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Investor Ideology

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

Posted by Enrichetta Ravina (Northwestern University), on Wednesday, March 14, 2018 Editor's Note: Enrichetta Ravina is Visiting Assistant Professor of Finance at Northwestern University Kellogg School of Management. This post is based on a recent paper authored by Professor Ravina; Patrick Bolton, David Zalaznick Professor of Business and Professor of Economics at Columbia Business School; Tao Li, Assistant Professor of Finance at University of Florida Warrington College of Business; and Howard Rosenthal, Professor of Politics at New York University.

Understanding the determinants of institutional investor voting has become increasingly important as they own a larger share of the economy. They, not retail investors, cast the determining votes on most proxy ballots, and consequently shape a wide range of corporate governance, social and economic issues.

In our paper, Investor Ideology, publicly available on SSRN, we estimate the ideology of several hundred mutual fund families and public pension funds by examining their proxy voting records in publicly listed Russell 3000 firms. We follow a “political” approach based on the W-NOMINATE spatial model pioneered by Poole and Rosenthal to study voting in Congress. The model takes institutional investors’ votes on proposals up for a shareholder vote to estimate their ideal points along one, or possibly two, most salient policy dimensions. This political approach, which has also been adopted by Bubb and Catan in simultaneous and independent work, is in contrast to the economic and financial approaches taken in the existing proxy voting literature, which mostly focus on financial and agency considerations. We can thus allow for a broad “ideological” interpretation of the diverse ideal points of the multiple institutional asset managers and owners that goes beyond pure shareholder value considerations.


The Importance of Conviction in the Face of Litigation Risk

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

Posted by Edward D. Herlihy and David E. Shapiro, Wachtell, Lipton, Rosen & Katz, on Wednesday, March 14, 2018 Editor's Note: Edward D. Herlihy and David E. Shapiro are partners at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell publication by Mr. Herlihy and Mr. Shapiro, and is part of the Delaware law series; links to other posts in the series are available here.

The Delaware Supreme Court in a two-page order summarily affirmed an important appraisal decision, upholding the Delaware Court of Chancery finding that the fair value of SWS Group, Inc. was $6.38 per share—a valuation 19% below the merger price at announcement and 7.8% below the merger price at closing (see our memo of May 31, 2017). This represents the first Delaware Supreme Court decision in the era of “appraisal arbitrage” to affirm an appraised valuation meaningfully below the deal price.


Re-evaluating shareholder voting rights in M&A transactions

Ethical Boardroom Feeds -

By Afra Afsharipour – Professor of Law and Martin Luther King, Jr. Hall Research Scholar, UC Davis School of Law



The management and finance literature exploring the causes and consequences of acquisition transactions is vast – the focus in part because acquisitions are likely the most important corporate decisions made by managers. Empirical studies consistently find that public company bidders often overpay for public company targets, imposing significant losses on bidder shareholders. Not only do shareholders of public company bidders lose, but losses from the worst-performing deals can be staggering.

From a corporate governance standpoint, there is much debate about how to address the bidder overpayment problem. Shareholders have three major tools at hand: selling, suing or voting. To determine which of these tools may be best suited to address bidder overpayment, it is important to understand what contributes to overpayment and the role of the various decision-makers – boards, management and shareholders – in the acquisition process.

Bidder overpayment and its causes

Empirical research indicates that the bidder overpayment problem varies by type of bidder and the bidding scenario. Private acquirers tend to pay less in acquisitions than public bidders, and private companies that make acquisitions tend to outperform their public peers. Bidder overpayment is particularly acute when public company bidders acquire public company targets.

“Acquisitions tend to highlight conflicts of interest between managers and shareholders in large public corporations”

The disastrous combination of firms, such as America Online and Time Warner, or the problem-laden acquisition of Countrywide by Bank of America, are often touted as examples of deals that proved disastrous for the acquirer. More recently, the 2011 acquisition of British company Autonomy for $10.3billion by Hewlett Packard (HP), a venerated Silicon Valley firm, similarly falls in the same vein. The acquisition was controversial with HP shareholders who claimed that HP was overpaying for Autonomy. Only a year later, HP announced a write-down of $8.8billion related to the Autonomy acquisition with more than $5billion due to accounting irregularities at Autonomy. Not only did HP fail to realise the gains it expected from the Autonomy acquisition, but the transaction led to various lawsuits between HP and Autonomy management and resulted in a large securities class action against HP. The Autonomy deal was just one in a string of questionable acquisitions by HP during a busy acquisition spree.

