Corporate Compliance Prof Blog

Save the Date -- November Compliance Program in Houston

Moving to the front from September 6, 2005 (for obvious reasons of self-promotion).

The South Texas College of Law Corporate Compliance Center will host a one-and-a-half day program on November 17-18, 2005, that examines what companies are doing in response to the amended organizational sentencing guidelines.  Entitled "Where Are We Now?  Compliance Programs One Year After the Sentencing Guidelines Amendments," the program will cover recent developments and practical trends on:

• The Board's role in the compliance program (including a panel discussion among in-house compliance professionals and experienced board members)
• Extending the compliance program to suppliers and vendors
• Training managers and supervisors on their compliance roles
• Methods for evaluating the effectiveness of the compliance program
• The government's evolving expections for compliance programs

Our keynote lunch speaker will be retired Delaware Chief Justice E. Norman Veasey, partner in the New York office of Weil, Gotshal & Manges, who will speak on the topic Federalism v. Federalization in Corporate Law and Lawyer Conduct.

Further information about the program can be found on the Center's web site, including the program brochure.  On line registration is also available at the Center's web site.

More on Cooperation with the Government and Waiver of the Privilege

With all the recent talk about cooperation with the government and waiver of the attorney-client
privilege, I thought readers might find a speech from last February to be of interest.  Then-
Christopher Wray, then the Assistant Attorney General for the DOJ’s Criminal Division (and now a partner in the Washington, DC office of King and Spalding), gave a speech an an ABA White Collar Crime Luncheon in Washington, D.C.  The speech covered many topics (and so is worth a read because of the ground it covers), and the following excerpt specifically addresses cooperation and the privilege:

To conduct these complex investigations quickly and thoroughly, we’ve simply got to secure the companies’ true cooperation, where appropriate. Sometimes, we’ll prosecute only the guilty employees and executives, but in other cases, we seriously consider prosecuting the company itself. Our message on this point is two-fold: Number one, you’ll get a lot of credit if you cooperate, and that credit can make the difference between life and death for a corporation. Number two, you’ll only get credit for cooperation if it’s authentic. You have to get all the way on board and do your best to help the Government.

On the one hand, that doesn’t mean we automatically prosecute companies that don’t cooperate. And on the other hand, in some rare cases, the conduct may be so outrageous that no amount of cooperation will persuade us not to prosecute. But in most cases, cooperation is a very important factor in our charging decision. What I find especially encouraging––and a credit to a number of companies and their executives––is that we’re seeing more and more cooperation. Maybe more companies recognize the resources we’ve devoted to corporate fraud and see that we mean business. Maybe they see that we investigate and prosecute these cases in weeks or months, not years. Maybe they realize that adopting a new ethical standard is really in everyone’s long-term economic interest. Whatever the reason, those companies that have actually weathered a corporate crisis are almost invariably the ones that understand that cooperation means a lot more than doing the bare minimum necessary to comply with our subpoenas.

Those companies are raising the bar. They want to make sure they get proper credit for cooperation. They’re not just looking for a passing grade, they’re shooting for an A+. They call us; they don’t wait for us to call them. All too often, management would prefer to lay low and hope the crisis will blow over. But when the company sits quietly instead of coming forward, it’s not only a red flag that something may be seriously wrong, it also makes it less likely that the company will get credit for prompt cooperation. In contrast, a company that steps up and begins a dialogue makes a great first impression.

I’ll give you some examples of how serious some companies have gotten about cooperating with the Government. Now, there’s no magic formula; none of these things is either a requirement on one extreme or a safe harbor on the other.

• More and more companies have made witnesses available whenever and wherever we want to interview them, without subpoenas. That helps us investigate a lot more quickly and efficiently.
• Some companies have taken swift disciplinary action, not only by replacing managers who are accountable for the underlying problems, but by terminating employees who refuse to cooperate with the investigation.
• A lot of companies have turned over interview memoranda and other materials generated in their internal investigations, notwithstanding any claim of privilege they might have.

I want to pause for a second to be very clear on this point because I’ve heard a lot of anxiety and misunderstanding on it: Waiving the privilege is not a requirement or a litmus test for cooperation. But it is a very valuable and helpful action that goes a long way toward persuading us that a company’s cooperation is authentic. It’s a big step, and we recognize that. If your client takes that step, we should be giving them more credit for it than if they hadn’t.

• Companies have directed professionals working for them, including outside auditors and counsel, to meet with us and give us prompt access to their workpapers and other records.
• Some companies have postponed or adjusted their internal investigations to suit our needs. Instead of working at cross-purposes, they coordinate with us to contribute to the investigation efficiently.
• Several companies have agreed to retain attorneys and accountants of our choice to evaluate their business practices, and to accept their recommendations. That can produce real and substantial reform.
• In a few dramatic cases, members of the company’s most senior management have actually worked directly with prosecutors and agents and directed employees to cooperate on pain of termination. Needless to say, that kind of personal involvement can be an awfully impressive demonstration of a company’s commitment to cooperation.

