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Board Oversight of Compliance & Ethics Programs. Jeff Kaplan/Kaplan & Walker / 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 /

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