Why do public company bidders overpay? Numerous empirical studies have connected bidder overpayment with managerial agency costs and behavioural biases. These reasons are not mutually exclusive explanations for the overpayment problem in public company acquisitions.

Acquisitions tend to highlight conflicts of interest between managers and shareholders in large public corporations, presenting opportunities for managers to obtain personal gain at the expense of shareholders. Several studies provide evidence that management, particularly CEOs, can gain increased power, prestige, and additional compensation in connection with an acquisition. Studies find that CEOs are financially rewarded for acquisitions, but are not similarly rewarded for other types of major capital expenditures.

Behavioural biases, such as overconfidence and ego gratification, also play an important role in acquisitions. Managers may overestimate their ability to price a target accurately or their ability to integrate the target’s operations and generate synergies. Managers may also be flawed in their decision-making regarding targets by other factors, such as extensive social ties (for instance educational background or employment history) between managers of bidders and targets, or a desire to keep up with peers undertaking acquisitions.

There is reason to think that deal advisors can magnify the effects of managerial agency costs and reinforce management biases. Financial advisors receive significant fees for advising on M&A transactions; and these fees are based primarily on the size of the deal, with a significant portion contingent on closing. Advisors also gain prestige from working on successful deals. In cases where management stands to benefit from a deal, the often-close relationship between management and advisors can induce advisors to recommend transactions to avoid upsetting management’s plans. Once management and its advisors begin to feel committed to a deal and have expended significant resources to move forward on a transaction, abandoning plans can be quite difficult.

The role of the board in acquisitions

The empirical evidence on various soft conflicts on the part of bidder management and advisors necessarily raises the question: where is the board of directors in all of this? A central fiduciary duty of the board is the protection and promotion of the interests of the company and its shareholders. The board’s advisory and monitoring roles should result in directors playing an important decision-making role in major corporate transactions, especially transformative acquisitions. Nevertheless, in some public company acquisitions, boards may fall short in effectively supervising management.

In virtually all significant acquisitions by public companies, some level of board involvement is the norm. While boards are generally not involved in identifying acquisition targets, once a target has been identified and significant efforts are made to move forward with an acquisition, boards often become more involved in the acquisition process. As part of their role as fiduciaries, directors must undertake sufficient investigation and obtain all reasonably available information regarding the acquisition. For many boards, their primary involvement in the acquisition process is an advisory and oversight role to ensure ‘a reality check’ on management’s plan. Moreover, in almost all public company acquisitions, seeking the approval of the bidder’s board is the corporate norm.

Experts caution that boards are at times reluctant to be deeply involved in acquisitions or to challenge management’s often optimistic assumptions about a deal’s value. A survey of directors about the board’s role in M&A found that at least one-third of directors believe that their boards ‘could be more involved in shaping M&A strategy and in evaluating deals proposed by management’.[1] Given challenges with integration of public company acquisition targets, experts also recommend that boards closely monitor post-merger integration plans.

The acquisition of Autonomy by HP exemplifies how boards can fall short in overseeing management’s acquisition zeal. The failure of the Autonomy transaction was not unexpected. HP’s then-CFO had allegedly opposed the CEO’s pursuit of Autonomy. Moreover, the HP board had sounded some alarm about the Autonomy acquisition. According to reports, HP’s then-board chair had raised concerns about the Autonomy acquisition, but then-CEO Leo Apotheker was reluctant to back away. Unfortunately, the board did not press any further.

The reluctance to abandon an acquisition can be strong, even in the face of significant shareholder opposition. For example, in Kraft’s $19billion acquisition of Cadbury, Kraft shareholders, including Warren Buffet who owned 9.4 per cent of Kraft’s then outstanding stock, warned against the acquisition and claimed that he would vote against the share issuance necessary to close the deal. Kraft’s response was to restructure the acquisition to avoid the ability of its shareholders to vote on the transaction, an option that is available under US corporate law.

