I'm off tomorrow morning to the University of Delaware, where my friend and law school classmate Charles Elson heads the Weinberg Center for Corporate Governance at the Lerner College of Business and Economics. Elson and Professor April Klein of New York University are hosting a conference on “Corporate Governance and Managing Firm Risk” on October 1 & 2, 2009. It "will examine risk mitigation strategies and the causes of current financial crisis. The Conference features a keynote address by Professor Robert Engle, Nobel Laureate and Professor of Finance at New York University’s Stern School of Business."
The conference will also feature a presentation by yours truly based on my paper, Caremark and Enterprise Risk Management.
Abstract: The financial crisis of 2008 revealed serious and widespread risk management failures throughout the business community. Shareholder losses attributable to absent or poorly implemented risk management programs are enormous.
Efforts to hold corporate boards of directors accountable for these failures likely will focus on so-called Caremark claims. The Caremark decision asserted that a board of directors has a duty to ensure that appropriate "information and reporting systems" are in place to provide the board and top management with "timely and accurate information." Although post-Caremark opinions and commentary have focused on law compliance programs, risk management programs do not differ in kind from the types of conduct that traditionally have been at issue in Caremark-type litigation.
Risk management failures do differ in degree from law violations or accounting irregularities. In particular, risk taking and risk management are inextricably intertwined. Efforts to hold directors accountable for risk management failures thus threaten to morph into holding directors liable for bad business outcomes. Caremark claims premised on risk management failures thus uniquely implicate the concerns that animate the business judgment rule's prohibition of judicial review of business decisions. As Caremark is the most difficult theory of liability in corporate law, risk management is the most difficult variant of Caremark claims.
Vice Chancellor Leo Strine will be commenting on the paper. Should be an interesting discussion, especially since my paper argues Strine's decision in Guttman v Huang put this area of the law on the wrong footing.