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FCPA Compliance: The Importance of Relativity to Risk Ranking (Part I of V)

Corruption, Crime & Compliance Blog -

Any fool can know.  The point is to understand. – Albert Einstein

Two things are infinite: the universe and human stupidity; and I’m not sure about the universe. – Albert Einstein

This week I am posting a five-part series on FCPA compliance issues.  While there have been many advances in the anti-corruption ethics and compliance field, there is still more work to do to advance effective strategies for anti-corruption compliance.

An effective compliance program depends on assessment of risk.  The importance of understanding a company’s risk permeates every aspect of a company’s anti-corruption compliance program.  Risk-ranking is a critical function when assessing risk.  However, there is a significant nuance here – risk-ranking provides important insights between and among various types of risks, usually within the same category.  In more sophisticated programs, risk ranking is only part of the equation – ranking is one step, and relative risk understanding is another important step.

The FCPA Guidance issued by DOJ and the SEC in November 2012 (available here) stated it best:

One-size-fits-all compliance programs are generally ill-conceived and ineffective because resources inevitably are spread too thin, with too much focus on low-risk markets and transactions to the detriment of high-risk areas. Devoting a disproportionate amount of time polic­ing modest entertainment and gift-giving instead of focus­ing on large government bids, questionable payments to third-party consultants, or excessive discounts to resellers and distributors may indicate that a company’s compli­ance program is ineffective. A $50 million contract with a government agency in a high-risk country warrants greater scrutiny than modest and routine gifts and entertainment.

As reflected in this statement, the concept of relative risk is part of an overall risk assessment.  Gift-giving risks create relatively lower risks than large government bids, and questionable payments to third parties.

But there is more to the concept of relative risks that need to be explored.  The same principle of risk assessments applies to third-party risk management.  The FCPA Guidance addressed the issue:

[P]erforming identical due diligence on all third-party agents, irrespective of risk factors, is often counter­productive, diverting attention and resources away from those third parties that pose the most significant risks.

In the third-party risk management system, companies usually rank their third parties to determine which third parties require greater scrutiny than others.  Many companies employ a risk-ranking formula to target due diligence, risk monitoring and audits.  Ranking is only the first step in the process because relative risk is needed to fine tune the allocation of resources and ultimate time and attention given to specific third parties.

My point is yet another example of a profound grasp of the obvious.

As an example, consider the following situation – 100 third parties are ranked according to a formula.  However, the allocation of resources cannot just simply be made in accordance with the ranking of 1 to 100.  Within the 100, there needs to be some attempt to apply relative risks among the third parties.  The top 10 high-risk third parties may account for 90 percent of all of the company’s third-party risk.

Companies have to refine their own internal risk assessment process for anti-corruption programs across all of the risks in order to allocate resources in an efficient manner.

In the end, relative risk assessment can be divided into two discrete functions.

The first is within a specific category of risks.  So, for example, when considering third-party risks, relative risk-ranking is a more refined analysis of not only how to rank the risks on a scale but to examine relative degrees of risks within the ranking of third parties.

The second is to apply relative risk assessment across discrete risks.  In this scenario, a company has to assess the nature of its third-party risks in relation to its other anti-corruption risks, including for example government tenders, gifts, meals, entertainment, and regulatory inactions.  Again, this refinement of risk ranking is meant to focus on relative risks across certain categories of risk.

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Episode 35 –Update on AML Compliance from Recent AML Enforcement Actions

Corruption, Crime & Compliance Blog -

In the early part of 2018, the Justice Department brought two significant AML criminal enforcement actions against US Bancorp and Rabobank, respectively. These two cases, coupled with the new beneficial ownership regulations effective May 11, 2018, raise significant changes in the AML compliance and enforcement landscape.  In addition, the SEC and FINRA brought AML enforcement actions against Aegis Corporation and three individuals, two of whom were compliance officers at the broker-dealer.

In this episode, Michael Volkov discusses recent AML compliance trends and AML enforcement actions.

