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Failure Is an Option

Spring 2019 - Ethical Boardroom
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Not a year has gone by in recent memory without a major corporate scandal being prominently featured by the world’s leading media outlets. No matter the era, companies once touted as darlings reliably stumble every year, often mightily and very publicly.

Most recently, organisations have been criticised for sexual harassment abuses by key executives that have gone either undetected or unpunished, false claims about the development and commercialisation of their company’s products, illegal consumer practices, and many more.

In the United States, under applicable state corporate law, the board of directors is charged with managing the business and affairs of the corporation. Given this responsibility, the media often turns a spotlight on the board when something unfavourable unfolds – examining the board’s actions with exacting scrutiny and applying a standard of review that appears more rigorous than the applicable legal standard. The media and countless others undoubtedly claim that the board was at fault or that the time-tested corporate governance legal framework is failing. Instead of analysing the myriad corporations where the current framework is helping corporations create value and thrive, some commentators inevitably call for an enhanced governance paradigm and increased regulation.

Whether boards, practically speaking, can actually ever fulfil what has become the high standard of absolute accountability is ripe for review. Whether this enhanced standard is actually good for business is another question that deserves analysis.

This article will compare the US legal standard applicable to boards of directors and contrast it with the standard that the press and others often apply to boards. The article will argue that the legal framework in the US is appropriate in providing protections to shareholders and will share lessons boards can learn from the current environment to better protect themselves from a reputational standpoint.

Read the article here.

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