Shareholders and the bidder overpayment problem

What role do shareholders have in acquisition decisions? Two structures – a one-step triangular merger, or a two-step transaction involving a tender offer followed by a merger – are often used to acquire publicly traded firms in the US. Under both structures, target shareholders are commonly provided a say, either through a vote or through the decision to sell their shares. Target shareholders may access courts to address any harm they have suffered by bringing fiduciary duty claims against the board and management, and/or securities fraud cases related to corporate disclosures on the transaction. Furthermore, in some transactions target shareholders may bring appraisal proceedings where shareholders ask the courts to determine the ‘fair value’ of their shares.

US law, however, provides much fewer rights to bidder shareholders. Transactions can be structured so that under state corporate law or stock exchange listing rules, bidder shareholders are denied voting rights in acquisitions. Even in transactions where bidder shareholders have voting rights, under the structures used to undertake public company acquisitions, bidder shareholders do not receive any appraisal rights.

Neither the right to sell nor the right to sue effectively addresses the bidder overpayment problem and the underlying factors contributing to it. Selling serves as a weak monitoring mechanism for bidder stockholders who often can only sell their shares after the share price has fallen following announcement of the signing of the acquisition. Once an acquisition agreement has been signed, even if bidder shareholders react negatively to the announced deal, the opportunity for the bidder to walk away is low. Furthermore, even the spectre of a share drop following an acquisition announcement does little to deter bidder management, given weaknesses in the market for corporate control.

Suing is currently unlikely to protect bidder shareholders. Theoretically, bidder boards’ decision-making role in major acquisitions could make them vulnerable to shareholder lawsuits. Unlike the vast number of fiduciary duty cases against target boards, however, fiduciary duty cases against bidder boards are rarely brought and even more rarely successfully litigated. Not only do suits entail significant costs and delays, but for bidder shareholders the barriers to a successful suit are quite high, given that fiduciary duty cases likely will be subject to the deferential business judgement review.

The value of the shareholder vote

Shareholder voting plays a central role in corporate governance. Yet, for many US public company acquisitions, only the target firm’s shareholders can exercise voting rights. Is it time to re-examine voting for bidder shareholders given the existing, relatively low voting incidences and shortcomings with selling and suing?

In general, voting by shareholders has become an increasingly important tool in US corporate governance. Several important developments have led to the rise of shareholder voting: (1) government regulations that require many institutions to vote their stock in the best interests of their beneficiaries; (2) the emergence and increasing importance of proxy advisory firms that can help coordinate shareholder action; and (3) the increasingly significant corporate governance role played by activist investors, such as hedge funds, which has led to greater use of the ballot box and the accompanying result of greater institutional shareholder engagement with voting rights.

Shareholder voting, at least with respect to significant corporate decisions, could lead to better governance of the company. Shareholder voting can serve a complementary monitoring role to that played by the board and discourage opportunistic behaviour by management. This supplemental monitoring role is particularly important when there are management conflicts of interest or biases, and when the opportunity for management to obtain private gains at the expense of the firm is high. These soft conflicts, agency problems, and biases are the exact types of situations that research indicates are implicated in significant public company acquisitions.

Recent research shows that compulsory shareholder voting reduces the problem of bidder overpayment. A study by Becht et al. addresses head on the value of voting on acquisitions, looking at the UK market where shareholder voting on large acquisitions is mandatory and binding under the UK listing rules.[2] The study of acquisitions made by UK companies between 1992 and 2010 shows that mandatory bidder shareholder voting increases firm value. Moreover, the results of the study suggest that mandatory voting, which cannot be avoided by management in the UK as it can be in the US, changes the incentive of acquirers and constrains management’s pricing decisions in acquisitions.

Another recent study by Li et al. similarly finds value in bidder shareholder voting.[3] The study investigates the effects of bidder shareholder voting by comparing deals subject to a vote with those not subject to a vote in a hand-collected sample of US stock deals over the period 1995-2015. The study finds that bidder management substitutes stock with cash to avoid a shareholder vote, especially when there are high agency costs, high deal risk and lower bidder institutional share ownership. The study also shows that in deals where the vote of bidder shareholders was avoided, bidder announcement returns were three per cent lower than in deals with a shareholder vote. The study suggests that a shareholder vote incentivises management to offer lower premiums and to acquire targets with greater synergies.