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Nell Minow: Only Corporate Governance Can Save the World

Corporate Governance -

Nell Minow is one of my heroes. Her 1991 book with Bob Monks, Power and Accountability: Restoring the Balances of Power Between Corporations and Society, helped me give a name and framework to what I thought was the world’s most important overlooked problem — corporate governance. During the last 27 years, I have never met […]

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Corporate Governance Deviance

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Ruth V. Aguilera (Northeastern University & ESADE Business School), William Q. Judge (Old Dominion University), Siri Terjesen (American University & Norwegian School of Economics), on Sunday, April 22, 2018 Editor's Note: Ruth V. Aguilera is Distinguished Professor of International Business and Strategy at Northeastern University and Visiting Professor at ESADE Business School; William Q. Judge is E.V. Williams Chair of Strategic Leadership & Professor of Strategic Management at Old Dominion University; and Siri Terjesen is Dean’s Faculty Fellow in Entrepreneurship and Director of the AU Center for Innovation at American University and Adjunct Professor at Norwegian School of Economics. This post is based on their recent article, forthcoming in Academy of Management Review.

Societies throughout the world utilize a wide range of corporate governance mechanisms to govern their corporations. Normally, most societies use rules and norms to get corporations to conform to traditional corporate governance practices; and most corporations do conform to this national governance logic. However, some corporations do not conform to the logic in which they are embedded. When this deviation happens, we note that corporate governance deviance has occurred. The purpose of our article was to explain what corporate governance deviance is, and why, when, and how firms engage in governance deviance.


Is There a Gender Gap in CEO Compensation?

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Vishal Gupta, Sandra Mortal, and Xiaohu Guo (University of Alabama), on Saturday, April 21, 2018 Editor's Note: Vishal Gupta is associate professor of Management; Sandra Mortal is associate professor of Economics, Finance, & Legal Studies; and Xiaohu Guo is a PhD candidate at the University of Alabama Culverhouse College of Commerce. This post is based on their recent article, forthcoming in Strategic Management Journal.

Our research examines whether there is a gender pay gap in CEO compensation. Issues surrounding the gender pay gap have attracted considerable academic and media attention over the past few decades (Blau & Kahn, 2017). The growing presence of women in CEO roles has spurred interest in understanding how gender may affect the treatment of those who, against significant odds, manage to reach the top of the organizational hierarchy. Compensation captures the monetary value an organization subscribes to the contributions and importance of its individual employees, including the chief executive. The remuneration given to a manager for his or her job has “many consequences for that manager, the top management team, the organization, and stakeholders in the organization”, so that executive compensation is of compelling interest to researchers and practitioners (Finkelstein, Hambrick, & Cannella, 2009). It is therefore not surprising that a large and vibrant body of research exists on the topic of CEO compensation, though much less consideration has been given to the possible influence of gender on CEO compensation (perhaps, because of the relative scarcity of women CEOs in the past).


This Week in FCPA-Episode 99, the banks are still behaving badly edition

FCPA Compliance & Ethics -

With Wells Fargo having been fined $1 billion for behaving badly, Jay Rosen and myself take a look at some of the top compliance stories over the past week. Wells Fargo has been fined $1 billion for variety of alleged misdeeds. Emily Flitter and Glenn Thrush report in the New York Times. Michael Held, general [...]

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100 Days to National Whistleblower Day 2018!

Whistleblower Protection Blog -

Attendees at the 2017 National Whistleblower Day celebration.

Today marks the 100-day countdown to National Whistleblower Day, celebrated each year on July 30th.

National Whistleblower Day commemorates the passing of America’s first whistleblower law on July 30th, 1778. This visionary action, taken during the height of the American Revolution, stands as a testament to the importance of whistleblowing in U.S. history.

Each year since 2013, the Senate has passed a non-binding resolution marking July 30th as National Whistleblower Day. However, more needs to be done. Whistleblowers have played a critical role in upholding America democracy, and rooting out waste, fraud, and abuse. They should be celebrated and recognized for doing so.

National Whistleblower Center is current pushing for Congress and President Trump to pass legislation that will permanently recognize July 30th as National Whistleblower Day.

“Our Founding Fathers recognized the importance of defending whistleblowers, and so should we. Whistleblowers have made great contributions throughout American history, and should be honored and celebrated for their bravery,” said Mary Jane Wilmoth, a whistleblower attorney and chief financial officer of the National Whistleblower Center.

Executive Director of the National Whistleblower Center, Stephen M. Kohn, has given a TEDx Talk on the incredible story behind America’s first whistleblower law which can be viewed here.

Daniel Ellsberg On Whistleblowing

Whistleblower Protection Blog -

Daniel Ellsberg speaks on his experience blowing the whistle.

“What would you do if you were a young professional working at your dream job, and you discover that your employer was lying to the public, promoting a disastrous foreign war, and steadily expanding a weapons program that threatened to destroy human life on earth?”

