Thursday, February 4, 2016

The thorny relationship between business and human rights

For the past four weeks I have been experimenting with a new class called Transnational Business and Human Rights. My students include law students, graduate students, journalists, and accountants. Only half have taken a business class and the other half have never taken a human rights class. This is a challenge, albeit, a fun one. During our first week, we discussed CSR, starting off with Milton Friedman. We then used a business school case study from Copenhagen and the students acted as the public relations executive for a Danish company that learned that its medical product was being used in the death penalty cocktail in the United States. This required students to consider the company’s corporate responsibility profile and commitments and provide advice to the CEO based on a number of factors that many hadn’t considered- the role of investors, consumer reactions, the pressure from NGOs, and the potential effect on the stock price for the Danish company based on its decisions. During the first three weeks the students have focused on the corporate perspective learning the language of the supply chain and enterprise risk management world.

This week they are playing the role of the state and critiquing and developing the National Action Plans that require states to develop incentives and penalties for corporations to minimize human rights impacts. Examining the NAPs, dictated by the UN Guiding Principles on Business and Human Rights, requires students to think through the consultation process that countries, including the United States, undertake with a number of stakeholders such as unions, academics, NGOs and businesses. To many of those in the human rights LLM program and even some of the traditional law students, this is all a foreign language and they are struggling with these different stakeholder perspectives.

Over the rest of the semester they will read and role play on up to the minute issues such as: 1) the recent Tech Terror Summit and the potential adverse effects of the right to privacy; 2) access to justice and forum non conveniens, arguing an appeal from a Canadian court’s decision related to Guatemalan protestors shot by security forces hired by a company incorporated in Canada with US headquarters; 3) the difficulties that even best in class companies such as Nestle have complying with their own commitments and certain disclosure laws when their supply chain uses both child labor and slaves; 4) the Dodd-Frank conflict minerals debate in the Democratic Republic of Congo and the EU, where students will play the role of the State Department, major companies such as Apple and Intel, the NGO community, and socially-responsible investors debating some key corporate governance and human rights issues; 5) corporate codes of conduct and the ethical, governance, and compliance aspects of entering the Cuban market, given the concerns about human rights and confiscated property; 6) corporate culpability for the human rights impacts of mega sporting events such as the Super Bowl, World Cup, and the Olympics; 7) human trafficking (I’m proud to have a speaker from my former company Ryder, a sponsor of Truckers Against Traffickers); 8) development finance, SEC disclosures, bilateral investment treaties, investor rights and the grievance mechanisms for people harmed by financed projects (the World Bank, IMF, and Ex-Im bank will be case studies); 9) the race to the bottom for companies trying to reduce labor expenses in supply chains using the garment industry as an example; and 10) a debate in which each student will represent the actual countries currently arguing for or against a binding treaty on business and human rights.

Of course, on a daily basis, business and human rights stories pop up in the news if you know where to look and that makes teaching this so much fun. We are focusing a critical lens on the United States as well as the rest of the world, and it's great to hear perspectives from those who have lived in Europe, Africa, Asia, and South America. It's a whole new world for many of the LLM and international students, but as I tell them if they want to go after the corporations and effect change, they need to understand the pressure points. Using business school case studies has provided them with insights that most of my students have never considered. Most important, regardless of whether the students embark on a human rights career, they will now have more experience seeing and arguing controversial issues from another vantage point. That’s an invaluable skill set for any advocate.

February 4, 2016 in Business Associations, Comparative Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Human Rights, International Business, International Law, Investment Banking, Law School, Lawyering, Marcia Narine, Securities Regulation, Teaching | Permalink | Comments (0)

Friday, January 29, 2016

Legal and Ethical Problems in Sports

Sports have had some well-publicized legal and ethical problems over the past few months.

I hope to look into these scandals more deeply in coming months, but it seems unchecked power and/or loose oversight are at least part of the problem.

As with many of the recent business scandals, I wonder if punishments need to be more severe to curb these problems, or if there is another, more effective, solution waiting to be uncovered.

January 29, 2016 in Ethics, Haskell Murray, Sports | Permalink | Comments (0)

Friday, January 22, 2016

CSR and Small Business-Part 2

Two weeks ago I posted about whether small businesses, start ups, and entrepreneurs should consider corporate social responsibility as part of their business (outside of the benefit corporation context). Definitions of CSR vary but for the purpose of this post, I will adopt the US government’s description as:

entail[ing] conduct consistent with applicable laws and internationally recognised standards. Based on the idea that you can do well while doing no harm … a broad concept that focuses on two aspects of the business-society relationship: 1) the positive contribution businesses can make to economic, environmental, and social progress with a view to achieving sustainable development, and 2) avoiding adverse impacts and addressing them when they do occur.

During my presentation at USASBE, I admitted my cynical thoughts about some aspects of CSR, discussed the halo effect, and pointed out some statistics from various sources about consumer attitudes. For example:

  • Over 66% of people say they will pay more for products from a company with “good values”
  • 66% of survey respondents indicated that their perception of company’s CEO affected their perception of the company
  • 90% of US consumers would switch brands to one associated with a cause, assuming comparable price and quality
  • 26% want more eco-friendly products
  • 10% purchased eco-friendly products
  • 45% are influenced by commitment to the environment
  • 43% are influenced by commitment to social values and community
  • Those with incomes of 20k or less are 5% more willing to pay more than those with incomes of $50k or more
  • Consumers in developed markets are less willing to pay more for sustainable products than those in Latin America, Asia, the Middle East, and Africa. The study’s author opined that those underdeveloped markets see the effects of poor labor and environmental practices first hand
  • 75% of millennial respondents, 72% of generation Z (age 20 and younger) and 51% of Baby Boomers are willing to pay more for sustainable products
  • More than one out of every six dollars under professional management in the United States—$6.57 trillion or more—is invested according to socially-responsible investment strategies.
  • 64% of large companies increased corporate giving from between 2010 and 2013.
  • Among large companies giving at least 10% more since 2010, median revenues increased by 11% while revenues fell 3% for all other companies

From marketing and recruiting perspectives, these are compelling statistics. But from a bottom line perspective, does a company with lean margins have the luxury to implement sustainable business practices? Next week I will post about CSR in larger companies and the role that small suppliers play in global value chains. This leaves some small businesses without a choice but to consider changing their practices. In addition, in some ways, using some CSR concepts factors into enterprise risk management, which companies of all size need to consider.