Studies also indicate that powerful shareholders, such as institutional investors, value voting rights. For example, a study examining institutional investor voting in merger transactions finds that although the votes are still overall in favour of the merger, shareholders solely invested in the acquirer are generally four times more likely to vote against a merger as a cross-owner.[4]

Two arguments against bidder shareholder voting rights in acquisitions relate to the cost of the vote as well as to concerns about the value of shareholder decisions. Voting is expensive and uncertain, especially in a significant transaction, and could potentially lead to additional deal risk. Voting rights may also not result in shareholders making an informed decision, especially if shareholders are apathetic and/or suffer from collective action problems.

“Shareholder voting plays a central role in corporate governance. Yet, for many US public company acquisitions, only the target firm’s shareholders can exercise voting rights”

The above arguments against shareholder voting are tempered by the rise of institutional investors. Institutional investors have significant voting power since they own large stakes in publicly traded companies. The change in ownership of US public companies, resulting in a greater concentration of ownership in the hands of institutional shareholders, makes voting by bidder shareholders in large public company acquisitions much more palatable. Their large ownership stake coupled with the increasing influence of other market participants, such as hedge funds and proxy advisory firms, may mean that institutional investors have strong economic and political interests in monitoring management’s decisions via voting. Moreover, voting rights may invite interference from activists who focus on deals that may be risky or more prone to overpayment. Studies suggest that even the threat of monitoring by institutional shareholders may be enough to address the bidder overpayment problem, and may play an important role in management calculations about an acquisition.

The argument for shareholder voice in significant public company acquisition decisions is not an argument for shareholder voting rights in all transactions, but rather an argument for shareholder voice in situations of high importance to firm value and share price, and where empirical inquiry seems to consistently demonstrate agency problems and shortcomings in the board’s monitoring role.

This editorial is based on a symposium article in the Oklahoma Law Review Symposium, Confronting New Market Realities: Implications for Stockholder Rights to Vote, Sell, and Sue. The article, Reevaluating Shareholder Voting Rights in M&A Transactions, is available at

About the Author:

Afra Afsharipour researches in the areas of comparative corporate law, corporate governance, mergers and acquisitions, securities regulation, and transactional law. In 2014 she was selected for the Lawyers of Color’s 50 Under 50 list, a comprehensive catalog of minority law professors making an impact in legal education. Prior to joining the Davis faculty, Professor Afsharipour was an attorney with the corporate department of Davis Polk & Wardwell in both New York, NY and Menlo Park, CA. There she advised clients on domestic and cross border mergers and acquisitions, public and private securities offerings, and corporate governance and compliance matters. She also served as a law clerk to the Honorable Rosemary Barkett of the Eleventh Circuit Court of Appeals.

Professor Afsharipour received her J.D. from Columbia Law School, where she was a Harlan Fiske Stone Scholar, and served as an articles editor of the Columbia Law Review and a submissions editor of the Columbia Journal of Gender and Law. She received her B.A. (magna cum laude) from Cornell University, where she studied government, international relations and women’s studies. Professor Afsharipour blogs on legal developments in mergers & acquisitions at the M&A Law Prof Blog.


1.See KPMG, The Board’s Perspectives On M&A: From Due Diligence To Day 1 And Beyond (2013), available at

2.Marco Becht et al., Does Mandatory Shareholder Voting Prevent Bad Acquisitions?, 29 REV. FIN. STUD. 3035, 3037 (2016).

3.See Kai Li et al., Vote Avoidance and Shareholder Voting in Mergers and Acquisitions 1-2 (European Corp. Governance Inst. Working Paper Series in Fin., Paper No. 481/2016),

4.See Gregor Matvos & Michael Ostrovsky, Cross-Ownership, Returns, and Voting in Mergers, 89 J. FIN. ECON. 391, 399 (2008).