Daniel Ellsberg faced this question himself multiple times in his life. He posed the same question to the audience during his April 10th talk at the Carnegie Endowment for International Peace, and in his new book, The Doomsday Machine. Ellsberg continued that he believes there are currently thousands of government employees looking at the prospect of nuclear war, whether or not they recognized this sentence as applicable to them.

In 1964, on Ellsberg’s first day of duty at the Pentagon, and seven years before he released the Pentagon Papers, President Lyndon B. Johnson and Secretary of Defense Robert McNamara began carrying out sorties in Vietnam. They told the public that the sorties were a limited retaliation to an unprovoked attack—statements which Ellsberg, due to his work, knew to be false. An ensuing series of lies paved the way for the passage of the Gulf of Tonkin Resolution, providing legal authorization for the Vietnam War.

At the time, it did not occur to Ellsberg to expose the deception. President Johnson was running against Senator Goldwater, who was campaigning on a platform of expanding war. But by staying silent, Ellsberg said that he was breaking the single oath he had taken as part of his job. As an employee with higher than top-secret clearance, he had signed many non-disclosure agreements. And yet, he had taken only one oath, one that was neither an oath of secrecy nor of loyalty to a particular individual: to “support and defend the Constitution of the United States against all enemies, foreign and domestic.”

Ellsberg had fought in the war as a marine, and initially believed the war was justified. However, his thoughts began to change during his time as a RAND Corporation employee when he was charged with compiling a report that is now known as the Pentagon Papers. After reading through thousands of documents, he realized that the Vietnam War was “wrongful and unjustified from the start.” With the rising death toll and the prospect of nuclear deployment, Ellsberg felt compelled to intervene. When his attempts within the Department of Defense led nowhere, he eventually took his copies of the report to the New York Times, which were subsequently published on June 13, 1971.

After the Papers were published, things went badly for Ellsberg. He faced a sentence of 115 years in prison. Nixon was re-elected with a landslide in 1968, and the bombings on Vietnam intensified. Then, the Watergate scandal happened. Nixon ordered members of the intelligence community to find psychiatric information to discredit Ellsberg, and the office burglaries eventually snowballed into one of the greatest political scandals in U.S. history. Nixon resigned and the Vietnam War came to an end.

Ellsberg offers no golden formula for whistleblowers. But he does recommend staying in one’s job long enough to collect sufficient evidence of fraud, waste, or abuse. In addition, Ellsberg believes the press has a vital role to play in uncovering and reporting on malfeasance. While whistleblower laws have improved since Ellsberg released the Pentagon Papers, it is deeply troubling that the sacrifices they must make to release the truth remain so steep. Ellsberg’s courage to come forward is an incredible testament to his character. That he needed to risk life imprisonment shows we must do more to protect brave whistleblowers.

When asked by a member of the audience when he thought a whistleblower should act, Ellsberg said that individuals should consider leaking, he said, “don’t do what I did. Don’t wait till the bombs are falling, or when nuclear war has already occurred in North Korea before you reveal or consider revealing estimates in the Pentagon.” He added that there are secrets which should be leaked and others which can only do harm, and that it is up to the good judgment of each whistleblower to tell the difference.

Ellsberg’s words are strangely prescient given the recent bombings on Syria, supposedly to target chemical weapons facilities. While he admits that the chance of whistleblowing affecting actual policy is slim, Ellsberg stated calmly that the chance remains greater than zero—and that it is worth risking one’s personal life just to increase that chance, if the stakes are high enough.

Breaking News in the Industry: April 20, 2018

Loss Prevention Media -

Shoplifter goes berserk after store theft

Moises Cerda has had 15 mugshots taken at the Will County Jail since 2009. Will last week’s mugshot be his last? That remains to be seen. This time, the 26-year-old Joliet, Illinois, resident who lives in the 400 block of Harwood Street has landed in serious trouble with Will County’s criminal justice system. Last week, Cerda visited the Jewel-Osco on West Jefferson Street and tried to swipe a bottle of liquor, the criminal complaint states. But before Cerda made his way out of the store, the Jewel-Osco loss prevention team jumped in action. And that’s when Cerda put up a fight, according the criminal charges. Cerda is charged with striking one of the LP associates “about the neck” and also “about the body,” the complaint states. Cerda also “struck about the head” another Jewel-Osco loss prevention associate while that man “was detaining the defendant for an alleged commission of retail theft,” court documents state. Cerda finds himself charged with retail theft and three counts of aggravated battery. His bail has been set at $75,000. So far, Cerda has failed to come up with 10 percent to post bond. But if he does, a judge has told Cerda that he “shall have no contact with Jewel-Osco.”   [Source: Joliet Patch]