Other companies talk the talk, but don’t really walk the walk. Companies that find themselves under investigation almost always tell us––and invariably tell the public––that they’re “fully cooperating.” We now take a harder look at whether the company is really cooperating with us, or just paying lip service to doing so. When a corporation acts responsibly and promptly to help us, it can contribute a lot to a fair and speedy resolution of the investigation. All too often, though, the company’s actions, even if they don’t amount to downright obstruction, can delay and impede us.

Why Self-Report?

At one of the panels I attended at the ABA Annual Meeting (oh boy – that meeting is a gift that keeps on giving to this blog), government lawyers on the panel stated that self-reporting of legal violations is often part of full cooperation with a government investigation.  An attendee posed the following comment/question in response to that statement (of course, this is a paraphrase):

Let’s say that a company discovers wrongdoing by one of its employees.  The company investigates, determines the extent of the wrongdoing, remedies the wrongdoing (including making any victims whole), disciplines the wrongdoers (up to and including termination, when warranted), and makes any necessary changes to internal policies and procedures.  If the organization does all of this, why also require self-reporting?  If the organization acted admirably in correcting the misconduct, what else does self-reporting add?

The panelists gave two pretty good answers that I will share here.

First, the question incorrectly assumes that (1) the government ALWAYS expects self-reporting, or (2) absent self-reporting, there will be no credit for cooperating with the government.  Neither assumption is correct.  Rather, self-reporting is A FACTOR to be considered along with many others in determining the culpability of and cooperation offered by the organization.  (The Thompson Memo, which was discussed in a prior post, sets forth the main factors.)

Second, without self-reporting, the government cannot take action that will ensure that the individual wrongdoers will not cause further harm.  If the employee who orchestrated the wrongdoing is simply let go, that person can simply find another organization at which to continue similar wrongdoing.  (This is especially so given employer’s hesitance to give any reference – especially a negative one – for a former employee.)  Self-reporting that includes identification of individual wrongdoers allows the government to take steps, including prosecution or barring the individual from the marketplace, that will protect the public from further wrongdoing.  Allowing organization’s to keep the problem within the family keeps the government from taking action needed to protect society.

Compliance Conference -- Save the Dates of November 17 and 18

Here’s an act of shameless self-promotion (sort of). The South Texas College of Law Corporate Compliance Center has finalized plans for its Fall 2005 compliance conference, which will be held on Thursday and Friday, November 17 and 18, at the College’s campus in Houston, Texas. The conference is titled, “Where Are We Now?  Compliance Programs One Year After the Sentencing Guidelines Amendments,” and will run one and a half days. The presentations and panels include:

• The Board’s Role in the Compliance Program: Views from In-House and the Board
• Cooperation and Compliance: What Does the Government Expect?
• Stupid Human Tricks: Training Supervisors and Managers to Avoid Compliance Missteps
• Taking Compliance Outside the Organization: Vendors, Agents, and Beyond
• How Are We Doing?: Evaluating the Effectiveness of the Ethics and Compliance Program
• When In-House Counsel Do Compliance: Ethics Issues and Challenges

Our lunch speaker on Thursday will be the Hon. E. Norman Veasey, who is a partner in the law firm of Weil Gotshal, New York, and former Chief Justice, Delaware Supreme Court.

I will post registration and other information as it becomes available.  Until then, contact me with any questions.

Back from the State Bar Meeting

Yesterday was the second (and last) day at the Texas State Bar Annual Meeting.  I didn't blog because the hotel that hosted the meeting was charging for wireless access, and I just couldn't bring myself to pay for a second day.  Also, Friday's program was vastly superior to Thursday's program, so I was not in need of a distraction.

Former Delaware Supreme Court Chief Justice Norman Veasey (now of Weil Gotshal) began the day with a great speech on the past, present, and future or Delaware corporate law.  He had some very useful and interesting insights about the recent Disney decisions as well as the director settlements at Enron and WorldCom.  The basic message was that all three were egregious cases, and that diligent directors should not have anything to fear.

Next, we had a panel with the Hal Degenhardt (District Administrator of the SEC's Fort Worth District Office) and Michael Shelby (partner at Fulbright & Jaworski and former USA for the Southrn District of Texas).  Both were execellent speakers, well worth the oprice of admission.  In addition to being entertaining, they clearly outlined what the government expects in terms of cooperation from corporate defendants.  Shelby pointed to Dynegy as an exemplar of cooperation, and Degenhardt pointed to Shell.  The best case scenario is that full, genuine cooperation could keep the government from bringing enforcement actions against the corporation (as opposed to only the individual bad actors).  According to Shelby, this is what happened with Dynegy.  Also, both emphasized that some fraud may be so bad that no amount of cooperation can prevent enforcement against the corporation, though it will considerably mitigate the resulting punishment.  Last, both made the point -- also made in this blog -- that while cooperation (including waiver of attorney-client privilege) is not expected, a corporation cannot expect leniency from the government unless they give something in return.

