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« China Resources chairman fired in graft scandal | Main | Treasury may hit compliance officer with $5 million fine »
Monday
Apr212014

Mike Scher has his eyes on Delaware

A pending case -- largely ignored by the compliance profession and the press -- brings before the courts one of the most troubling issues of the Wal-Mart investigation: Was the Wal-Mart Board of Directors misled during 2005-2012 regarding an alleged Mexican bribery scheme and subsequent cover-up? If so, was that due to intentional misconduct by some directors or senior executives reporting to the Board who either participated in or knew about the purported scheme?

The case is: Wal-Mart Stores, Inc. v Indiana Electrical Workers, No. 779 CS, Delaware Chancery Court, on appeal to the Delaware Supreme Court, No. 614, 2013.

Wal-Mart and the individual defendants contend the Delaware action is without merit and fatally overbroad and should be dismissed. (To be clear, Wal-Mart and the individual officers have not been adjudicated liable, or settled any allegations of wrongdoing in this case, or before the DOJ or SEC, or in any other public forum. They are entitled to due process and the continuing presumption of innocence.)

A case like this puts the courts in a difficult position. On one hand, the laws appropriately create overwhelming support for the Board’s good-faith business judgments and its power to run the company without second-guessing or litigation threats. On the other hand, there have been rare cases when directors with actual knowledge misled the Board to avoid personal legal liability.

The Delaware Chancery Court is among the most respected courts in the world for business law and corporate governance. The fact-finding procedures for these cases are done in careful steps under special procedures. Delaware Chancery Judge Leo Strine (now elevated to the Delaware Supreme Court) made a preliminary ruling in October 2013 requiring Wal-Mart to disclose some of its books and records. Both sides have appealed to the Delaware Supreme Court, which will decide, among other issues, if Wal-Mart should release the files of the senior executives who briefed the directors, the Board’s Audit committee, and Maritza Munich, the much-discussed in-house counsel who resigned after the investigation was closed.

Oral argument on the appeal isn't scheduled but is expected to happen soon. I plan to attend and report on it.

To follow the case, you can use the Delaware Courts' online portal and set your Google news-feed for media reports.

Today I and many others are looking to the Delaware Court to sort out the facts and speak the truth, whatever it may be. Compliance officers, who are often thrust into a similar fact-finding, truth-telling role, can appreciate and value the challenges for the Court.

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Michael Scher is a contributing editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney for international transactions. He is affiliated with ethiXbase, the owner of the FCPA Blog. He can be contacted here.