Suspect claims to be soldier about to be deployed, steals $100K diamond

A man walked into a Bellevue, Washington, jewelry store dressed in military fatigues and boots and told an employee he wanted to buy a diamond engagement ring for his new fiancée before being deployed. Shown a 5.54-carat, marquise-cut diamond worth $100,000, the man grabbed the stone, bolted out the door and made his getaway in an SUV, Bellevue police say. Thanks to fingerprints left on the store’s glass door after the February theft, police last week arrested a suspect, identified in charging papers as Arquae Kennedy, 26, of Vancouver, Washington. Kennedy, who was charged Monday with second-degree robbery, never served in the armed forces, according to Bellevue police and King County prosecutors. Kennedy is accused of walking into Diamonds Inc., a jewelry store on Main Street in Old Bellevue. He asked to see diamonds between 3 and 5 carats and was shown two rings, charging papers say. He then asked to see a bigger diamond, and the store’s owner showed him a loose stone in a small jar, according to the charges. As the owner explained the diamond’s price, Kennedy suddenly grabbed the jar and ran out the front door, the charges say. The owner and his son chased Kennedy as he ran until reaching a private drive, where an SUV drove up to them, charging papers say. The owner managed to grab hold of Kennedy’s jacket as Kennedy jumped into the SUV, the charges say.  The owner was dragged by the vehicle a short distance until Kennedy hit him, causing him to let go, say the charges, which note the store owner suffered a bloody nose, a cut lip, and scraped knuckles and knees.

A woman who was driving by and who witnessed the pursuit was able to provide police with a license plate number, which came back to a 2018 Mazda CX5 that had been rented by a man who did not match the description of the robbery suspect, say charging documents. An employee told officers the store’s windows had been professionally cleaned that morning and that she had just cleaned the glass door and display case before the theft. When police reviewed the store’s video-surveillance footage, officers noticed the thief had pushed the glass open as he fled. Latent fingerprints found on the glass were run through an FBI database and matched Kennedy’s fingerprints, say charging papers. The store employee and the owner’s son independently identified Kennedy from a police photo montage.  Bellevue police obtained a temporary arrest warrant for Kennedy and arrested him in Vancouver on Friday. Kennedy was booked into the Clark County Jail before being transported to the King County Jail on Monday, where he remains in lieu of $150,000 bail, jail and court records show. Kennedy’s alleged accomplice has not been identified and police have not recovered the stolen diamond, according to Bellevue police. [Source: The Seattle Times]

Subject accused of leaving store while wearing stolen items

A woman was taken into custody after allegedly taking clothing into a fitting room at a Target store in Bloomfield Township, MIchigan, and attempting to leave while wearing the items. Angela Marie Blackwell is charged with first-degree retail fraud. Police said a Target asset protection associate at the store on Telegraph Road saw Blackwell carry multiple items of clothing into a fitting room and was wearing the items when she walked out. The asset protection manager was notified who allegedly saw Blackwell put several items into her purse while shopping. Blackwell paid for several grocery items that were in her cart at the checkout. Police said Blackwell attempted to leave the store without paying for the clothing items, the concealed items in her purse and unpaid items in her cart.  The items totaled more than $1,600. Officers responded and Blackwell was taken into custody and was arraigned Tuesday and given a $10,000 bond.
    [Source: ClickOnDetroit]

Police searching for thieves who’ve stolen up to $60K in clothing from department stores [Viral Video]

Indianapolis Metropolitan police are asking for the public’s help in tracking down a thief and several accomplices who have allegedly stolen about $60,000 in clothing from area Macy’s stores over the last few months. “They’re just running in as fast as they can and grabbing as many clothes as they can in those designer aisles and designer areas of Macy’s and then running out,” said IMPD Detective Michael Schollmeier. Schollmeier says the thefts started back in December and have continued at the Macy’s stores at Castleton Square Mall and Glendale Town Center. Investigators believe the same man, working with different accomplices, has targeted the stores about 15 times. “The majority of the value of the hits are between $2,000 and $6,000 every time,” Schollmeier said. Surveillance videos show the primary suspect and an accomplice walking into Macy’s, grabbing stacks of clothing, then quickly walking out of the store to a red Pontiac waiting in the parking lot. The thieves are in the store no more than a couple minutes. “They’re in and out so fast, there’s been numerous times loss prevention has been in the store, but as soon as they see them come in, by the time they get to that corner of the store, they’ve already grabbed their stuff and left,” Schollmeier said.

