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Walmart decision in Delaware could reset compliance roles

The Delaware Supreme Court will hear oral arguments on July 10 for the Walmart case that I discussed in a recent post on the FCPA Blog. The issue is whether the Walmart board, or certain directors, knew about the alleged bribery and cover up from 2006 until 2012. The court will decide what files should be disclosed or if the case should be dismissed.   

Among the files under review are some from directors, the audit committee, and Maritza Munich, the Walmart attorney and compliance officer I’ve written about who resigned when the investigation into alleged bribery in Mexico was abruptly terminated.
The plaintiffs in the case — investors in Walmart stock — have alleged that directors engaged in illegal self-dealing to avoid liability, effectively misleading the board, and that the board failed to fulfill its duties of investigation and oversight.

Among other defenses, Walmart contends the case is without merit and is fatally overbroad. The company and its officers have not admitted or been found liable for any violations, and are entitled to due process with the continuing presumption of innocence.
What happened at the board level is still largely a black box, even three years after the start of the internal and outside investigations. Neither Walmart nor the DOJ and SEC have placed in the public record any board-related findings from their investigations.
However, internal Walmart emails released by a Congressional Committee and extensive reports by the New York Times suggest that some senior executives with knowledge of the alleged bribery served on or reported to the board. The questions that hang over Walmart is whether there was a cover up, who was involved and when, and how did it escape the board’s notice for at least four years?
The Delaware Supreme Court’s rulings in business matters are influential for courts around the world. What the court decides in the Walmart case will impact how effectively boards and compliance officers work together and do their jobs. For example, the case is likely to influence what happens when compliance officers bring to a board red flags of C-Suite misconduct — a frequent occurrence in headline cases per the RAND study.

Just when is a board obligated to support a compliance-related investigation? Michael Volkov, a former top ranking DOJ prosecutor and leading compliance expert, recently suggested that the Delaware Court’s famous  Caremark guidelines for board oversight of compliance are out of date and should be clarified, especially given new compliance systems that include direct reporting to boards. We could see that update happen through the Delaware Supreme Court’s decision in the Walmart case. 

The case is: Wal-Mart Stores, Inc. v Indiana Electrical Workers, No. 779 CS, Delaware Chancery Court, on appeal to the Delaware Supreme Court, No. 614, 2013.

The oral argument will be at 11 AM on Thursday, July 10 in Wilmington, Delaware. It’s open to the public and I’ll be there.


Michael Scher is a contributing editor of the FCPA Blog. He has over three decades of experience as a senior compliance officer and attorney for international transactions. He can be contacted here.

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