Academic

Oversight

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

Oversight's one of those English words that can mean close to its opposite (see also: sanction). Indeed, the general public probably thinks of it as a little mistake: "Sorry, that was an oversight on my part."

In corporate law, oversight means directors' duty of oversight, that is, overseeing the company. Today in Corporations we covered Caremark, the main Delaware case on oversight. As I told my students, the duty of oversight increased in importance with SOX and its emphasis on internal controls. But Larry Ribstein thinks "Enron redux" shows us SOX's internal controls aren't worth squat.

I have to admit, I wasn't sure what to tell my class about how the AIG, Lehman, Frannie, and Wachovia (I know, they're not all Delaware companies) boards have discharged their oversight duty. Of course, we don't have all the facts yet. But Chancellor Allen says that "only a sustained or systematic failure of the board to exercise oversight demonstrates the lack of good faith necessary to establish liability."

Which kind of oversight do we have here? I suspect that the courts won't get a chance to give us an answer to that question.

Full post as published by Conglomerate on October 08, 2008 (boomark / email).