Thursday, December 13, 2007

Be Kind to Your Corporate Monitor

An article on Law.Com (here) discusses how counsel for public companies have to deal with that new animal, the corporate monitor, if there is a government investigation of significant wrongdoing at the organization.  The advent of deferred and non-prosecution agreements since the demise of Arthur Andersen made federal prosecutors chary about indicting companies, has usually included the company paying for an independent monitor to ensure that it implements the terms of the agreement, which usually includes beefing up the internal compliance program and developing better reporting mechanisms to prevent a recurrence of the misconduct.  The article concludes, "Since monitorships -- whether bane or benefit -- are likely to remain a fixture in the legal and regulatory landscape for the foreseeable future, corporations and their counsel must learn how to deal with them."  I suspect most corporate counsel would vote for "bane" but there's not much they can do about them.

With deferred and non-prosecution agreements becoming almost the norm in corporate crime investigations, I think we should expect at some point to see the Department of Justice create some routine procedures for the appointment of monitors, the scope of authority, and their reporting responsibilities.  To this point, however, the agreements have been developed fairly haphazardly, with different districts following their own internal rules for appointing the monitor and the scope of authority to intervene in corporate affairs.  The monitor for Bristol-Myers Squibb essentially got the company's CEO and general counsel fired because of a criminal investigation initiated while the company was operating under a deferred prosecution agreement -- a rather significant level of involvement in corporate governance.  The appointment of individuals or firms as monitors has drawn criticism in a few instances for the possible appearance of impropriety, with former colleagues of the U.S. Attorney appointed in one district. 

The monitorships can be quite lucrative, and the company has almost no power to control the costs.  As discussed in an earlier post (here), former Attorney General John Ashcroft's firm will likely bill a medical device manufacturer between $29 million and $52 million for work as a monitor for 18 months, which is between $1.5 and $3 million per month.  A company has no real avenue to object to the bills, because the key to escaping the deferred prosecution agreement is cooperating fully with the monitor.  The cost of the monitor is a fairly small price for a company to pay for getting an investigation resolved without a criminal conviction.

As deferred and non-prosecution agreements become more routine, will the Department of Justice, or perhaps even Congress, try to institute regular procedures for them?  Perhaps one day there will be a group of approved corporate monitors who will work for a fixed fee or discounted rate that a company could chose from.  The lack of regular procedures works to the benefit of the local U.S. Attorney's Offices at this point, because without procedures there can be no real oversight.  The day may come, however, when the "wild west" aspects of these agreements comes to an end. (ph)

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