There’s a must-read post today on Kevin LaCroix’s D&O Diary.
In a decision this month from the Delaware Court of Chancery involving Puda Coal, a Delaware corporation with most of its operations in China, Chancellor Leo E. Strine, Jr. outlined independent directors’ duties that, as LaCroix said, ‘could include heightened responsibilities and even heightened liability exposures that may come as a surprise to some outside directors.’
The derivative suit concerned corporate ownership of certain foreign assets.
But Strine’s remarks during a hearing about the duties of independent directors could apply to the control and use of overseas assets to bribe foreign officials.
If you’re going to have a company domiciled for purposes of its relations with investors in Delaware and the assets and operations of the company are situated in China that, in order for you to meet your obligation of good faith, you better have your physical body in China an awful lot. You better have in place a system of controls to make sure that you know that you actually own the assets. You better have the language skills to navigate the environment in which the company is operating. You better have retained accountants and lawyers who are fit to the task of maintaining a system of controls over a public company
As LaCroix said, ‘Chancellor Strine articulates a very broad vision of independent directors’ oversight responsibilities for Delaware companies’ foreign operations or assets.’
‘Strine’s expectation,’ LaCroix said, ‘that outside directors must be both regularly physically present and culturally literate in the each of the locations of the company’s overseas operations may represent a vision of board responsibility that likely would exceed the expectations of many company directors.’