One incident didn’t go so smoothly for the thieves. One surveillance video shows the suspects struggling to walk out with several expensive jackets that had been wired to the floor by Macy’s employees. “They wired all the jackets up and put security devices on them so if they did come in, they couldn’t take that whole rack of jackets,” Schollmeier said. “And sure enough, they came in and tried to take that whole rack of jackets.” “The wires caught them and they weren’t able to get the jackets,” Schollmeier continued. “But as you can see in the video, they put the jackets down and end up going out with several thousand dollars in Polo shirts.” On another day, a Macy’s employee recognized the primary suspect when he came into the store and followed him outside. “They were able to snap some cell phone pictures of the suspects, but they weren’t able to detain them,” Schollmeier said. The thieves appear to be targeting expensive, designer brand clothing like Polo Ralph Lauren, Nautica and others. “We assume, obviously, they’re selling the stuff. But we really don’t know at this point where the clothing is going.”  If the suspects are caught, they could face charges including felony theft, and corrupt business influence. Anyone with information is asked to call Crime Stoppers at 317.262.TIPS.  [Source: CBS4Indy]

Employee steals merchandise, threatens LP and security with a gun

Colorado prosecutors have until this afternoon to file charges against a JCPenny employee accused of stealing $99 worth of jeans from the store last month and threatening Greeley Mall employees with a gun. Loss prevention associates would later tell police they caught sight of Sergio Jimenez, 24, leave the JCPenny store on the afternoon of March 29 with two pairs of jeans he hadn’t paid for. The associates tried to stop him from leaving, but he broke free from their grasp. “I have a gun,” he said, according to the affidavit for his arrest, recently made public. Then he “reached in his back pocket and pulled out a black semiautomatic handgun and held it down at his own side as he backed away.” The associates stepped away after that, and Jimenez fled to a car in the parking lot, they said. About that time, two mall security officers saw Jimenez flee from the loss prevention associates. The two mall security guards dashed out a side door in an effort to cut off Jimenez’s escape into the parking lot. When they caught up with him, he also told them he had a gun, and the security guards “backed off for their safety.” Jimenez eluded police for the next few weeks. Then, on Tuesday, Evans officers responded to the 3400 block of Belmont Avenue. The caller reported giving a man a ride, but then said the man produced a gun and threatened to shoot the driver. When police arrived at the caller’s location, they found Jimenez sitting on the sidewalk. He had a black handgun on the pavement next to him, the report states. He was arrested and booked into the Weld County Jail without further incident on suspicion of multiple criminal charges, including aggravated robbery and menacing.   [Source: The Greeley Tribune]

Consumers warned to watch out for counterfeit dresses, apparel online

From wedding dresses to summer apparel, consumers planning to add new items to their wardrobes are being warned to watch out for knock-off brand name merchandise that is increasingly tricking online shoppers. A consumer group and a counterfeit goods investigator both say it’s not only unaware consumers and brands that lose out when knock-offs are sold, but the profits often support other illegal activities. Jigme Love, co-owner of the Vancouver-based luxury consignment retailer Mine & Yours, said she’s seen the counterfeiting of brand name apparel transition from predominantly bags and accessories to dresses and other clothing. The company has destroyed a number of clothing items over the years that, upon closer inspection, turned out to be fakes, costing the store, she said. “We’re really strict but it’s not a perfect science,” she said. The store has become more cautious when buying clothes and increasingly relies on a third-party authenticator to verify garments, a process they previously used only for bags, Love said. There’s also been a shift from counterfeiting common high-end names like Michael Kors to more coveted haute couture lines like Chanel, she said. With wedding and prom season fast-approaching, Evan Kelly with the Better Business Bureau of Mainland B.C. is reminding consumers to do their homework before investing in a deal that seems too good to be true. “When it comes to brand name clothing, nothing is off limits,” he said. “We’ve seen fake Vera Wang dresses, fake just about anything.” Lorne Lipkus, a Toronto lawyer and member of the Canadian Anti-Counterfeiting Network, said everyone loses when knock-off brands are sold. An estimated $20 billion to $30 billion in counterfeit consumer goods are sold in Canada every year, he said. “The counterfeiters don’t pay taxes, so we are supporting an endeavor that is not contributing to this wonderful society that we have,” he said.

