Caremark and Compliance: A Twenty Year Lookback
15 Pages Posted: 12 Mar 2018
Date Written: 2018
In nearly all narratives of how compliance has grown as a legal subject and field of practice in the last two decades, the Delaware Chancery Court’s decision in In re Caremark plays a featured role. There is a lively academic debate, however, over whether Caremark’s causal impact on the unmistakable growth curve of compliance has been overstated. After all, the holding in the decision (approving a de minimis settlement) was that the standard for holding directors of Delaware corporations liable for monetary damages under a test requiring “sustained and systematic indifference” to compliance oversight would be exceedingly hard to prove. Plus federal law had already been trending strongly in the direction of a robust corporate compliance obligation in many disparate fields of regulation. This brief commentary takes a look back at Caremark on three questions that pertain to its contemporary relevance inside the boardroom: (1) framing the cost-benefit assessment on the question of how much to spend on compliance; (2) forcing certain compliance matters to real-time board-level attention; and (3) using selection, promotion and compensation decisions to influence the culture and risk-taking “temperature” of the firm.
Keywords: compliance, corporate crime, boards of directors
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