What role do corporate boards play in compliance? This paper seeks to assess public companies’ engagement with compliance at the Director and board level. While corporate enforcement and compliance failures could not be more high-profile, and they have placed the board in the position of responding to systemic problems, very little empirical literature exists on the role of boards in compliance. We present empirical evidence describing the use of corporate prosecution agreements to mandate a board-level role in compliance. We then analyze the pattern of adoption and the role of board compliance committees in U.S. public companies. We explore competing hypotheses concerning the extent of companies’ engagement with compliance. The insurance hypothesis suggests companies are motivated to engage with compliance by the prospect of more favorable treatment should they be targeted by prosecuting authorities. The governance hypothesis suggests that corporate engagement with compliance is affected by firm-level governance attributes, including board structure and director compensation. To shed light on these hypotheses, we explore the relationships between corporate engagement with compliance (proxied by the creation of compliance committees) and, on the one hand, firm-specific governance, and on the other, exogenous enforcement intensity. We conclude that despite a standard account that compliance has boomed in response to enforcement, particularly criminal enforcement, even in areas of aggressive enforcement, boards do not typically adopt compliance committees. Given the failure of a deterrent “stick” to promote a formal board role in compliance, we conclude by examining alternative proposals for how boards can be more centrally involved in compliance.

Paper available at www.law.ox.ac.uk/events/board-compliance