While he’s seen production of counterfeit goods shut down by police over the years, he said 80 percent of the global trade comes from China, and it’s largely controlled by organized crime or terrorism groups. Kelly said consumers should know the websites and companies they’re dealing with, check reviews, and always pay by credit card or PayPal which offer added security. Traditional brick-and-mortar stores continue to be the safer bet for shopping, he said. Increasingly, Lipkus said fake goods sold online aren’t just appearing on unique or resale websites but are sold through social media sites, including Facebook and Instagram. Three years ago, Lipkus said his law firm Kestenberg Siegal Lipkus LLP only employed one part-time person to search out online sellers. Today, they have three full-time investigators dedicated to the issue. Love said shoppers looking for a designer second-hand wedding dress should ask for a copy of the receipt and then call the retailer to confirm the original purchase. “I’ve even seen fake receipts,” she said. Close inspection of the stitching of a garment, the fabric and the label can provide clues as to whether a product is the real deal, she added. Lipkus also encouraged shoppers who get scammed to contact the Canadian Anti-Fraud Centre, which can investigate and provide support to someone trying to get their money refunded by a credit card provider.    [Source: The Colonist]

The post Breaking News in the Industry: April 20, 2018 appeared first on LPM.

AT&T Inc Proxy Voting Recommendation

Corporate Governance -

AT&T Inc (T) provides communications and digital entertainment services. The company operates through four segments: Business Solutions, Entertainment Group, Consumer Mobility, and International. Most shareholders do not vote because reading through 70 pages of the proxy is not worth the time for the small difference your vote will make. Below, I tell you how I […]

The post AT&T Inc Proxy Voting Recommendation appeared first on Corporate Governance.

Lazard’s 1Q 2018 Activism Review

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Jim Rossman, Lazard, on Friday, April 20, 2018 Editor's Note: Jim Rossman is head of Shareholder Advisory at Lazard. This post is based on a Lazard publication by Mr. Rossman. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here);  Dancing with Activists by Lucian Bebchuk, Alon Brav, Wei Jiang, and Thomas Keusch (discussed on the Forum here); and Who Bleeds When the Wolves Bite? A Flesh-and-Blood Perspective on Hedge Fund Activism and Our Strange Corporate Governance System by Leo E. Strine, Jr. (discussed on the Forum here). Key Observations on the Activist Environment in 1Q 2018

Source: Activist Insight, FactSet and public filings as of 3/31/2018.
Note: All data is for campaigns conducted globally by U.S. and European activists at companies with market capitalizations greater than $500 million at time of campaign announcement.

1. Activist activity reached new heights in 1Q 2018 both in terms of capital deployed and campaigns initiated

  •  ~$25bn of capital was deployed in new campaigns in 1Q 2018—the most in any quarter on record
    • 1Q 2018 saw major campaigns by emerging activists such as SailingStone, Jericho Capital and Vulcan Value, while some traditional activists such as Corvex, Pershing Square and Trian were relatively inactive
  • 73 new campaigns were initiated in 1Q 2018—the highest quarterly activity on record
  • 65 Board seats were won in 1Q 2018—well ahead of 2016 YTD and 2017 YTD—while an additional 78 seats are “in play”
    • Starboard Value was the leading activist in forcing Board turnover, with 41 seats targeted in 1Q 2018


Corporate Culture Risk and the Board

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Carey Oven, Deloitte & Touche LLP, and Bob Lamm, Deloitte LLP, on Friday, April 20, 2018 Editor's Note: Carey Oven is National Managing Partner at Deloitte & Touche LLP and Bob Lamm is Independent Senior Advisor at the Center for Board Effectiveness at Deloitte LLP. This post is based on their Deloitte publication. Introduction: “Where was the board?”

Recent corporate scandals linked to problematic company cultures have resulted in questions such as “where was the board?” and “shouldn’t the board have known?” In some cases, board members themselves may have wondered why they were not informed of cultural problems and asked, “should we have conducted more due diligence?”

These and similar questions, and the responsibility to protect both their companies’ and their own reputations, are leading directors to look for ways to better monitor corporate culture and to understand potential cultural risks and address problems before they get out of control.

The purposes of this post are to help define “culture” and why it matters, and to provide practical suggestions for overseeing culture risk.


