Daily Archives: Tuesday, February 2, 2021

OFAC Will See You Now

Posted by Amber Vitale and Eric J. Rudolph, FTI Consulting, on
Tuesday, February 2, 2021
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Amber Vitale is Managing Director and Eric J. Rudolph is Senior Director at FTI Consulting. This post is based on their FTI memorandum, and is part of the Delaware law series; links to other posts in the series are available here.

The September Memorandum of Understanding (MOU) entered into between the U.S. Office of Foreign Assets Control (OFAC) and the Delaware Department of Justice (DOJ) could be a game changer for both domestic and foreign corporations.

The MOU appears to be the first of its kind ever entered into between OFAC and a state law enforcement agency. (Previous OFAC MOUs concerned primarily federal and state banking and financial service regulators.) As such, it appears that OFAC and the State of Delaware are gearing up to increase scrutiny of entities registered in Delaware.

The Treasury Department’s press release regarding the MOU indicates several reasons for collaboration between OFAC and Delaware. They include improving transparency into corporate structures, promoting sharing of critical information, facilitating coordinated sanctions investigations, protecting national security, and disrupting illicit activity that is inconsistent with U.S. foreign policy (i.e.,“entities that should not be operating in the United States”). READ MORE »

Corporate Social Responsibility and Imperfect Regulatory Oversight: Theory and Evidence from Greenhouse Gas Emissions Disclosures

Posted by Jean-Etienne de Bettignies (Queen's University), Hua Fang Liu (Brandon University), and David T. Robinson (Duke University), on
Tuesday, February 2, 2021
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Jean-Etienne de Bettignies is Professor, and Distinguished Professor of Business Economics, at Queen’s University Smith School of Business; Hua Fang Liu Assistant Professor of Business Administration at Brandon University; and David T. Robinson is James and Gail Vander Weide Distinguished Professor at Duke University’s Fuqua School of Business. This post is based on their recent paper. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here);  For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).

September 2020 marked the 50th anniversary of Milton Friedman’s famous New York Times Magazine article, in which he summarized and expanded on an earlier argument that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game” (Milton Friedman, Capitalism and Freedom, p.133). This argument was controversial then and remains so today. In his view, it is the regulator’s job to ensure the appropriate behavior of profit-maximizing firms by setting proper rules and regulations, rather than firms’ responsibility to determine and implement their notion of socially responsible behavior. Implicit in this argument is the assumption that the government or regulatory body is able to ensure appropriate behavior by firms. But what happens if the regulator is unable to monitor firm behavior effectively? What if the regulator doesn’t know whether the firm is staying within the rules of the game?

To put the question slightly differently, would a self-interested, profit-maximizing entrepreneur ever find it optimal to engage in corporate social responsibility (CSR) when regulatory oversight was imperfect? More generally, how is the quality of oversight connected to the prevalence of CSR? How does this change how we view Friedman’s admonition?

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The 2021 Boardroom Agenda

Posted by Debbie McCormack and Robert Lamm, Deloitte LLP, on
Tuesday, February 2, 2021
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Debbie McCormack is a managing director and Robert Lamm is an independent senior advisor at the Center for Board Effectiveness, Deloitte LLP. This post is based on their Deloitte memorandum.

Introduction: A year of consequence

It seems likely that 2020 will be viewed as one of the most consequential years in recent memory. In addition to dealing with an ongoing global pandemic and the massive economic and social dislocations it caused, the United States has had to address natural disasters such as major hurricanes and wildfires, racial unrest, and a lengthy and challenging political campaign, among other things.

While the challenges of any year often influence boardroom agendas for the following year, the impact of 2020 on 2021 board agendas will almost certainly be extraordinary. At the same time, boards will need to deal with many perennial areas of board oversight, including strategy, financial reporting, compliance, and culture.

This post discusses some of the many issues, old and new, that boards will likely have to contend with in the coming year.

Risk: Crisis management, disruption, and business continuity

Crisis management, disruption, and business continuity have long been key elements of risk management and related board oversight. However, the meanings of these terms and the severity of the challenges they posed in 2020 entail a much broader range of considerations. For example, the issues contemplated by the term “crisis management” have often been short-term and/or relatively limited in scope, such as the sudden death or incapacity of an executive or damage to a production facility.

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