The derivative action brought on behalf of Avon and its shareholders alleges breach of fiduciary duty claims against certain officers and directors in connection with, among other things, alleged violations of the Foreign Corrupt Practices Act of 1977 (“FCPA”). It is alleged that Avon violated the FCPA by paying bribes and kickbacks to get or retain business in China. Eventually, Avon was forced to pay fines in the amount of $135 million to settle actions with the U.S. Department of Justice and the U.S. Securities and Exchange Commission.
As a result of the prosecution and settlement of the derivative action, Avon has agreed to implement and maintain significant corporate governance measures designed to detect and deter violations of the FCPA and to improve the Company’s compliance practices when it conducts business in countries with a high corruption risk profile. The corporate governance provisions include, among other things, the appointment of a Chief Ethics and Compliance Officer (“CECO”), at least bi-annual reporting by the CECO to the audit committee on the status of compliance efforts, implementation of remedial measures, training statistics, and potential violations. The settlement also requires designated compliance personnel for each business unit, a certification process requiring global commercial business leaders to provide quarterly certifications on unit compliance with the FCPA and amendments to the audit committee charter requiring semi-annual review of FCPA and anti-corruption compliance. The governance measures also include the implementation of an FCPA Testing Program and associated third-party compliance mechanisms that permit Avon to engage in its global businesses with sufficient controls and other safeguards in place. Importantly, the settlement confers substantial benefits on Avon and its shareholders and is designed to preclude recurrence of the alleged wrongdoing and increase the effectiveness of the board of directors’ oversight.