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39 Wake Forest L. Rev. 691 (2004)
In Re Caremark: Good Intentions, Unintended Consequences

handle is hein.journals/wflr39 and id is 701 raw text is: IN RE CAREMARK: GOOD INTENTIONS,
Charles M. Elson*
Christopher J. Gyves**
The board of directors' role in ensuring corporate compliance
with applicable law has expanded significantly in the last several
years. Under the historic notion of the board of a large enterprise as
merely a policy-making entity, as suggested by the Delaware
Supreme Court in its now infamous 1963 ruling Graham v. Allis-
Chalmers Manufacturing Co.,' the board traditionally had no legal
duty to enact a legal compliance program in the absence of certain
illegality  warning   signs.    Today,   however,   the   board's
responsibilities in this respect are viewed entirely differently. With
the creation of the Federal Organizational Sentencing Guidelines
(Guidelines), which impose more lenient treatment on companies
having compliance manuals and programs, and, more importantly,
the  Delaware   Chancery   Court's ruling   in  In  re  Caremark
International Derivative Litigation,2 which imposed an affirmative
duty on a board to create some kind of compliance mechanism,
boards that fail to    establish  effective corporate compliance
procedures may face substantial liability. Boards must now act
prophylactically to ensure corporate legal probity.
Following the recent adoption of amendments to the Guidelines,
with their increased emphasis on compliance procedures, it is now a
good time to re-examine the theory behind Caremark and its
resulting impact on corporate behavior. Despite sound and lofty
intentions, the consequences of Caremark have been disappointing.
Rather than    creating  more appropriate behavior throughout
corporate America, instead, as the corporate scandals of the last
* Edgar S. Woolard, Jr. Chair in Corporate Governance and Director of
the John L. Weinberg Center for Corporate Governance, University of
** Associate, Corporate & Securities Group of the law firm Womble,
Carlyle, Sandridge & Rice, P.L.L.C.
1. 188 A.2d 125 (Del. 1963).
2. 698 A.2d 959 (Del. Ch. 1996).

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