January 22, 2016 in Business Associations, Corporate Governance, Corporations, CSR, Current Affairs, Entrepreneurship, Ethics, Management, Marcia Narine, Nonprofits, Research/Scholarhip, Social Enterprise | Permalink | Comments (1)

Business and Academic Entaglement

I am taking a MOOC from University of Illinois and Coursera on digital marketing. I've been trying to take at least one course a semester. Both the underlying material, and the intricacies of online education have been interesting. I chose this course because I have family members in the digital marketing area, and I am taking (and discussing) this course with them.

Later, I may discuss some of  the substantive take-aways from the course --- I have completed about 50% of the course so far --- but in this post I want to discuss business/academic entanglement.

In this digital marketing class, an assignment on co-creation (by firms & their customers) consisted of creating an online account with Starbucks, submitting an idea for consideration, and reporting how the idea was received by commenters. This was a useful exercise and it made the concept come alive, but I couldn't help wondering if Starbucks was somehow involved with University of Illinois and/or Coursera in creating this assignment. To be clear, I have no idea whether Starbucks was or was not involved.  But, in any event, with the thousands (and maybe 10s of thousands) of people who are taking this course, this assignment seemed like a win for Starbucks.  Well, actually, this idea submission portion of Starbucks' website was not functioning properly, leading to many, many complaints from the students on the course discussion boards, but the assignment could have been a big win for Starbucks. And eventually, a work-around was suggested, and I assume that many, many people still created online accounts with Starbucks when they might not have otherwise. The creation of those accounts, and the simple brand exposure, certainly has some value to Starbucks.   

Anyway, my question is this: Are course creators ethically obligated to disclose entanglement or abstain from entanglement between businesses and their educational institutions?

Even if there is no entanglement (I am thinking about direct or indirect payments for the assignment), how should potential benefits to the educational institution be treated? For example, what if the University of Illinois plans to pitch Starbucks CEO Howard Schultz on making a contribution toward a new campus building and plans to bring up this assignment? Again, I don't know if there was any entanglement here, and I assume it was just an innocent and useful assignment. But with the increasing corporatization of higher education, I wonder about the appropriate boundaries between businesses and universities.

Thoughts from our readers are welcomed.

January 22, 2016 in Business School, Corporations, Ethics, Haskell Murray, Law School, Teaching | Permalink | Comments (2)

Friday, January 15, 2016

Mnookin on Bargaining with the Devil

Mnookin

Perhaps the most common question I receive from the MBA students in my Decision Making & Negotiation Skill class is - what do I do when the other side is completely unreasonable or evil?

Robert Mnookin (Harvard) explores this question in his book Bargaining with the Devil: When to Negotiate and when to Fight

I won't attempt to summarize the entire book, but I share a few representative quotes below. (Page numbers correspond to the 2010 hardback edition).

"By 'Devil' I mean an enemy who has intentionally harmed you in the past or appears willing to harm you in the future. Someone you don't trust. An adversary whose behavior you may even see as evil." (pg. 1)

"An act is evil when it involves the intentional infliction of grievous harm on another human being in the circumstances where there is no adequate justification." (pg. 15)

Consider "Interests [of both sides]...Alternatives [of both sides]...Potential negotiated outcomes...Costs...Implementation...What issues of recognition and legitimacy are implicated in my decision" (pgs. 27-34).

"I believe there is reason to be deeply concerned whenever an agent or representative allows personal morality to override a rational analysis favoring negotiation - even with a devil." (pg. 49)

"If you bargain with the Devil, develop alternatives. You will need them if the deal doesn't work out." (pg. 81)

Using "empathy and assertiveness....A good negotiator has to do a lot of both." (pg. 134)

Remember to "listen first, talk second." (pg. 177)

"A common occupational hazard for mediators is getting hooked into taking responsibility for finding a solution....[The mediator's] responsibility is to help the parties better understand each other and their predicament, and then fashion their own solution." (pg. 237)

"'Should you bargain with the Devil?' If I were pressed to provide a one-sentence answer to this question, it would be: 'Not always, but more often than you feel like it.'" (pg. 261)

This is a difficult topic and doesn't fit neatly into bullet pointed format, but Robert Mnookin uses case studies throughout the book to explain his methods. The case studies come from political, business, and family disputes. The wise solutions are fact-dependant, but after reading the case studies you get a better sense of how to deal with difficult negotiations. 

January 15, 2016 in Business School, Ethics, Haskell Murray, Negotiation | Permalink | Comments (0)

Thursday, December 31, 2015

The Five Corporate Scandals That Defined 2015 and Why I Resolve to Sneak More Ethics and Compliance into My Teaching

This is the time of year when many people make New Year’s resolutions, and I suppose that law professors do so as well. I’m taking a break from teaching business associations next semester. Instead, I will teach Business and Human Rights as well as Civil Procedure II. I love Civ Pro II because my twenty years of litigation experience comes in handy when we go through discovery. I focus a lot on ethical issues in civil procedure even though my 1Ls haven’t taken professional responsibility because I know that they get a lot of their context from TV shows like Suits, in which a young “lawyer” (who never went to law school) has a photographic memory and is mentored by a very aggressive senior partner whose ethics generally kick in just in the nick of time. It will also be easy to talk about ethical issues in business and human rights. What are the ethical, moral, financial, and societal implications of operating in countries with no regard for human rights and how should that impact a board’s decision to maximize shareholder value? Can socially-responsible investors really make a difference and when and how should they use their influence? Those discussions will be necessary, difficult, thought-provoking, and fun.