Weekly Roundup: April 13–19, 2018

The Harvard Law School Forum on Corporate Governance and Financial Regulation -

Posted by Harvard Law School Forum on Corporate Governance & Financial Regulation, on Friday, April 20, 2018 Editor's Note: This roundup contains a collection of the posts published on the Forum during the week of April 13–19, 2018. 2018 Proposed Amendments to the Delaware General Corporation Law
Posted by John Mark Zeberkiewicz and Stephanie Norman, Richards, Layton & Finger, P.A., on Friday, April 13, 2018 Tags:  Dodd-Frank is a Pigouvian Regulation
Posted by Aaron M. Levine (Sullivan & Cromwell LLP) and Joshua C. Macey, on Friday, April 13, 2018 Tags:  Portfolio Manager Compensation in the U.S. Mutual Fund Industry
Posted by Linlin Ma (Northeastern University), Yuehua Tang University of Florida), and Juan-Pedro Gomez (IE University Business School), on Saturday, April 14, 2018 Tags:  Are Dual-Class Companies Harmful to Stockholders? A Preliminary Review of the Evidence
Posted by David J. Berger (Wilson Sonsini Goodrich & Rosati) and Laurie Simon Hodrick (Stanford Law School), on Sunday, April 15, 2018 Tags:  Activists are Hereby on Notice: Board Authority to Reject Deficient Director Nominations
Posted by Kai Haakon Liekefett, Andrew W. Stern, and Beth E. Peev, Sidley Austin LLP, on Monday, April 16, 2018 Tags:  Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence
Posted by Raymond J. Fisman (Boston University), on Monday, April 16, 2018 Tags:  Median Employee Pay Not Quite the Spectacle Anticipated
Posted by Deb Lifshey, Pearl Meyer & Partners, LLC, on Tuesday, April 17, 2018 Tags:  Appraisal Rights: Navigating the Maze After DFC GlobalDell, and Aruba
Posted by Jeffrey J. Rosen and William D. Regner, Debevoise & Plimpton LLP, on Tuesday, April 17, 2018 Tags:  The Investor View on Executive Compensation in 2018
Posted by Chris Wightman and David Martin, CamberView Partners LLC, on Wednesday, April 18, 2018 Tags:  Ten Crypto-Financing Caveats
Posted by John Reed Stark, John Reed Stark Consulting, LLC, on Wednesday, April 18, 2018 Tags:  HLS Program Seeks Academic Fellows
Posted by Matt Filosa, Harvard Law School, on Wednesday, April 18, 2018 Tags: How Should Financial Regulators Handle the Bitcoin Era?
Posted by William Magnuson (Texas A&M Law School), on Thursday, April 19, 2018 Tags:  Measuring Effectiveness: Roadmap to Assessing System-Level and SDG Investing
Posted by Steve Lydenberg and William Burckart, The Investment Integration Project, on Thursday, April 19, 2018 Tags:  The Importance of Alleging Control: Between Corwin and MFW
Posted by Steven M. Haas and Meghan Garrant, Hunton Andrews Kurth LLP, on Thursday, April 19, 2018 Tags: 

Repeat Corporate Misconduct

Program on Compliance and Enforcement, New York University School of Law -

by Veronica Root

But for other more salacious political concerns, the biggest story of the last couple weeks likely would have been Mark Zuckerberg’s testimony before Congress.  Zuckerberg spent two days answering hundreds of questions from lawmakers.[1]  Much of the questioning was concerned with Facebook’s protection, or alleged lack thereof, of its users’ privacy.  The testimony, however, once again raises questions about how companies that engage in repeated instances of misconduct should be sanctioned.

Facebook has been sanctioned on multiple occasions by various regulators worldwide for its conduct related to user privacy.  For example, in 2011, Facebook “agreed to settle Federal Trade Commission charges that it deceived consumers by telling them they could keep their information on Facebook private, and then repeatedly allowing it to be shared and made public.”[2]  In 2017, Facebook was fined by French authorities for “fail[ing] to properly inform users of how their personal data is tracked and shared with advertisers.”[3]  More recently, Federal Trade Commission officials have stated that Facebook may have “breached [the] 2011 consent agreement to safeguard users’ personal information.”  And, of course, there was last week’s congressional testimony prompted by the alleged misuse of Facebook users’ profiles by Cambridge Analytica.[4] 

Facebook is not, however, all that special or unusual.  Whether it is Facebook, HSBC,[5]  or Wells Fargo, there are many large, sophisticated organizations that engage in multiple instances of wrongdoing.  And regulators often treat each incident as an isolated matter that should be addressed on its own without consideration of other occasions where misconduct occurred within the organization.[6] 

