On 19 July, Halliburton settled a shareholder derivative action
which had been filed in a state district court in Harris County,
Texas, three years ago. The action accused Halliburton board
members of facilitating activities violating the Foreign Corrupt
Practices Act, such as a bribery scheme in Nigeria, receipt of
kickbacks in relation to government contracts and conducting
illegal business in Iran. The action further alleged that this
misconduct occurred because of a systemic lack or failure of
internal controls at Halliburton.
Notably, under the settlement, approved by Judge Josefina
Rendon, Halliburton is not required to pay damages; rather, the
company agreed to implement changes to corporate governance and
internal control. These changes include a number of terms
concerning the compensation for officers and directors,
improvements of the company's compliance programme and the
strengthening of the role of board members.
Among the terms of the settlement are clawback provisions for
the recovery of incentive compensation, both monetary and
non-monetary. The provisions apply to officers or directors found
to have participated in illegal activities or have permitted
employees over whom they had supervisory responsibility to do
Halliburton also agreed under the settlement to enhance the role
of its audit committee in assisting board oversight of
Halliburton's risk management activities by holding regular
meetings regarding risk management issues and keeping it aware of
significant risks. The audit committee will also be required to
communicate regular risk management reports to the board and timely
disclose illegal activities to the Securities and Exchange
As part of the compliance-related improvements, Halliburton
agreed to enhance its compliance training. Halliburton will be
required to train annually, face-to-face or online, employees
working in high-risk countries who have a job descriptions
associated with business development or procurement activities.
The settlement further stipulates that Halliburton will rewrite
its code of business conduct (COBC) in a common language so that it
can be understood by a layperson. Halliburton also agreed to
clearly state in its COBC that foreign bribery and kickbacks are
prohibited and that Halliburton will not use agents recommended by
foreign governmental officials without conducting appropriate due
In addition, the revised version of Halliburton's COBC will
incorporate provisions to comply with the UK Bribery Act (the Act).
In particular, individuals and entities covered by the Act will be
prohibited from engaging in bribery in all commercial transactions
(irrespective of whether the bribe is paid to government officials)
and facilitation payments paid to foreign officials to expedite
functions they would normally do anyway, such as clearing goods
The terms of the settlement also specified communication
requirements. Halliburton must publish newsletters, email updates
and intranet postings, authored by or attributed to senior
managers, which address compliance, control or ethical issues at
least six times per year. Moreover, Halliburton agreed to strive to
maintain a ratio of one audit services position for every 5,000
employees and not to allow an individual involved in the
company's audit to become Chief Financial Officer for a certain
period of time.
The settlement was a beneficial outcome for both sides: for the
plaintiffs as they faced difficulties in proving liability of the
accused director for the illegal activities, and for Halliburton as
it avoided paying damages. It shows that judges are willing to
employ means other than the payment of damages as a form of redress
for such claims.
The terms of the settlement give specific guidance on good
corporate governance and illustrate ways of incorporating
international anti-corruption standards. It may well be the case
that some of these terms will become standard provisions in COBC of
companies in future. Objections to the settlement may be submitted
by 17 August 2012.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
The Chief Counsel of the SEC’s Division of Trading and Markets recently addressed the ABA’s membership at its annual meeting, and commented on the need to consider closely whether certain private funds, finders and other intermediaries should register as broker-dealers.
A discussion on determining whether a bidder is "serious" in its pursuit of the target is a key factor in analyzing a target director’s liability for "bad faith" in the context of a merger and acquisition sales process under Delaware law.