ‘best practice’ norm for companies now, and for the foreseeable future, lie in organizational resilience programs that systematically identify and actively manage risks that can potentially hinder the achievement of a companies mission which are broadly congruent with the best interests of the public, should adverse events and/or circumstances materialize.

(Thanks to the work of Rebecca Walker in her paper titled ‘Board Oversight of a Compliance Program: The Implications of Stone v. Ritter’ for some additional insight.)

 The ‘Business IP and Intangible Asset Blog’ is researched, written, and produced by Mr. Moberly to provide insights and additional and sometimes alternative views for company management teams, boards, and employees to aid in identifying, assessing, valuing, protecting, and profiting from their intangible assets.  I welcome and respect your comments and perspectives at [email protected].

 

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