I confess that I don’t discuss ethics as much as I would like in my traditional business associations class even though some of my 2Ls and 3Ls have already taken professional responsibility. This is particularly egregious for me since I spent several years before joining academia as a compliance and ethics officer. I also use a skills book by Professor Michelle Harner, which actually has an ethics component in each exercise, but I often gloss over that section because many of my students haven't taken professional responsibility and I feel that I should focus on the pure "business" material. Business school students learn about business ethics, but law students generally don’t, even though they often counsel business clients when they graduate.

Yesterday, I tweeted an article naming five corporate scandals that defined 2015: (1) the Volkswagen emissions coverup (2) the "revelation" regarding Exxon’s research warning of man-made climate change as early as 1981 and its decision to spend money on climate change denial; (3) climate lobbying and the “gap between words and action,” in particular the companies that “tout their sustainability credentials” but are “members of influential trade associations lobbying against EU climate policy”; (4) the Brazil mining tragedy, which caused the worst environmental disaster in the country’s history, and in which several companies are denying responsibility; and (5) the “broken culture” (according to the Tokyo Stock Exchange) of Toshiba, which inflated its net profits by hundreds of millions of dollars over several years.

All of these multinational companies have in-house and outside counsel advising them, as did Enron, WorldCom, and any number of companies that have been embroiled in corporate scandal in the past. Stephen Bainbridge has written persuasively about the role of lawyers as gatekeepers. But what are we doing to train tomorrow's lawyers to prepare for this role? Practicing lawyers must take a certain number of ethics credits every few years as part of their continuing legal education obligation but we should do a better job as law professors of training law students to spot some of the tough ethical issues early on in every course we teach. This is especially true because many students who graduate today will work for small and medium-sized firms and will be advising small and medium-sized businesses. They won’t have the seemingly unlimited resources I had when I graduated in 1992 and went to work for BigLaw in New York. Many of the cases I worked on were staffed with layers of experienced lawyers, often in offices from around the world. If I naively missed an issue, someone else would likely see it. 

So my resolution for 2016? The next time I teach business associations, I may spend a little less time on some of the background on Meinhard v. Salmon and more time on some of the ethical issues of that and the other cases and drafting exercises that my students work on. If you have ideas on how you weave ethics into your teaching, please comment below or email me at mnarine@stu.edu.

I wish all of our readers a happy and healthy new year.

December 31, 2015 in Business Associations, Business School, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Human Rights, Law School, Marcia Narine, Teaching | Permalink | Comments (1)

Thursday, December 17, 2015

What a difference a year makes

A year ago today, President Obama shocked the world and enraged many in Congress by announcing normalization of relations with Cuba. A lot of the rest of the United States didn’t see this as much of a big deal, but here in Miami, ground zero for the Cuban exile community, this was a cataclysmic event. Now Miami is one of the biggest sources of microfinance for the island.

Regular readers of this blog know that I have been writing about the ethical and governance issues of doing business with the island since my 10-day visit last summer. I return to Cuba today on a second research trip to validate some of my findings for my second article on governance and compliance risks and to begin work on my third article related to rule of law issues, the realities of foreign direct investment and arbitration, what a potential bilateral or multilateral investment agreement might look like, and the role that human rights requirements in these agreements could play.

This is an interesting time to be visiting Cuba. The Venezuelan government, a large source of income for Cuba has suffered a humiliating defeat. Will this lead to another “special period” for the nation similar to the collapse of the Soviet Union? Major league baseball players who defected from Cuba just a few years ago announced a homecoming trip today. Yesterday, the US government authorized commercial flights to return to Cuba. The property claims for the multinationals and families who had homes and business confiscated by Castro are being worked out, or so some say.

Over the next few days in between touring Old Havana and fishing villages, I will learn from lawyers and professors discussing arbitration law in Cuba, foreign investment law 118/2014, tax and labor implications for the foreign investor, the 2015 amendments to the Cuban Assets Control Regulations, requirements for gaining government approval and forming state partnerships, and the Cuban banking system.

Strangely, I am excited. While I should be decompressing from the shock of reading student exams discussing “creepy tender offers” and “limited liability corporations,” I can’t wait to delve into the next phase of my research and practice my business Spanish at the bar of the Parque Central in La Habana. My internet access will be spotty and expensive but if you can think of any pressing questions I should ask leave a comment below or email me at mnarine@stu.edu.

December 17, 2015 in Comparative Law, Compliance, Corporate Governance, Corporations, CSR, Current Affairs, Ethics, Food and Drink, Human Rights, International Business, International Law, Law Reviews, Marcia Narine, Religion, Writing | Permalink | Comments (0)

Friday, November 20, 2015

A Few Thoughts on “Poverty, Inc.”

Index

This past Sunday afternoon, I attended a screening of the film Poverty, Inc.

The trailer is available here.

I share a few, somewhat disconnected, thoughts on Poverty, Inc. under the page break.