FINRA’s Top 6 Concerns in 2018

Corporate Compliance Insights -

Priorities Letter Outlines Areas of Focus Each year, the Financial Industry Regulatory Authority (FINRA) shares its regulatory and examination priorities for the coming year, highlighting both new and continuing areas of focus. In this post, experts from Venable LLP provide an overview of the most significant areas addressed in the 2018 letter. with co-authors D. The post FINRA’s Top 6 Concerns in 2018 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.)

Episode 82-Leadership Lessons from Henry Worsley and Ernest Shackleton

FCPA Compliance & Ethics -

Henry Worsley and Ernest Shackleton are related by more than blood. They are related by their souls. A distant relative, Frank Worsley had accompanied Shackleton on his Antarctic expeditions, including the abortive Nimrod expedition where Shackleton had tried and failed to reach the South Pole coming with 90 miles of reaching his goal until he [...]

The post Episode 82-Leadership Lessons from Henry Worsley and Ernest Shackleton appeared first on Compliance Report.

CIAN Commission Anti-Corruption 26 mars 2018

Ethic Intelligence Blog -

Commission Anti-Corruption –  L’action du Groupe de la Banque Mondialeen matière de lutte contre la corruption et la fraude – – Paris, France – 14 mars 2018   – INVITATION — A l’occasion de la tenue du Forum Intégrité de l’OCDE, le CIAN invite Mme Pascale Dubois, vice-présidente du Groupe...

The post CIAN Commission Anti-Corruption 26 mars 2018 appeared first on

Spencer stuart 2014 UK board index

CGI – Corporate Governance Institute -

The Spencer Stuart 2014 UK Board Index is a comprehensive review of governance practice in the largest 150 companies in the FTSE rankings, providing a valuable indication of the state of boardroom health during 2013–2014. Once again, diversity remains a key theme, as the spotlight falls not just on women on boards, but also on […]

The post Spencer stuart 2014 UK board index appeared first on CGI - Corporate Governance Institute.

UK: “Adequate procedures” and self reporting under the spotlight as jury rejects Section 7 defence

Global Compliance News -

A UK refurbishment contractor has been found guilty under Section 7 of the UK Bribery Act 2010 (the “UKBA”) for failure to prevent bribery. The case represents the first time that a jury has considered an “adequate procedures” defence under the UKBA and provides a timely reminder to companies of the risks of self reporting offences under the UKBA to the UK authorities.

An Act not to be taken lightly

Skansen Interiors, a small-scale UK based refurbishment company, was charged under Section 7 of the UKBA (failure to prevent bribery) in relation to allegations that Skansen’s former managing director paid bribes to secure refurbishment contracts worth £6 million. As well as filing a suspicious activity report with the UK National Crime Agency, Skansen voluntarily self reported the conduct to the City of London Police and co-operated with the police’s investigation. The UK Serious Fraud Office (the “SFO”) encourages companies to self report misconduct, potentially in return for more lenient treatment, including a Deferred Prosecution Agreement (a “DPA”). There have been four such DPAs agreed with the SFO to date, but none have been agreed with the Crown Prosecution Service (the “CPS”).

Despite the decision to self-report and cooperate, the CPS pursued a Section 7 charge against Skansen and separate charges against the two individuals involved. Section 7 of the UKBA holds companies strictly liable for failing to prevent bribery by those associated with them.

At trial, Skansen sought to argue that the policies and procedures it had in place at the relevant time satisfied the “adequate procedures” defence available under Section 7(2) of the UKBA. It is a full defence to a Section 7 charge for an organisation to prove that, despite a particular case of bribery, it nevertheless had adequate procedures in place to prevent persons associated with it from paying, offering or giving bribes. In particular, Skansen’s defence sought to draw to the jury’s attention the company’s modest size (a workforce totalling approximately thirty) and limited geographical reach to argue that the company did not need sophisticated procedures to be in place for them to be “adequate”. Skansen also argued that staff did not need a detailed policy to tell them not to pay bribes because such a prohibition was common sense and the company should be able to rely on the integrity and honesty of its employees to help avoid bribery. Skansen also sought to rely on broadly worded policies that enforced ethical conduct even though, at the relevant time, it had no specific anti-bribery policy. Existing financial controls, requiring transactions to be given the green light by numerous individuals and standard form clauses relating to bribery in contracts were also raised in support of the case for the defence.

