Following on the Foreign Corrupt Practices Act: The Dynamic Shareholder Derivative Suit
Corporations that have allegedly violated the Foreign Corrupt Practices Act (FCPA) increasingly face a new threat of liability: cases brought by private plaintiffs in follow-on derivative suits. These derivative suits for breaches of fiduciary duty focus on whether directors provided the necessary oversight through compliance systems designed to detect and prevent FCPA violations. The demand requirement, a procedural hurdle of derivative suits, has stymied plaintiffs that are unable to show that directors cannot disinterestedly assess whether to pursue a claim for violations. This Note proposes a framework that systematizes the factual scenarios under which the demand requirement could be excused. Using other instances of regulatory violations as a lens, courts can infer that directors knew of FCPA violations based on patterns of bribes and the importance of bribery to the overall business of the corporation. Only plaintiffs that have utilized procedural devices to inspect corporate books and records, however, can expect courts to reach this inference of director knowledge. Despite being much maligned, the follow-on derivative suit may actually clarify the duties of directors in FCPA compliance and advance the corporate governance reforms of corporations, separately from the deterrent effect of government enforcement.
Following on the Foreign Corrupt Practices Act: The Dynamic Shareholder Derivative Suit ,
63 Duke Law Journal
Available at: https://scholarship.law.duke.edu/dlj/vol63/iss1/4