Continue reading

November 20, 2015 in CSR, Current Affairs, Entrepreneurship, Ethics, Film, Haskell Murray, Human Rights, International Law, Nonprofits, Social Enterprise | Permalink | Comments (2)

Sunday, November 1, 2015

Are Arbitration Clauses All Bad, and If So, For Whom? A Look at the NY Times Expose

I teach both Civil Procedure and Business Associations. As a former defense-side commercial and employment litigator, I teach civ pro as a strategy class. I tell my students that unfortunately (and cynically), the facts don’t really matter. As my civil procedure professor Arthur Miller drilled into my head 25 ago, if you have procedure on your side, you will win every time regardless of the facts. Last week I taught the seminal but somewhat inscrutable Iqbal and Twombly cases, which make it harder for plaintiffs to survive a motion to dismiss and to get their day in court. In some ways, it can deny access to justice if the plaintiff does not have the funds or the will to re-file properly. Next semester I will teach Transnational Business and Human Rights, which touches on access to justice for aggrieved stakeholders who seek redress from multinationals. The facts in those cases are literally a matter of life and death but after the Kiobel case, which started off as a business and human rights case but turned into a jurisdictional case at the Supreme Court, civil procedure once again "triumphed" and the doors to U.S. courthouses closed a bit tighter for litigants. 

This weekend, the New York Times published an in depth article about how the corporate use of arbitration clauses affects everyone from small businesses to employees to those who try to sue their cell phone carriers and credit card companies. Of course, most people subject to arbitration clauses don’t know about them until it’s too late. On the one hand, one could argue that corporations would be irresponsible not to take advantage of every legal avenue to avoid the expense of protracted and in some cases frivolous litigation, particularly class actions. On the other hand, the article, which as one commenter noted could have been written by the plaintiffs bar, painted a heartbreaking David v. Goliath scenario.

I see both sides and plan to discuss the article and the subsequent pieces in the NYT series in both of my classes. I want my students to think about what they would do if they were in-house counsel, board members, or business owners posed with the choice of whether to include these clauses in contracts or employee handbooks. For some of them it will just be a business decision. For others it will be a question of whether it’s a just business decision. 

November 1, 2015 in ADR, Business Associations, Corporate Governance, Corporations, CSR, Current Affairs, Employment Law, Ethics, Human Rights, Marcia Narine, Teaching | Permalink | Comments (0)

Thursday, October 15, 2015

Enforcing Corporate Social Responsibility Codes Under Private Law

How and when should CSR codes be enforced through litigation? This short article by Jan M. Smits attempts to answer that question. The abstract is below and the link to the article is here:

A central question in the debate on corporate social responsibility is to what extent CSR Codes can be enforced among private parties. This contribution argues that this question is best answered by reference to the applicable doctrinal legal system. Such a doctrinal approach has recently regained importance in American scholarship, while it is still the prevailing method of legal analysis in Europe. Applying a doctrinal analysis of CSR Codes allows to make the possibility of private law enforcement, i.e. enforcement by means of contract or tort, dependent on three different elements: the exact type of claim that is brought, the evolving societal standards about the binding nature of CSR Codes, and the normative complexity of the doctrinal system itself. This approach allows to make a typology of cases in which the enforceability of CSR Codes can be disputed. It is subsequently argued that societal standards have not yet reached the stage where the average consumer who buys a product from a retailer can keep that retailer legally liable for violations of the norms incorporated in the code.

October 15, 2015 in CSR, Ethics, Law Reviews, Marcia Narine | Permalink | Comments (0)

Friday, October 2, 2015

Social Business and Scandal

Unfortunately, touting a business as socially-consious does not seem to lessen the chance of scandal.

Some companies known for their commitment to social causes have been in the news for all the wrong reasons. A few are noted below:

Predictably, the media latches onto these stories and claims of hypocrisy fly. See, e.g., Here's The Joke Of A Sustainability Report That VW Put Out Last Year and Whole Foods Sales Sour After Price Scandal and BP's Hypocrisy Problems.

No business is perfect, so what should social businesses do to limit the impact of these scandals? First, before a scandal hits, I think social businesses need to be candid about the fact that they are not perfect. Second, after the scandal, the social business needs to take responsibility and take significant corrective action beyond what is legally required. 

Patagonia's founder does a really nice job of admitting the imperfection of his company and the struggles they face in his book The Responsible Company. Whole Foods supposedly offered somewhat above-market severance packages to laid off employees and took some corrective action in the price scandal, but I wonder if they went far enough, especially given the lofty praise for the company's social initiatives by the Whole Food's co-CEO in his book Conscious Capitalism. Whole Foods quickly admitted mistakes in the pricing scandal, but then lost points in my mind when they backtracked and claimed they were a victim of the media.

Even if social businesses take the appropriate steps, I think scandals probably hit them harder than the average business because social businesses have more customer goodwill at risk. I would love to see some empirical work on impact of scandal on social business as compared to those that do not market themselves as such; please pass any such studies my way. 

Given this post, Marcia Narine's post, and Joan Heminway's post, it is turning out to be a very pessimistic week at BLPB, but I am sure there will be good news to report in coming weeks.

October 2, 2015 in Business Associations, CSR, Ethics, Haskell Murray, Social Enterprise | Permalink | Comments (2)

Thursday, October 1, 2015

Illusionists and Scammers

Last night, I took my husband (part of his birthday present) to see The Illusionists, a touring Broadway production featuring seven masters of illusion doing a three-night run in Knoxville this week.  I admit to a fascination for magic shows and the like, an interest my husband shares.  I really enjoyed the production and recommend it to those with similar interests.

At the show last night, however, something unusual happened.   I ended up in the show.  I made an egg reappear and had my watch pilfered by one of the illusionists.  It was pretty cool.  After the show, I got kudos for my performance in the ladies room, on the street, and in the local gelato place.

But I admit that as I thought about the way I had been tricked--by sleight of hand--into performing for the audience and allowing my watch to be taken, I realized that these illusionists have something in common with Ponzi schemers and the like--each finds a patsy who can believe and suckers that person into parting with something of value based on that belief.  That's precisely what I wanted to blog about today anyway--scammers.  Life has a funny way of making these kinds of connections . . . .

