jeff kaplan/kaplan & walker / [email protected] [email protected] society of...
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Board Oversight of Compliance & Ethics
ProgramsJeff Kaplan/Kaplan & Walker /[email protected]
Society of Corporate Secretaries & Governance Professionals2012 Mid-Atlantic Chapter Fall Meeting
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US Sentencing Guidelines DOJ Prosecution Standards Delaware case law
◦ Caremark, Stone v Ritter◦ Disney: best practices as a way of minimizing
risks and costs Not a C&E case, but logic is relevant to C&E
S-Ox, NYSE rules Various official expectations outside the US
Key legal drivers
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Types◦ Audit committee charter◦ C&E program charter◦ Job descriptions
CECO GC or others
◦ Investigation and reporting procedures
C&E governance documentation
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Sentencing Guidelines: individual with operational responsibility for the program should have express authority to communicate personally to the board or a board committee◦ Promptly on any matter involving criminal conduct or
potential criminal conduct, and ◦ No less than annually on the implementation and
effectiveness of the C&E program Good practice
◦ CECO- multiple reports per year; C&E director (if a different person) – one
◦ Both have authority to report to audit committee chair re: alleged misconduct
Reporting to the Board: two types
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Given board’s reliance on CECO, typically an important consideration
Many criminal/regulatory settlements require CECO not be part of law department
But for many companies CECO can be part of law department if have other indicia of independence◦ Strong informational reporting relationship with
board◦ Audit committee monitoring of compensation and
duties
Independence of CECO
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These are not mutually exclusive, nor should any board necessarily cover all◦ Rather, key is to find what is most helpful for a
given company/board First, main elements and attributes of an
effective C&E program, but focus on those where directors can really make a difference◦ Elements: incentives, discipline, senior
management involvement◦ Attributes: authority, independence, reach,
resources, organizational culture
Content of board reports: possible components
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Second: particular focus on system for encouraging reports of violations◦ At the heart of Caremark and S-Ox obligations◦ Look for weak spots (by business or geography)
Third: other program metrics ◦ Can be helpful, e.g.,
Employee survey/focus group results Audit results Breaches Training completions Many others
◦ But some boards worry too much about this – and there is no magic quantitative approach to C&E metrics
More on reports to board
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Fourth - risk areas◦ Stone v Ritter underscores need◦ Board should have sense of C&E risk assessment
methodology (and why you think it works)◦ For top risk areas (e.g., EHS, FCPA, Antitrust) provide
ongoing information about Risks Mitigation plans Adherence to plans
Asking good questions is key to any of these approaches ◦ See http://
www.fcpablog.com/blog/2010/6/8/what-boards-should-ask.html
Report contents (cont.)
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Going beyond audit committee Oversight is part – but not all – of what should be
covered in training Individual C&E risks for directors (e.g., COIs,
confidential information) should also be addressed because◦ Director integrity key to market confidence; violations by
directors can undermine this◦ Relevant to oversight of senior management, since many of the
risks are the same Consider cataloging all the C&E information your board
gets to see what’s missing, and develop a true curriculum map (of current and planned training/communications)
C&E training for boards
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Strong expressions of support for these by◦ Justice Department◦ Sentencing Commission◦ OECD Anti-Bribery Good Practice Guidance
Boards generally encouraged to rely on experts – may be particularly useful for C&E programs
Assessment report can provide framework for ongoing program oversight for years to come
The very act of commissioning an assessment itself helps show that the board is serious about C&E
Program assessments