However, this was not enough to convince the jury that the company’s procedures were adequate and a guilty verdict was returned. The company avoided a financial sanction by virtue only of its dormant status, which had left it without any funds to pay any fines which may have been forthcoming.

A warning to all

Although Skansen was a small, UK based company, the facts of this case are of importance to all companies operating within the jurisdiction of the UKBA.

First, although this case did not involve a self report to the SFO, it serves as an important reminder to all companies that self reporting misconduct to the UK authorities does not guarantee that a company will not be prosecuted for that misconduct. Even if a company fully investigates allegations of misconduct, self reports to the authorities, and co-operates fully with any ensuing investigation, the UK authorities may still determine that the company and/or any culpable individuals should be prosecuted. The SFO have made it clear on a number of occasions that offering DPAs will not become the default method of dealing with corporate wrongdoing. Self-reporting is no guarantee that a prosecution will not follow. Each case will turn on its own facts. As a result, the decision whether or not to self report suspected wrongdoing is a very fine balance to strike and is a decision that should be taken with the benefit of specialist advice after consideration of all relevant factors. The SFO’s guidance on self reporting can be found here.

Second, the case provides an insight into what factors may and may not be taken into account by a jury when considering whether anti-bribery procedures are “adequate”. The Ministry of Justice guidance accompanying the UKBA repeatedly makes clear that adequate bribery prevention procedures only need to be proportionate to the bribery risks that an organisation faces. More specifically, the guidance notes that if an organisation is small or medium sized “the application of the principles is likely to suggest procedures that are different from those that may be right for a large multinational  organisation” and that “[t]o a certain extent the level of risk will be linked to the size of the organisation and the nature and complexity of its business, but size will not be the only determining factor.” Clearly in this case the jury did not consider that the steps Skansen had taken to prevent bribery were adequate, despite the small size of the company and its limited geographical reach. The case therefore serves as a reminder to small and medium sized companies to ensure that a rigorous risk assessment is conducted in relation to bribery risks and robust procedures are in place to deal with those risks that comply with the six guiding principles set out in the Ministry of Justice’s Guidance. That guidance can be found here. The case also highlights the importance of documenting steps taken to implement “adequate procedures”, irrespective of the size of the organisation, even if the conclusion is that there is no need for a policy (although that conclusion is likely to be rare for most companies). For all companies, large and small, the case suggests that, when it comes to considering adequate procedures, juries will give short shrift to ineffective policies and procedures that are not designed to target the considered bribery risks faced by the company and/or are not properly documented and communicated.

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Leadership Lessons from Antarctic Explorers and Adventurers

FCPA Compliance & Ethics -

Henry Worsley and Ernest Shackleton are related by more than blood. They are related by their souls. A distant relative, Frank Worsley had accompanied Shackleton on his Antarctic expeditions, including the abortive Nimrod expedition where Shackleton had tried and failed to reach the South Pole coming within 90 miles of reaching his goal until he [...]

The post Leadership Lessons from Antarctic Explorers and Adventurers appeared first on Compliance Report.

The Risk of Litigation Overseas—And How To Avoid It

BRINK News -

Global expansion can be a lucrative enterprise for U.S. companies. Nearly 90 percent of U.S. firms believe international expansion is essential for their long-term success.

But it can also be risky. Major litigation and regulatory challenges can await U.S. businesses abroad. Recent examples include legal battles between an American company and a former Indian business partner which hamstrung the company’s expansion on the subcontinent, and a multinational company forced to pay millions of dollars in fines following court battles in Uruguay, Australia, and the UK.

Germany as a Case Study

Although Germany and the European Union tend not to be as litigious as America, lawsuits in the EU are every bit as consequential. German-based litigation communications expert Uwe Wolff, the head of NAÏMA Strategic Legal Services, says that U.S. firms “new” to his country and the EU are often surprised to learn that once a German court has issued a decision, it can be enforced throughout the EU.   