So, I am briefly posting today about a type of affinity fraud that really troubles me--affinity fraud in which a lawyer defrauds a client.  Most of us who teach business law have had to teach, in Business Associations or a course on professional responsibility, cases involving lawyers who, e.g., abscond with client funds or deceive clients out of money or property.  I always find that these cases provide important, if difficult, teaching moments: I want the students to understand the applicable law of the case, but I also want them to understand the gravity of the situation when a lawyer breaches that all-important bond of trust with a client.

Continue reading

October 1, 2015 in Ethics, Joan Heminway, Securities Regulation, Teaching | Permalink | Comments (0)

Thursday, September 24, 2015

Didn’t Volkswagen get the (Yates) Memo?

Last week I blogged about the Yates Memorandum, in which the DOJ announced that any company that expected leniency in corporate deals would need to sacrfice a corporate executive for prosecution. VW has been unusually public in its mea culpas apologizing for its wrongdoing in its emission scandal this week. VW’s German CEO has resigned, the US CEO is expected to resign tomorrow, and other executives are expected to follow.

It will be interesting to see whether any VW executives will serve as the first test case under the new less kind, less gentle DOJ. Selfishly, I’m hoping for a juicy shareholder derivatives suit by the time I get to that chapter to share with my business associations students. That may not be too far fetched given the number of suits the company already faces.

September 24, 2015 in Business Associations, Compliance, Corporate Governance, Corporations, Ethics, Marcia Narine, Shareholders | Permalink | Comments (0)

Thursday, September 10, 2015

Are Crooked Executives Finally Going to Jail? DOJ’s New White Collar Criminal Guidelines and the Questions for Compliance Officers and In House Counsel

I think my life as a compliance officer would have been much easier had the DOJ issued its latest memo when I was still in house. As the New York Times reported yesterday, Attorney General Loretta Lynch has heard the criticism and knows that her agency may face increased scrutiny from the courts. Thus the DOJ has announced via the “Yates Memorandum” that it’s time for some executives to go to jail. Companies will no longer get favorable deferred or nonprosecution agreements unless they cooperate at the beginning of the investigation and provide information about culpable individuals.

This morning I provided a 7-minute interview to a reporter from my favorite morning show NPR’s Marketplace. My 11 seconds is here. Although it didn’t make it on air, I also discussed (and/or thought about) the fact that compliance officers spend a great deal of time training employees, developing policies, updating board members on their Caremark duties, scanning the front page of the Wall Street Journal to see what company had agreed to sign a deferred prosecution agreement, and generally hoping that they could find something horrific enough to deter their employees from going rogue so that they wouldn’t be on the front page of the Journal. Now that the Yates memo is out, compliance officers have a lot more ammunition.

On the other hand, the Yates memo raises a lot of questions. What does this mean in practice for compliance officers and in house counsel? How will this development change in-house investigations? Will corporate employees ask for their own counsel during investigations or plead the 5th since they now run a real risk of being criminally and civilly prosecuted by DOJ? Will companies have to pay for separate counsel for certain employees and must that payment be disclosed to DOJ? What impact will this memo have on attorney-client privilege? How will the relationship between compliance officers and their in-house clients change? Compliance officers are already entitled to whistleblower awards from the SEC provided they meet certain criteria. Will the Yates memo further complicate that relationship between the compliance officer and the company if the compliance personnel believe that the company is trying to shield a high profile executive during an investigation?

I for one think this is a good development, and I’m in good company. Some of the judges who have been most critical of deferred prosecution agreements have lauded today’s decision. But, actions speak louder than words, so a year from now, let’s see how many executives have gone on trial.

September 10, 2015 in Compliance, Corporate Governance, Corporate Personality, Corporations, Current Affairs, Ethics, Financial Markets, Lawyering, Marcia Narine, Securities Regulation, White Collar Crime | Permalink | Comments (1)

Wednesday, July 15, 2015

Reading Recommendation: How Framing Shapes Our Conduct

Scott Killingsworth, a corporate attorney at Bryan Cave who specializes in compliance and technology matters and is a prolific writer (especially for one who still has billable hour constraints!) recently wrote a short and thought-provoking article: How Framing Shapes Our Conduct. The article focuses the link between framing business issues and our ethical choices and motivations noting the harm in thinking of hard choices as merely "business" decisions, viewing governing rules and regulations as a "game" or viewing business as "war."  Consider these poignant excerpts:

We know, for example, that merely framing an issue as a “business matter” can invoke narrow rules of decision that shove non-business considerations, including ethical concerns, out of the picture. Tragic examples of this 'strictly business' framing include Ford’s cost/benefit-driven decision to pay damages rather than recall explosion-prone Pintos, and the ill-fated launch of space shuttle Challenger after engineers’ safety objections were overruled with a simple 'We have to make a management decision.' (emphasis added)

Framing business as a game belittles the legitimacy of the rules, the gravity of the stakes, and the effect of violations on the lives of others. By minimizing these factors, the game metaphor takes the myopic “strictly business” framing a step further, into a domain of bendable rules, acceptable transgressions, and limited accountability. (emphasis added)

The war metaphor conditions our thinking in a way distinct from the game frame, but complementary to it. War is a matter of survival: the stakes are enormous, the mission urgent, and all’s fair. Exigent pressures grant us wide moral license, releasing us from adherence to everyday rules and justifying extreme tactics in pursuit of a higher goal; we must, after all, kill or be killed. If business is war, survival is at stake, and competitors, customers, suppliers, rivals or authorities are our enemies, then not only may we do whatever it takes to win, it’s our duty to do so. (emphasis added)

The full article is available here.

