Board Compliance

58 Pages Posted: 30 Jun 2018 Last revised: 5 Apr 2019

See all articles by John Armour

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Brandon L. Garrett

Duke University School of Law

Jeffrey N. Gordon

Columbia Law School; European Corporate Governance Institute (ECGI)

Geeyoung Min

Columbia Law School

Date Written: April 3, 2019

Abstract

What role do corporate boards play in compliance? Compliance programs are internal enforcement programs, whereby firms train, monitor and discipline employees with respect to applicable laws and regulation. Corporate enforcement and compliance failures could not be more high-profile, and have placed boards in the position of responding to systemic problems. Both case law on boards’ fiduciary duties and guidance from prosecutors suggest that the board should have a continuing role in overseeing compliance activity. Yet very little is actually known about the role of boards in compliance. This paper offers the first empirical account of public companies’ engagement with compliance at the board level, drawing on director-level data from BoardEx and data on federal organizational prosecutions from the Duke University and University of Virginia Corporate Prosecution Registry. We find that, despite a standard account that compliance has boomed, few boards actually adopt compliance committees. Less than five per cent of U.S. public companies have done so, although the proportion has grown steadily over time. We use our data to explore why boards establish compliance committees. Our results suggest that there is room for more constructive engagement with compliance by many boards. We conclude by recommending ways in which board compliance might be facilitated or encouraged: reconsidering norms about board size and independence, enhancing accountability of directors to regulators, and tightening state law fiduciary duties regarding oversight.

Keywords: corporate law, compliance, corporate governance, compliance committees

JEL Classification: G32, K22

Suggested Citation

Armour, John and Garrett, Brandon L. and Gordon, Jeffrey N. and Min, Geeyoung, Board Compliance (April 3, 2019). Minnesota Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3205600

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom
+44 1865 281616 (Phone)

HOME PAGE: http://www.law.ox.ac.uk/people/john-armour

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

HOME PAGE: http://www.sbs.ox.ac.uk/about-us/people/john-armour

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Brandon L. Garrett

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7090 (Phone)

HOME PAGE: http://www.brandonlgarrett.com/

Jeffrey N. Gordon

Columbia Law School ( email )

435 West 116th Street
Ctr. for Law and Economic Studies
New York, NY 10027
United States
212-854-2316 (Phone)
212-854-7946 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Geeyoung Min

Columbia Law School ( email )

435 West 116th Street
New York, NY 10027
United States

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