A story in today’s Wall Street Journal (sub. req.) about the continuing troubles at Bristol-Myers raises troubling questions about the government’s use of strong-arm tactics to extract corporate governance and other concessions from firms under threat of litigation-induced firm death.
In the aftermath of the demise of Arthur Andersen, firms are especially leery about the possibility of being indicted. As the Andersen case makes clear, the risk from indictment is enormous, and even exoneration by the Supreme Court isn’t enough to bring back the dead. It was in the wake of Andersen that the US Attorney’s Office for the District of New Jersey negotiated a so-called “deferred prosecution agreement” (DPA) with Bristol-Myers to settle allegations that the firm engaged in deceptive inventory practices to meet quarterly earnings estimates. DPAs, which are adapted to the corporate crime context from the pre-trial diversion programs used to monitor juvenile and drug offenders, have been used in 43 corporate crime and fraud cases since 1993. These agreements raise issues about privilege waiver and corporate versus individual accountability, but the Bristol-Myers case highlights the danger of governance reform aspects of these agreements.
In over half of the DPAs to date, the government has required that the firm under investigation agree to install a government-appointed “monitor” to oversee the board and other aspects of the firm, and has required substantive changes to firm governance, such as appointing new directors or putting in place internal control systems or personnel. In the Bristol-Myers DPA, the parties agreed to split the role of Chair and CEO, and have a former federal judge, Frederick Lacey, effectively monitor the board and the firm’s compliance with the DPA and general norms of good governance.
See full Article.
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