In light of the new ABA regulations on Learning Outcomes and Assessment, including the requirement that students have competency in exercising "proper professional and ethical responsibilities to clients and the legal system" this article seems like a great addition to a business organizations/corporations course line up.  I know that I will be including it in my corporate governance seminar this coming year.  And if I were responsible for new associate training, this would definitely merit inclusion in the materials.

-Anne Tucker

July 15, 2015 in Anne Tucker, Business Associations, Corporate Governance, Corporations, Ethics, Law School | Permalink | Comments (1)

Tuesday, July 14, 2015

CALL FOR PAPERS: A Workshop on Vulnerability at the Intersection of the Changing Firm and the Changing Family (October 16-17, 2015 in Atlanta, GA)

UPDATE: The deadline for submissions has been extended to July 21.

[The following is a copy of the official workshop announcement.  I have moved the "Guiding Questions" to the top to highlight the business law aspects.  Registration and submission details can be found after the break.]

A Vulnerability and the Human Condition Initiative Workshop at Emory Law

Guiding Questions:

This workshop will use vulnerability theory to explore the implications of the changing structure of employment and business organizations in the new information age. In considering these changes, we ask:

• What kind of legal subject is the business organization?
• Are there relevant distinctions among business and corporate forms in regard to understanding both vulnerability and resilience?
• What, if any, should be the role of international and transnational organizations in a neoliberal era? What is their role in building both human and institutional resilience?
• Is corporate philanthropy an adequate response to the retraction of state regulation? What forms of resilience should be regulated and which should be left to the 'free market'?
• How might a conception of the vulnerable subject help our analysis of the changing nature of the firm? What relationships does it bring into relief?
• How have discussions about market vulnerability shifted over time?
• What forms of resilience are available for institutions to respond to new economic realities?
• How are business organizations vulnerable? How does this differ from the family?
• How does the changing structure of employment and business organization affect possibilities for transformation and reform of the family?
• What role should the responsive state take in directing shifting flows of capital and care?
• How does the changing relationship between employment and the family, and particularly the disappearance of the "sole breadwinner," affect our understanding of the family and its role in caretaking and dependency?
• How does the Supreme Court's willingness to assign rights to corporate persons (Citizen's United, Hobby Lobby), affect workers, customers and communities? The relationship between public and private arenas?
• Will Airbnb and Uber be the new model for the employment relationships of the future?

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July 14, 2015 in Business Associations, Call for Papers, Constitutional Law, Corporate Governance, Corporate Personality, Corporations, CSR, Current Affairs, Ethics, Financial Markets, Law and Economics, Social Enterprise, Stefan J. Padfield | Permalink | Comments (0)

Thursday, July 2, 2015

Kelley School of Business at Indiana University - Law and/or Ethics Professor Positions

Kelley

The Kelley School of Business at Indiana University has multiple open positions in their Business Law and Ethics Department.

Kelley is well known in business school circles for having a strong legal studies program. Among the many fine faculty members are my ALSB mentor Jamie Prenkert (department chair) and BLPB guest-blogger Todd Haugh

Information about these positions is available after the break.

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July 2, 2015 in Business School, Ethics, Haskell Murray, Jobs | Permalink | Comments (0)

Thursday, June 25, 2015

The Cuba Corporate Governance Conundrum

It’s always nice to blog and research about a hot topic. Last week I wrote about compliance challenges for those who would like to rush down to do business in Cuba- the topic of this summer’s research. Yesterday, Corporate Counsel Magazine wrote about the FCPA issues; one of my concerns. Earlier this week, I attended a meeting with the Greater Miami Chamber of Commerce and the United States International Trade Commission. Apparently, on December 17th, the very same day that President Obama made his surprise announcement that he wanted to re-open relations with Cuba, Senator Ron Wyden coincidentally sent a request to the USITC asking for an investigation and report on trade with Cuba and an analysis of restrictions. Accordingly, the nonpartisan USITC has been traveling around the country speaking to lawyers and business professionals conducting fact-finding meetings, in order to prepare a report that will be issued to the public in September 2015. Tomorrow the Miami Finance Forum is holding an event titled the New Cuba Revolution.

This will be my third and final post on business and Cuba and in this post I will discuss the focus of my second potential law review article topic. My working thesis is as follows: As relations between the United States and Cuba thaw, American businesses have begun exploring opportunities on the island. Cuba, however, remains a communist nation with a human rights record criticized by exiles, NGOs, and even members of the United States Congress. The EU has taken a "common position" on Cuba stating that the objective of the European Union in its relations with Cuba is to encourage a process of transition to a pluralist democracy, require a respect for human rights and fundamental freedoms, as well as sustainable recovery and improvement in the living standards of the Cuban people." Individual EU member states are free to conduct business with Cuba and many European companies have joined Canadian firms in investing through joint ventures and other state-sanctioned vehicles. This Article will examine whether the US should follow the EU's model in trying to spur reform or whether allowing American firms to do business in Cuba without human rights concessions will in fact perpetuate the status quo.

As I discussed in last week’s blog post, one reason that the U.S. is unlikely to lift the embargo is the nearly 7 billion in claims for confiscated US property. Another reason is Cuba’s human rights record. For example, the island is notorious for violations of rights to freedom of press, association, assembly, and imprisonment of political protesters. The Cuban government continues to control all media limiting the access to information on the Internet due to content-based restrictions and technical limitations. Independent journalists are systematically subjected to harassment, intimidation, and detention for reporting information that was not sanctioned by the state apparatus. My colleague Jason Poblete writes often and critically about the Obama administration’s rapprochement with Cuba. (I highly recommend him for legal advice about Cuba by the way).

Depending on whom you talk to the embargo will be lifted next year, in five year or in ten years. Personally, I don't know that the EU Common Position has been particularly effective in pressuring the Castro brothers to make human rights reforms. I don’t think the U.S. government will be any more successful either. The embargo is Exhibit A.

