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Board Oversight of Compliance & Ethics Programs. Jeff Kaplan/Kaplan & Walker / [email protected] Society of Corporate Secretaries & Governance Professionals 2012 Mid-Atlantic Chapter Fall Meeting . Key legal drivers. US Sentencing Guidelines DOJ Prosecution Standards

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Board oversight of compliance ethics programs

Board Oversight of Compliance & Ethics Programs

Jeff Kaplan/Kaplan & Walker [email protected]

Society of Corporate Secretaries & Governance Professionals

2012 Mid-Atlantic Chapter Fall Meeting

Key legal drivers
Key legal drivers

  • 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

C e governance documentation
C&E governance documentation

  • Types

    • Audit committee charter

    • C&E program charter

    • Job descriptions

      • CECO

      • GC or others

    • Investigation and reporting procedures

Reporting to the board two types
Reporting to the Board: two types

  • 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

Independence of ceco
Independence of CECO

  • 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

Content of board reports possible components
Content of board reports: possible components

  • 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

More on reports to board
More on reports to board

  • 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

Report contents cont
Report contents (cont.)

  • 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

C e training for boards
C&E training for boards

  • 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)

Program assessments
Program assessments

  • 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