In fact, truly aggressive sanctions are so rare that when they are in fact levied it sometimes prompts speculation that the governmental actor may have had ulterior motives when imposing the sanction.  Take Wells Fargo.  On February 2, 2018, the Federal Reserve “announced that it would restrict the growth of [Wells Fargo] until it sufficiently improves its governance and controls,” in addition to other corporate governance reforms.[7]  Shortly thereafter, an argument was made that the actions by the Federal Reserve were a “piercing political statement” made “on Chair Janet Yellen’s last day in office.”[8]  The authors noted that these actions by the Federal Reserve “c[a]me on the heels of significant actions already taken by Wells, including appointing a former Federal Reserve governor as Independent Chair and replacing a number of independent directors as well as its General Counsel.”[9]

Whether the sanction imposed by the Federal Reserve against Wells Fargo was a legitimate sanction or a politically motivated aberration is debatable.  It is, however, concerning that aggressive sanctions are deemed suspect when levied against a firm with a documented history of engaging in repeated instances of misconduct.  If aggressive sanctions are really that unusual, it may suggest that the enforcement policy by U.S. governmental actors within the United States is in need of reassessment. 

U.S. regulators, prosecutors, and perhaps even members of Congress, need to think critically about the types of sanctions that are likely to deter corporations like Facebook and Wells Fargo from engaging in misconduct.  There has been some mention of corporate recidivism recently—like what’s found in the FCPA Corporate Enforcement Policy—but the ability or willingness of governmental actors to look at organizational misconduct across diverse regulatory areas when considering appropriate sanctions is not at all clear.  Indeed, recent experience and scholarship suggests that much more can be done.

[1] Zach Wichter, 2 Days, 10 Hours, 600 Questions:  What Happened When Mark Zuckerberg Went to Washington, N.Y. Times (April 12, 2018),

[2] Press Release, Fed. Trade Comm’n, Facebook Settles FTC Charges that it Deceived Consumers by Failing to Keep Privacy Promises (Nov. 29, 2011),

[3] Amar Toor, Facebook Is Still Violating User Privacy, Dutch and French Regulators Say, Verge (May 17, 2017),

[4] Kevin Granville, Facebook and Cambridge Analytica:  What You Need to Know as Fallout Widens, N.Y. Times (March 19, 2018),

[5] See, e.g., Veronica Root, Coordinating Compliance Incentives, 102 Cornell L. Rev. 1003 (2017).

[6] Id.

[7] Press Release, Bd. of Governors of the Fed. Reserve Sys., Responding to Widespread Consumer Abuses and Compliance Breakdowns by Wells Fargo, Federal Reserve Restricts Wells’ Growth Until Firm Improves Governance and Controls.  Concurrent with Fed Action, Wells to Replace Three Directors by April, One by Year End (Feb. 2, 2018),

[8] Edward D. Herlihy, Richard K. Kim & Sabastian V. Niles, Federal Reserve Takes Severe and Unprecedented Action Against Wells Fargo:  Implications for Directors of All Public Companies, NYU PCCE Blog (Feb. 6, 2018),

[9] Id.

Veronica Root is an Associate Professor of Law at University of Notre Dame Law School. Professor Root teaches Corporate Compliance & Ethics, Professional Responsibility, and Contracts.  Her scholarship on compliance and other matters is available here.

The views, opinions and positions expressed within all posts are those of the author alone and do not represent those of the Program on Corporate Compliance and Enforcement (PCCE) or of New York University School of Law.  PCCE makes no representations as to the accuracy, completeness and validity of any statements made on this site and will not be liable for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with the author.

Louisa Tomar: Local business community still missing in the global anti-corruption conversation

The FCPA Blog -

Corruption remains a number one concern of citizens across the world. People feel left out of the benefits of globalization and are increasingly disillusioned with the public institutions meant to protect them and their economic and social interests. Predictably, this year’s OECD Anti-Corruption and Integrity Forum focused on public integrity.

Key Topics of Interest to the SEC

Corporate Compliance Insights -

Guidance from Director Dalia Blass Director Dalia Blass of the SEC’s Division of Investment Management (the “Division”) recently delivered the keynote address for the ICI 2018 Mutual Funds and Investment Management Conference.1 Director Blass discussed four main topics: (1) the role of data in the SEC’s work, (2) the role of fund directors, (3) aspects of The post Key Topics of Interest to the SEC appeared first on Corporate Compliance Insights.

(This is only a summary. Click on the headline to view the entire article at Corporate Compliance Insights and participate in the discussion.)


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