Most of my academic research thus far has been on what drives corporations to act in the absence of legal obligations vis a vis human rights. With that in mind, I plan to examine a few options related to Cuba. First, I am researching the effect of bilateral investment treaties. A bilateral investment treaty is an "agreement between two countries for the reciprocal encouragement, promotion and protection of investments in each other's territories by companies based in either country.” These typically grant significant rights to foreign investors, provide safeguards to investments against foreign governments, and allow foreign investors to have investment disputes adjudicated outside of the country, which will be critical for those investing in Cuba. The problem is that these BITS rarely have human rights conditions. Accordingly, some scholars have recommended that they require adherence to the Universal Declaration of Human Rights, the United Nations International Covenant on Civil and Political Rights, the ILO Declaration on Fundamental Principles and Rights at Work, the United Nations Convention Against Corruption, the and the Rio Declaration on Environment and Development. I would also recommend reference to the UN Guiding Principles on Business and Human Rights and the OECD Guidance.

Another option is to condition any renewal of a development bank such as the US’s Ex-Im Bank on requiring human rights impact assessments. The Ex-Im bank is the official export credit agency of the US. It’s used when private sector lenders are unable or unwilling to provide financing to companies entering politically or commercially risky countries. Its charter is set to expire on June 30th although its supporters claim that it financed billions in exports, which supported 200 thousand jobs last year. Opponents claim that it financed exports in countries with abysmal human rights records and/or that it supports corporate welfare. I propose that Ex-Im and other lenders follow the lead of many European financers that require human rights disclosures. I (naively?) believe labor may be the only human right remotely and partially in the control of US companies operating in Cuba in the future.

I have some other ideas but those will have to wait for the upcoming article. In the meantime, if you have some thoughts or critiques of these early ideas, please comment below or send me an email at mnarine@stu.edu. I’m off to Guatemala on Saturday for a week with a group of academics studying business and human rights (another research topic for this summer). We will be exploring climate change, the extractive industries, maquiladoras, corporate social responsibility, and the effects on the rights of indigenous peoples. You can be sure I will be writing about that in a future post.

 

June 25, 2015 in Corporate Governance, Corporations, CSR, Current Affairs, Ethics, International Business, Law Reviews, Legislation, Marcia Narine, Research/Scholarhip, Travel | Permalink | Comments (0)

Thursday, June 18, 2015

The Cuba Conundrum Part II- Compliance Challenges for US Companies

Last week I posted the first of three posts regarding doing business in Cuba. In my initial post I discussed some concerns that observers have regarding Cuba’s readiness for investors, the lack of infrastructure, and the rule of law issues, particularly as it relates to Cuba’s respect for contracts and debts. Indeed today, Congress heard testimony on the future of property rights in Cuba and the claims for US parties who have had billions in property confiscated by the Castro government- a sticking point for lifting the embargo. (In 1959, Americans and US businesses owned or controlled an estimated 75-80% of Cuban land and resources). Clearly there is quite a bit to be done before US businesses can rush back in, even if the embargo were lifted tomorrow. This evening, PBS speculated about what life would be like post-embargo for both countries. Today I will briefly discuss the Cuban legal system and then focus the potential compliance and ethical challenges for companies considering doing business on the island.

Cuba, like many countries, does not have a jury system. Cuba’s court system has a number of levels but they have both professional judges with legal training, and non-professional judges who are lay people nominated by trade unions and others. Cubans have compulsory service to the country, including military service for males. Many law graduates serve part of their compulsory service as judges (or prosecutors) and then step down when they are able. The lay judges serve for five years and receive a full month off from their employer to serve at full pay. Although there is a commercial court, only businesses may litigate there and are then they are at the mercy of the lay judges, who have equal power to the professional jurists. This lay judge system exists even at the appellate level. Most lawyers and law firms are controlled by the Cuban government, unless they work for a non agcricultural cooperative. More important, although I have received differing opinions from counsel, it is possible that hiring and paying a local lawyer there could violate US law related to doing business in Cuba. Notwithstanding these obstacles, many companies are trying to get an OFAC license to do business in Cuba right away or are planning for the eventual life of the embargo. In my view, getting there is the easy part. The hard part will be complying with US law, not because Cuba is in a nascent state of legal and economic development, but because of the sheer complexity of doing business with a foreign government.

The first challenge that immediately comes to mind is compliance with the Foreign Corrupt Practices Act, which makes it illegal for a person or company to make “corrupt payments” or provide “anything of value” to a foreign official in order to obtain or retain business. Since almost everything is a state-owned enterprise or a joint venture with a state owned enterprise, US firms take a real risk entering into contracts or trying to get permits. There is no de minimis exception and facilitation payments- otherwise known as grease payments to speed things along- while customary in many countries- are illegal too. Legal fees and fines for FCPA violations are prohibitively expensive, and those companies doing business in Cuba will surely be targets.

Another concern for publicly-traded US companies is compliance with the Sarbanes-Oxley and Dodd-Frank whistleblower rules. Unless the law changes, most US companies will have to follow the model of Canadian and EU companies and enter into joint ventures or some contractual relationship with the Cuban government or a Cuban company (which may be controlled by the government). Most US employees are afraid to report on their own private employers in the US. How comfortable will a Cuban employee be using a hotline or some other mechanism to report wrongdoing when his employer is in some measure controlled by or affiliated with the Cuban government? As I will discuss next week, the biggest criticism of Cuba is its human rights record related to those who dissent. I have personally dealt with the challenge establishing and working with hotlines in China and in other countries where speaking out and reporting wrongdoing is not the cultural norm. I can imagine that in Cuba this could be a herculean task.

