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Article

Abstract

Could corporate directors and officers face criminal liability for actions that ostensibly comport with common law fiduciary duties? Answering this rather odd question has gained paramount importance following the United States Justice Department’s recent promulgation of aggressive new prosecution policies targeting individual officers and directors responsible for major corporate misconduct. In September 2015, former Deputy Attorney General Sally Yates disseminated an official policy memorandum entitled, Individual Accountability for Corporate Wrongdoing. The Yates Memo instructs federal prosecutors to ferret out and punish individual executives, officers, and board members who commit crimes on behalf of the corporation. The recent indictment of several Volkswagen executives connected with the auto emissions defeat device scandal represents a prominent example of the new prosecutorial philosophy.

The shift in prosecutorial focus by the DOJ pursuant to the Yates Memo has created a substantial jurisprudential rift between federal standards for criminal prosecution of corporate agents and common law standards for fulfilling the fiduciary duties of officers and directors. Prior to this new, zealous prosecution program, the common law presumption embodied in the “business judgment rule” regularly shielded directors and officers from liability for lax oversight practices, even with criminal activity running rampant throughout the corporation. Under the guidance of the Yates Memo, however, the government now holds directors and officers to higher standards of oversight than the common law requires. The implications of this jurisprudential rift between federal prosecutorial and common law fiduciary standards are incredibly important. At the outset, the common law standards surrounding the business judgment rule no longer provide sufficient guidance for avoiding civil or criminal liability. In addition, were a director or officer to face criminal sanctions for failed oversight, the very existence of criminal liability would likely result in an exception to the business judgment rule’s application. As a result, what might have been a minimally compliant oversight system under the common law becomes actionable. Such bizarre circularity makes the common law jurisprudentially schizophrenic. To the extent common law duties fail to align with federal standards, fiduciary duties regarding corporate compliance risk becoming unworkable and ultimately irrelevant. This Article argues that redirecting common law fiduciary duties to follow federal prosecution standards will better ensure corporate accountability, reduce acts of corporate misconduct, and promote trust in the capital markets.

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