conducting regulatory investigations september 28, 2012 ottawa, canada richard leblanc, phd
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Conducting Regulatory
Investigations
September 28, 2012
Ottawa, Canada
Richard Leblanc, PhD
Agenda
1. When to investigate / opine2. Tone at the top 3. Board investigations4. Independence of directors5. Independence of advisors6. Whistle-blowing defects7. Rights / concerns of investigatee8. Conducting the investigation9. Document collection, interviews10.Findings and recommendations
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When to Investigate / Opine
• Reputation• Risk-taking puts organization at risk• Contagion, not materiality• Fraud / impropriety• Senior management involvement• Related party transaction• Self interest, conflict at board level• Foreign jurisdiction and supplier• Red flag / smoke• Tweet test
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Tone at the Top
• Zero tolerance• Integrity checks• Code enforced on key suppliers• Executive whistle-blowing• Management override and undue influence• Directors understand judgment invoking fraud• Moving the meeting and foreign directors• Private sessions in all committees• Compensation of risk takers• Internal audit with teeth
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Independence of Directors
• Direct or indirect relation to matter• Benefit not shared by other shareholders• Personal considerations and perks• Prolonged tenure red flag• Relation to control person• Third party view of independence• Excessive or inadequate compensation• Robust, disclosed conflict policy• Integrity mining of directors as influence flag• Look for interconnectedness to conflict out
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Independence of Advisors
• Management pre-selecting• Independence from management• Applies to whole firm• Assessing one’s own work or colleague• Adverse interests – second opinion• Third party view of independence• Advance retainer and to chairs• Foreign advisor red flags• Boutique firms doing solely governance• Internal quality assurance & regulatory reports
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Whistle-blowing defects
• Not anonymous• Doesn’t work for executives• Doesn’t work for suppliers• No reward or incentive• Toxic internal environment, no protection • Not independently administered; mgt influence• No forensic skills• Weak audit committee• Lack of knowledge of its existence• No exit data anonymously
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Rights / Concerns of Investigatee
• Right to counsel and Upjohn warnings• Indemnification of legal fees• Privacy and country rights• Personality irrelevant• Location of interviews & adverse inferences• Non-retaliation• Investigator not paid by management• Non-biased, fair process • Internal counsel may chill• Leaks to media, stakeholders• Working relationships, industry reputation
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Conducting the Investigation
• Freeze and preservation of evidence signoff• Avoid lawyering up and defensiveness• Pre-planning and media strategy• Government cooperation, curing, self-report• Assemble team and reporting• Creation of special committee if board-led• Terms of reference and authority• Any information or personnel• Compensation of members and advisors• Travel if foreign
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Documentation, Interviews
• Documentation / technology storage, tracking• Personal and home computers, devices• Forensic support• Working paper files in foreign jurisdictions• Language translation and barriers• Advance topics, documents for interviews• Record keeping and minuting diligence• Litigation and solicitor-client privilege• Watch for undue influence by management• Watch for capture of team / advisors
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Findings and Recommendations
• Governance enhancements• Recommendations to Board• Cooperation and reporting to government• Disclosure to media and stakeholders• Oral vs written reporting• Solicitor-client implications• Communication to auditor• Watch for adverse inferences• Communication to employees and morale• Conclusion of investigation
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Contact Information
Richard Leblanc, PhD
RPO Bloor West,2336 Bloor St. West, PO Box 84506Toronto, Ontario, CanadaM6S 4Z7
1.416.767.6676
email: info@boardexpert.com
web: www.boardexpert.com
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