THE BLOG
07/18/2011 10:03 am ET | Updated Sep 17, 2011

Directors Must Create Transnational Standards of Conduct

The recent suggestion that the alleged bribery of UK police officers by News of the World employees may violate the U.S. Foreign Corrupt Practices Act is another reminder to boards of directors to consider the potential global reach of U.S. legal standards. The technical term frequently used by courts applying U.S. statutes to actions that occurred outside the U.S. is "extraterritoriality." What happens outside of the U.S. may result in litigation in U.S. courts. While this brief discussion cannot adequately address this complex topic, it can remind business leaders to create governance and integrity standards with this potential issue in mind.

In 2010 the U.S. Supreme Court wrote an 8-0 decision, with Justice Sotomayor recusing herself, that affirmed the dismissal of a securities fraud suit based upon U.S. law that was brought to federal court by foreign investors. The opinion noted that "when a statute gives no clear indication of an extraterritorial application, it has none." As a broad generalization, one must look to the precise language of the U.S. statute or treaty to determine if it applies to events occurring outside the United States.

Overshadowed by the News of the World controversy, a divided U.S. Court of Appeals on July 8th reinstated a lawsuit against ExxonMobil based upon alleged actions by security forces in Indonesia. An appeal of this decision is likely. The Alien Tort Statute that was the focus of this decision allows U.S. courts to have jurisdiction in civil suits based upon injuries allegedly inflicted in violation of the law of nations or a treaty of the United States. This type case has foreign policy and international relations implications that go beyond the extraterritoriality of a particular U.S. statute and involves another form of transnational legal standard.

U.S.-based boards of directors must create and enforce codes of conduct that not only apply to actions occurring within the United States but that also are appropriate in an international business environment. This requires some insight into universal norms of appropriate conduct as well as the letter of U.S. law. Some forethought may prevent not only the occurrence of tragic events but also resulting reputational damage. While not an easy task, directors must create and enforce transnational standards of integrity when conducting business.