DISPATCHES FROM THE ETHICS ECONOMY
The 'Why' of Board Involvement

by Erica Salmon Byrne, Ethisphere

_{FALL 2024 |}_DISPATCHES

The ‘Why’ of Board Involvement

Erica Salmon Byrne | Chief Strategy Office & Executive Chair, Ethisphere

At the end of September, the Department of Justice updated its Evaluation of Corporate Compliance Programs (ECCP) guidance, which included some impactful language on the role a board of directors has to play in maintaining, promoting, and advancing the health of an organization’s ethics and compliance function.

Most notably, the ECCP update stresses the responsibility that the board (along with the C-Suite) has for establishing and practicing the ethical standards of the organization. It also notes that the board should have a certain degree of compliance expertise, as well as a direct line of contact with Ethics & Compliance.

Not all of this is new, but the degree to which the ECCP stresses its importance, is.

Updates like this reflect some of the more important DOJ rulings in the months leading up to it. Over the course of the last quarter or so, there have been a lot of them. And they all help explain the why behind the DOJ’s updated language.

Take, for example, TD Bank’s historic anti-money laundering failure, in which it intentionally failed to monitor $18.3 trillion of transactions from 2018 to 2024, allowing drug cartels to move some $670 million through the bank. TD Bank will pay some $3 billion in fines and penalties, but its board has serious questions to answer around its outgoing CEO and his replacement, both of whom were at the bank when all of this happened. Who was setting the tone for ethical behavior? Apparently, no one.

Around the same time, the Federal Trade Commission—which shares certain jurisdictions with the DOJ—approved Chevron’s $53 billion acquisition of Hess but barred Hess CEO John Hess from joining the Chevron board. This follows a similar ruling in May, when the FTC okayed Exxon’s $64.5 billion acquisition of Pioneer Natural Resources but barred Pioneer CEO Scott Sheffield from joining Exxon’s board. In both cases, the FTC cited a potential collusion risk between those CEOs and OPEC officials. This, too, informs the ECCP’s expectation that boards lead by example when it comes to ethics.

And finally, In March, the DOJ announced that its ongoing enforcement of Section 8 of the Clayton Act—which prohibits directors from serving simultaneously on the boards of competing companies—led to 10 companies unwinding interlocking directorships from (or in one case, declining to appoint a director to) their boards.

Combined with its 2022 enforcement efforts, the DOJ has forced the unwinding of at least 13 directors from 10 boards. The ECCP update contained more extensive language revisions than a lot of people expected. But this is just a piece of a larger effort to raise the expectations for boards to act as both an originator of ethical culture, and a firewall against misconduct.

The DOJ never does anything in a vacuum, and when we look at these historic actions from earlier in the year, we can better understand why the DOJ is using the language it is using. We all know that a strong, independent board that takes an active role in setting business integrity expectations and holding senior leadership accountable for it is a good idea. Thanks to the latest ECCP language, we have a clearer idea why. ■

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Listen to Erica on Ethicast

The ECCP update contained more extensive language revisions than a lot of people expected. But this is just a piece of a larger effort to raise the expectations for boards to act as both an originator of ethical culture, and a firewall against misconduct.

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