“You have to keep that uppermost in mind if you want to keep on doing business in the EU,” says Mr. Wolff, whose firm is part of the Crisis & Litigation Communicators Alliance, a global alliance of communications firms (of which LEVICK is also a member).

Judges Who Hint

The relative rapidity of European judicial actions surprises U.S. firms, too. “We hear it again and again from American companies who find themselves in front of a German court: Decisions are made often faster than in the U.S.,” Mr. Wolff says.

In German civil litigation, for example, judges operate without juries. Judges often “hint” early on as to which way they’re leaning, another custom unfamiliar to American litigants. “It is also rather unusual for an American company that there is no pretrial discovery or disclosure in which the other party has to present evidence,” Mr. Wolff notes. “Anyone who claims something here in Germany and through much of Europe must be able to prove it.”

When entering a foreign market, U.S. companies need to retain outside counsel expert in local language, law, and custom—and plan for the worst case.

An article in’s The Legal Intelligencer argues that the EU discovery process is a big “compliance headache” for U.S. litigants. Americans are especially confused by the discovery procedures surrounding personal data held in the EU—another significant departure from U.S. tradition.

Watch Out for Legal Fees

Moreover, an American company initiating a civil case in Europe must be prepared to commit a substantial fee as “process cost security” before the courts start to work. If the plaintiff wins, the unsuccessful party repays the costs, but with one big qualifier: Legal fees are reimbursed at rates regardless of any negotiated agreements between the plaintiff and attorney. “Legal fees are reimbursed, but on the basis of the Federal Attorney Remuneration Fees Act and not according to the actually required hourly rates of lawyers. That can be a huge difference,” Mr. Wolff cautions.

Ann Longmore, the managing director of FINPRO, Marsh & McLennan’s Financial and Professional Liability Practice, adds, “Whether buying out minority investors (where the protections tend to be high) or assuming that antitrust and cartel enforcement will be a smooth ride, U.S. firms and their executives can unexpectedly find themselves in hot water abroad.”

Local Knowledge is Essential

So how do you prepare for these risks? First and foremost is the need for comprehensive contingency planning. Before entering a foreign market, U.S. companies need to retain outside counsel expert in local language, law, and custom to advise them through every likely scenario—and plan for the worst case. A lack of familiarity with native levies, fees, and regulations could trigger ill will and lawsuits.

And when conflicts brew, Ms. Longmore warns, attorney-client privilege may not apply to conversations with local in-house counsel. She urges companies to check in advance, to avoid giving away the “game” to the other side.

CSR Can Help

Another key factor is to recognize the importance of corporate social responsibility in foreign markets, especially a commitment to environmental sustainability. Delivering messages that reinforce a company’s devotion to community organizations and environmental protection can enhance its stature, and earn the goodwill of elected officials and regulators. Companies that game plan their international CSR strategy are using their time wisely.

Localized brand awareness and understanding, paired with a deep understanding of local laws and regulations from trade to employment, are essential for providing a holistic view of what is not only unlawful, but also considered culturally and reputationally damaging for a new market player. Foreign market barriers can be overcome. But success demands knowledge of the local terrain.

Compliance Needs to Understand Business

Corruption, Crime & Compliance Blog -

A chief compliance officer needs to be independent and have adequate authority within the organization.  But do not get confused by the concept of independence.  Compliance depends on collaborative relationships with other corporate functions.

Most importantly, a compliance program’s success depends on its ability to embrace the company’s business.  To do so, the compliance staff has to learn and understand the company’s business inside and out.

If a compliance staff sits in its respective offices and waits to hear from employees about compliance issues, the compliance program is doomed to fail.  On the other hand, if the compliance staff is proactive, engaging the business, listening to the business, and promoting the success of the business, the compliance team will build credibility with the business staff.

To build such a relationship, compliance personnel have to listen and learn, and express their understanding of the business objectives.  With this credibility, compliance staff can truly engage the business in the compliance mission.  In  other words, by building a respectful, collaborative relationship with the business, compliance can learn from the business and in turn can teach the business the importance of compliance.

