When Does Board Oversight Become Bad Faith? (Part 1)

Hiring someone to investigate misconduct isn’t always going to save your board. The line between bad management and bad faith just got real.

Here’s a question every board member should be losing sleep over: when does a board’s failure to catch corporate misconduct cross the line from bad management into an actual breach of fiduciary duty?

Delaware just gave us two new answers, and they cut in different directions.

First, Teligent, a pharma company, an FDA compliance meltdown, and a court that let claims proceed against directors and two officers because the complaint showed information and mounting regulatory problems never made it to the people who could act on it.

Second, Regions Financial case. A whistleblower sent the board a complaint about allegedly illegal overdraft fee practices back in 2019.

The board hired an investigator. Good so far, but the company didn’t stop the practices until 2021, and a $191 million CFPB consent order was imposed.

Delaware let the claims proceed here too.

Here’s the lesson from both: escalation isn’t enough. Investigating isn’t enough. The board has to actually understand what it found and actually fix it.

Stay tuned. Tomorrow I’ll tell you about the case that shows the other side of this coin.

The Ethics and Compliance Q and A show is produced by One Stone Creative.