Director Essentials

Ethics and Compliance Oversight

By NACD Staff

05/23/2025

Ethics, compliance, and success are inextricably linked in a business environment where corporate misconduct is exposed instantaneously, regulations are enforced globally, and stakeholders invest selectively.

Over the past five decades, new laws and regulations aimed at mitigating potential harm to stakeholders have established a clear mandate for corporate boards to actively oversee their companies’ programs for ethics and compliance (also referred to as “compliance and ethics”). A line of legal cases stemming from the 1996 Caremark decision has carried forward the concept that boards may be held liable if they fail to ensure the existence of adequate reporting systems for compliance or ignore such systems once they are established. While most Caremark plaintiffs fail to achieve victory in court, some do succeed in obtaining settlements, as occurred in the case of In re Boeing Derivative Litigation (2021).

The benefits of an effective ethics and compliance system go beyond mere avoidance of legal challenges. Boards that prioritize oversight of how the company operationalizes its ethical principles help position the company for success. An ethical tone at the top—which begins with the board’s own culture—can strengthen the entire culture of a company, impacting everything from the mission it follows to the people it hires and promotes, leading to improved operations as well as enhanced reputation and stakeholder trust.

Thank you for your interest in this page.

Member-Only Content

For full access, please log in, or explore membership options.