The last concern I will raise in this post relates to compliance with a company’s own code of conduct. If a company has a supplier code of conduct that mirrors its own, and those codes discuss freedom of association and workers’ rights that may be out of step with the Cuban law or culture, should the US firm conform to local rules? Even if that is legal, is it ethical? Google's code is famous for its “don’t be evil”credo and it has received criticism in the past from NGOs who question how it can do business in China. But Google was in Cuba last week testing the waters. Perhaps if Google is able to broaden access to the internet and the outside world, this will be a huge step for Cubans. (Of note, Cubans do not see the same TV as the tourists in their hotels and there are no TV commercials or billboards for advertisements).

There are a number of other compliance and ethics challenges but I will save that for my law review article. Next week’s post will deal with the role of foreign direct investment in spurring human rights reform or perpetuating the status quo in Cuba.

June 18, 2015 in Corporate Governance, Corporations, CSR, Current Affairs, Ethics, International Business, Legislation, Marcia Narine, Securities Regulation | Permalink | Comments (0)

Friday, May 29, 2015

Will More White Collar Criminal Laws Make More White Collar Criminal Behavior?

If you have been following my guest posts regarding white collar crime and how white collar offenders rationalize their conduct, you likely have noticed that the discussion thus far has been largely theoretical. In this post, I’d like to offer some more concrete uses of rationalization theory and discuss how it may (should?) impact lawmakers and business people.  

But before doing that, I have to explain, just for a moment, a bit more theory. One of the most fascinating things about rationalizations, in addition to how they operate, is where they come from. Researchers have concluded that rationalizations are not created in a vacuum; offenders do not invent them in the spur of the moment. Instead, offenders find their “vocabularies of motive” within their own environments. Donald Cressey suggested that rationalizations are “taken over” from “popular ideologies that sanction crime in our culture.” He pointed to commonplace sayings that suggest wrongdoing is acceptable in certain situations: “Honesty is the best policy, but business is business” and “All people steal when they get in a tight spot.”  (Warren Buffett once called the phrase “Everybody else is doing it,” which is a clear rationalization, the five most dangerous words in business.)  Once rationalizations such as these have been “assimilated and internalized by individuals,” they form powerful constructs that allow illegal behavior to go forward.

Building on this idea, two other criminologists, Gresham Sykes and David Matza, found that offender rationalizations originate from an even more specific location: the criminal law itself. According to Sykes and Matza, great “flexibility” exists in criminal law; even if a defendant commits a bad act, he may avoid punishment if he provides a legally valid justification or defense. Citing defenses to criminal liability such as necessity, insanity, and self-defense, Sykes and Matza viewed application of the criminal law as variable, a circumstance they found offenders incorporate into their psychological processes. Sykes and Matza determined that most unethical and illegal behavior was based on “what is essentially an unrecognized extension of [legal] defenses to crimes, in the form of justifications for deviance that are seen as valid by the delinquent but not by the legal system or society at large.” Put another way, would-be lawbreakers rationalize their behavior in order to fit it within a “defense” to the law that they deem valid, but that society or a court may not.

These finding have important implications for how we consider controlling unethical and criminal behavior in corporations. Our preferred model has been to pass legislation criminalizing conduct in reaction to corporate scandals, e.g., Sarbanes-Oxley after Enron and Dodd-Frank after the financial crisis.  As scandals continue to occur, we look for new ways to make the detection and prosecution of crime easier for the government. Unfortunately, this approach has led to overcriminalization in many spheres, including white collar crime.  There are now over 5,000 federal criminal statutes and as many as 300,000 federal regulatory provisions carrying criminal penalties. While certainly not all relate to white collar crime, many do. In fact, white collar crime underwent the biggest expansion of federal law during the 1970s and 1980s, and it likely took the lead again in the early 2000s. Along with that expansion came reduced mens rea requirements for many white collar crimes, as well as increased punishments, all of which has had the effect of shifting lawmaking and adjudicatory powers to prosecutors. What this means, as many have observed, is that white collar crime suffers from the same ills as other overcriminalized areas of the law—its “depth and breadth” has led to inconsistent enforcement and arbitrary adjudication. (A great example of this is the recent Supreme Court case Yates v. United States, which dealt with a commercial fisherman who was convicted under the anti-document shredding provision of Sarbanes-Oxley for throwing a crate of undersized fish overboard. Yates was subject to at least five partially overlapping obstruction statutes; the prosecutor charged him with the one carrying a 20-year maximum sentence. The Court overturned Yates’ conviction, based partly on concerns of overcriminalization.)

While the arbitrary enforcement of white collar criminal law is problematic for many reasons, the most profound harm it causes is that it makes the law more uncoordinated and illogical, thereby lessening the law’s overall legitimacy.  Why is the lessening of the legitimacy of the law so harmful? The answer comes from the interaction between the perceived illegitimacy of white collar criminal law and rationalizations.  As discussed above, rationalizations are drawn from the white collar offender’s environment, including the law governing his conduct. As would-be offenders increasingly believe those laws to be illegitimate, more space is created for them to rationalize their conduct. They see “defenses” to the law all around them, which they then internalize and incorporate into their own thought processes. Once this occurs, there is little stopping an offender’s future criminal conduct from going forward. Instead of deterring crime, then, adding more criminal statutes and regulations to an already overcriminalized area of the law fosters the very conduct sought to be eliminated. Put simply, more laws aimed at white collar crime may actually be creating more white collar criminal behavior.  (For a more complete discussion of this topic, please see here.)  Lawmakers considering the next round of white collar criminal statutes should be mindful of the role of rationalizations play, or they may be inadvertently creating the conduct they are trying to stop. 

In my final post, I’ll discuss how these same ideas impact corporate compliance efforts. 

May 29, 2015 in Ethics, White Collar Crime | Permalink | Comments (0)