The last two panels dealt with lawyers' up-the-ladder reporting obligations as well as legal ethics challenges for in-house counsel.  In tomorrow's post, I'll say a little bit about the legal ethics issues discussed.

ACC 2005 Annual Meeting

The Association of Corporate Counsel has announced the dates, place, and topic of its 2005 Annual Meeting:

Dates: October 17-19, 2005

Place: Washington, D.C.

Topic: Legal Underdog to Corporate Superhero -- Using Compliance for a Competitive Advantage

You've learned about the changing role of in-house counsel. The implementation of many new corporate governance requirements means that many lawyers could be regarded as the corporate police. Join us in 2005, and learn how to soar beyond this status, and become a corporate superstar, by helping your company proactively manage all aspects of compliance, and by using compliance as a competitive advantage.

Corporate governance is only one aspect of compliance. Every day your company faces new risks and challenges, and a broader compliance program can help your company thrive. Real compliance means more than responding to problems-it means identifying and resolving issues before they cost time and money. ACC's 2005 Annual Meeting (October 17-19) will include a full range of practical advice to help you establish programs to identify and manage risk.

Regardless of the size of your law department, where you are in your career, or your role in the law department, at the 2005 Annual Meeting you will find programs that can help you personally do your job better, help your company thrive, and earn the recognition you deserve!

EOA 2005 Annual Meeting

The Ethics Officers Association has announced the date and place of its 2005 Annual Meeting: October 25-28, 2005, at the Hyatt Regency Hill Country in San Antonio, Texas.  The EOA has also put out a call for speakers for the Annual Meeting.

Save the Dates

The South Texas College of Law Corporate Compliance Center will be hosting its next compliance conference on Thursday and Friday, November 17-18, 2005.  The program's tentative title is, "The Amended Sentencing Guidelines One Year Out: Legal Issues and Practical Challenges."  The one and a half day program will cover the board's role in the compliance program, training supervisors and managers on their compliance responsibilities, evaluating the effectiveness of an organization's compliance program, and designing and implementing an effective records management policy.  The program will be held at the South Texas campus in downtown Houston.  Please contact me if you have any interest in either participating in or attending the conference.  And stay tuned to this blog for updates.

The Regulators Speak: Tone at the Top

It seems that at every compliance CLE, the best attended and most active panels are those that present the regulators’ views on an issue of current interest.  This makes sense, given that much of what the “law” requires is determined by the government’s interpretation and enforcement priorities.  For this reason, I plan to note recent speeches by government regulators that shed light on the government’s compliance expectations.

To begin, I am reaching back to the end of last year, to a wonderful speech by Stephen Cutler, the former Director of the SEC’s Enforcement Division.  The speech was delivered on December 3, 2004, to a meeting of the General Counsel Roundtable; the topic was “Tone at the Top: Getting It Right.”  Cutler’s brief remarks offer one of the best articulations I have seen of what it means to
have an ethical corporate compliance culture.  Here are some of the highlights:

• We're trying to get the fundamentally honest, decent CEO or CFO or General Counsel - the one who wouldn't break the law - to say to herself when she wakes up in the morning: "I'm going to spend part of my day today worrying about, and doing something about, the culture of my company. I'm going to make sure that others at the company don't break the law, and don't even come close to breaking the law."
• You've got to talk the talk; and you've got to walk the walk. Both are critical to maintaining a good tone at the top.
• You have to talk about the company's ethical standards again and again.  Those standards have to infuse the day-to-day lives of your employees.  What does that mean?  Ethics and compliance should be part of your regular education and training efforts - and I mean efforts that go beyond perfunctory lectures about legal requirements, but embrace well-conceived, real-life situations and dialogue.
• And no double talk. You can't say to the broad audience that ethics, integrity and honesty are important, but ignore them (or worse yet, joke about them or dismiss them) when you're in a social setting, or "off line," or off the record, or when you're talking to smaller groups.
• All the words in the world mean nothing without deeds to support them.  You have to pay more than lip service to values.  You have to live them.
• [M]anagers themselves have to comply with the letter and the spirit of the rules.  Employees watch what their managers do as well as say - they scrutinize their every move and follow their lead.  If employees see managers bend the rules, they'll bend the rules.  That applies to the smallest of rules.  If all employees are required to attend the company's ethics training program, then senior management should be attending the training too.  They can't just say, "well, that's for the others, I don't need to do that."
• [M]ake integrity, ethics and compliance part of the promotion, compensation and evaluation processes as well. For at the end of the day, the most effective way to communicate that "doing the right thing" is a priority, is to reward it. Conversely, if employees are led to believe that, when it comes to compensation and career advancement, all that counts is short-term profitability, and that cutting ethical corners is an acceptable way of getting there, they'll perform to that measure.
• [M]ake it clear that you won't tolerate compliance risks - even if that means losing a lucrative piece of business or a client or a transaction.
• [H]old all of your managers accountable for setting the right tone.  That means disciplining or even firing them when they have failed to create a culture of compliance.