THE CONFLUENCE OF CURRENT corporate scandals and the recently concluded Olympic Games evokes a famous Greek maxim: “Know thyself.” It is attributed to a number of ancient philosophers, including Socrates, who uttered a further elaboration: “The unexamined life is not worth living.”

In the 21st Century, “Know thyself” could be considered a gateway philosophy of good corporate governance. Indeed, several initiatives at the federal level involving director conduct have triggered wholesale changes in the nature and intensity of independent board monitoring of corporate affairs. Now, more than ever, directors must be extraordinarily vigilant in overseeing corporate operations and management.

Now and then, due diligence in oversight may require directors to conduct an independent investigation into apparent wrongdoing. These internal investigations, together with meaningful corporate regulatory compliance programs, can considerably improve the position of a company if key officers or the corporation itself faces criminal prosecution or civil claims.

When deciding to charge a business or an executive with a crime, federal prosecutors are supposed to consider, among other factors, the existence and effectiveness of a corporate compliance program. If a program is “adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees” and has been implemented by management, the chances of prosecution are reduced, according to a memorandum from former Deputy Attorney General Larry Thompson. Federal Prosecutions of Business Organizations, January 20, 2003. [Visit www.usdoj.gov/usao/eousa/foia_reading_room/usam/title9/crm00162.htm]

While acknowledging that “no compliance program can ever prevent all criminal activity by a corporation's employees,” the memorandum lists several attributes of a meaningful compliance program that implicate director oversight. For starters, directors are expected to independently review proposed corporate actions rather than unquestioningly ratifying officers' recommendations. In addition, directors must be provided with sufficient information for them to exercise independent judgment. They also must assure that internal audit functions are conducted at a level to assure their independence and accuracy. [Id.]

Overall, directors must establish “an information and reporting system in the organization reasonabl[y] designed to provide management and the board of directors with timely and accurate information sufficient to allow them to reach an informed decision regarding the organization's compliance with the law.” [Id.]

When a corporation is indicted under federal law and pleads guilty, the U.S. Sentencing Guidelines take into account the company's compliance program. If the defendant has an “effective program to prevent and detect violations of law,” it is eligible for a lower “culpability score” and a correspondingly lower fine than if such a program did not exist. Indeed, an effective program can mean that the company avoids serving time on probation after it pays the fine.

“Know thyself” — an attitude formulated in the Classical Period of world history, but with enduring legacy and benefit.