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Caremark and Enterprise Risk Management Stephen M. Bainbridge*
I. INTRODUCTION ...................................................................................................... 967 II. ENTERPRISE RISK MANAGEMENT .......................................................................... 969 A. Overview ........................................................................................................... 969 B. Risk Management and the Financial Crisis of 2008 2009............................... 970 III. CAREMARK AND PROGENY...................................................................................... 972 IV. DO ENTERPRISE RISK MANAGEMENT AND LAW COMPLIANCE DIFFER IN KIND? ... 978 V. THE SIGNIFICANT DIFFERENCES IN DEGREE .......................................................... 981 A. Risk Management is Still Evolving ................................................................... 982 B. The Benefits of Risk Management Programs are Inherently Less Certain ....... 982 C. Risk Management and Risk Taking are Inextricably Intermingled .................. 982 VI. TWEAKING CAREMARK ........................................................................................... 985 A. An Utter Failure to Adopt Risk Management Programs .................................. 985 B. Risk Management Red Flags ............................................................................ 986 VII. CONCLUSION .......................................................................................................... 990
I. INTRODUCTION Enterprise risk management is the process by which the board of directors and
1
It encompasses
and identifying, preparing for, and responding to risks.2 Although primary responsibility
* William D. Warren Professor of Law, UCLA School of Law. I thank Iman Anabtawi, William Chandler, and William Klein for their helpful comments. Any remaining errors are mine. 1....