The Intersection of Directors’ and Officers’ Liability and Corrupt of Foreign Public Officials

January 11, 2018 | smeditor

The Intersection of Directors’ and Officers’ Liability and Corrupt of Foreign Public Officials
Though still not a lot of action on the front lines of Canada’s CFPOA (Corruption of Foreign Public Officials Act, here for Act, here for explanation), there was a significant decision released by the Delaware Supreme Court yesterday which directly connects the FCPA (Foreign Corrupt Practices Act, here) with D&O (Directors’ and Officers’ Liability.) In Wal-Mart Stores, Inc. v Indiana Electrical Workers the pension funds (the plaintiffs include many of the heavy weights) said they needed Walmart’s files and documents related to Walmart’s internal FCPA investigation in order to determine if Walmart’s board of directors breached their fiduciary duty to shareholders in their civil lawsuit.

Walmart’s assertion of attorney-client privilege didn’t hold up, and the court said litigation privilege won’t shield files from a breach of fiduciary duty case. Also important was the court saying that any “reporting relationship” with members of the board makes such communication relevant and not just official board minutes. The FCPABLOG, here, has been writing extensively on the case and provides great detail on the subject.

No doubt this decision will be appealed again, and will likely go quiet before any decision thanks to a settlement in the civil case that, based on this decision, will now be significantly more profitable for the plaintiff’s securities lawyers.

There is no direct connection to Canada, but Canadian directors, executives and compliance professionals need to be aware of the  waning appetite of the courts and the public for corporate corruption and there excuse that bribery is ‘just a necessary part of doing business in foreign jurisdictions.’ They also have to be aware of the significant risk of ‘follow-on’ or ‘post-investigation’ civil lawsuits from the publication of any investigation by any regulator in any country. Kevin LaCroix of THE D&O DIARY, here, wrote a great piece on this subject, here.  And now, thanks to the Walmart decision above, there is an increased risk that these directors will suffer personal loss based on allegations they ignored red flags.

The changes to the compliance and ethics standards of corporations have been substantial since Walmart “voluntarily self-reported a potential FCPA violation to the SEC.” This case could now become the baseline for board action when there is a showdown between the C-Suite and compliance and risk management staff. Most recommendations by think tanks and even by regulators are commonly ignored by many corporations, but new legal precedent and large financial loss involving major corporate brands can motivate change. The RAND Corporation 2013 symposium, “Culture, Compliance and the C-Suite: How Executives, Boards and Policy-Makers Can Better Safeguard Against Misconduct at the Top”, here, discussed many of these issues, and the Walmart case might just speed up their adoption.

The Insurance Spin comes back to the D&O policy and the important of determining the priorities for coverage under this policy. Many D&O policies are significantly exposed to separate loss of the corporate entity. There is only one limit of liability available to each and every Insured for each and every loss in the policy period, and there is no guarantee a renewal policy will be available for future (unrelated) loss. Therefore the limit of liability must be adequate for significant loss. The more the policy is exposed to separate loss of the corporate entity, or to many groups of Insured Persons, the more difficult it is to determine if the limit will be adequate under the policy. The best question for your Insurance broker is to ask them to identify all areas were the policy is exposed to the corporate entity and loosely related insureds, in order to start the discussion of priorities of coverage and adequacy of limit.

Greg Shields is a D&O, Professional Liability, EPL and Crime insurance specialist and a Partner working at the University and Dundas (Toronto) branch of Mitchell Sandham Insurance Services. He can be reached at,  416 862-5626, or Skype at risk.first. And more details of risk and loss control can be found on the Mitchell Sandham blog at

CAUTION: This article does not constitute a legal opinion or insurance advice and must not be construed as such. It is important to always consult a registered and truly independent insurance broker and a lawyer who is a member of the Bar or Law Society of the relevant jurisdiction with regard to this material before making any insurance or legal decisions. All material is copyrighted by Mitchell Sandham Inc. and may not be reproduced in any form for commercial purposes without the express written consent of Mitchell Sandham Inc. Anyone seeking to link this document from any external website must receive the consent of Mitchell Sandham Inc. by sending an e-mail to

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