No derivative suit

What do you do if a company you invested in was institutionally corrupt, at a massive scale?  Normally, a shareholder can use a derivative suit to have the corporation sue the directors who allowed the defalcation.  The directors can be held personally liable, or you can tap the insurance policy.  But if it’s a state-owned corporation, you need to follow a different path.

“Gates Foundation Sues Petrobras, Auditor for Fraud,” The Wall Street Journal, September 26, 2015 A8.  Bill Gates sues Petrobras and the PwC affiliate who audited Petrobras for losses coming from a massive bid-rigging and bribery scheme that had run for years.  Apparently, the internal controls were ineffective, even though PwC signed off on them.  More than $17 billion written off.

Counting on the Board to have effective internal controls to prevent fraud and bribery is one step.  So you also have a global auditor do an audit to give you objective verification.  Hopefully, litigation isn’t your backup plan.

Is there other information that would have clued you in to what was going on?

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Filed under Board, Compliance, Compliance Verification, Controls, Culture, Directors, Duty, Duty of Care, Governance, Internal controls, Oversight, Oversight, Protect assets, Risk, Third parties, Vendors

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