I am always reminded of a statement made by a Country Manager for China from a company who told me, “I know if I don’t take responsibility for compliance, no one will in China.”  Such a statement reflects exactly what I am talking about.  This attitude, however, reflects a positive working relationship between compliance and the business.  In this context, the business manager and compliance share a common perspective – business growth and compliance go hand in hand.

By contrast, I have heard compliance officers freely admit they do not understand the company’s business.  I was struck by the admission – it made me wonder how can this compliance team engage the business?

A compliance team that does not understand a company’s business is operating as an outsider with little credibility or influence on the business.  A detached compliance team is a recipe for disaster, where the business views the compliance team as outsiders who are only seeking to block or frustrate business development.  In these situations, business staff may circumvent compliance controls and brush off restrictions as irrelevant or meaningless.

Business without compliance is sure to result in misconduct.  Eventually, the company’s culture will break down because of the lack of integration of these two important functions.  A company’s culture and its compliance program depend on business accountability for compliance.  It is impossible for a compliance staff to embed and monitor a successful compliance program without earning the full cooperation of the business.

A chief compliance officer has to prioritize the relationship with the business.  Here are a few key questions that a chief compliance officer should ask:

  • Does compliance have a seat at the table with the business throughout the organization?
  • Does compliance participate in business planning and development activities?
  • Does compliance provide a value-add for the business, promoting compliance as a marketing advantage for business against competitors?
  • Does compliance understand business objectives, operations and incentives?
  • Does compliance devote adequate attention to maintaining and improving its relationship with business leaders, managers and staff?

These basic questions have to be addressed and candidly answered.  In most situations, a chief compliance officer can quickly identify weaknesses in its interactions with the business.  To remedy these weaknesses, the chief compliance officer should develop a specific action plan to promote compliance’s relationship with the business.

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Implementing corporate governance principles in Kyrgyzstan

CGI – Corporate Governance Institute -

Kyrgyzstan is a developing country, which has been part of USSR in the past. Therefore large companies still has government as a major shareholder. There is a basis to use corporate governance principles in Kyrgyz companies and our company is one of them. Below I will describe how corporate governance principles are implemented in our […]

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FCPA Self-Disclosure-Based Leniency for all Corporate Cases of Misconduct?

The Network Inc. GRC Blog -

The DOJ wants to extend the principles of the FCPA Enforcement Policy — voluntary disclosure of a violation, cooperation in investigations, remediation of internal control problems, and disgorgement of ill-gotten proceeds — to all cases of criminal corporate misconduct. Let discuss what this expansion of Foreign Corrupt Practices Act type policies would mean for ethics and compliance programs and the speak-up cultures they cultivate in the workplace.

FCPA Self-Disclosure-Based Leniency for all Corporate Cases of Misconduct?

Ethics & Compliance Matters™ by NAVEX Global -

The DOJ wants to extend the principles of the FCPA Enforcement Policy — voluntary disclosure of a violation, cooperation in investigations, remediation of internal control problems, and disgorgement of ill-gotten proceeds — to all cases of criminal corporate misconduct. Let discuss what this expansion of Foreign Corrupt Practices Act type policies would mean for ethics and compliance programs and the speak-up cultures they cultivate in the workplace.

Intelligence Community Whistleblower Ombudsman Fired

Whistleblower Protection Blog -

Intelligence community whistleblower ombudsman Dan Meyer has been fired. This is a disturbing and problematic move. It is particularly surprising, or perhaps cynically appropriate, that this occurred shortly after members of the intelligence community (IC) met with whistleblower rights organizations earlier this month.

Meyer had significant experience in whistleblower matters with the Department of Defense and served as an ombudsman in the Office of the Intelligence Community Inspector General (OIG).

Andrew Bakaj, also formerly of the OIG, stated, “Dan is a highly respectable individual with a lot of courage.” He added that Meyer advocated for a strong whistleblower program with a “two-fold purpose” of “encourag[ing] folks to come forward with information on a problem that the agencies need to know about,” and as a “mechanism to prevent people from making classified information public.”

Senators Chuck Grassley (R-IA) and Ron Wyden (D-OR) wrote to “express deep concern about the Office of Intelligence Community Inspector General.” Senator Grassley has previously asked that all documents be preserved in Meyer’s case.

NWC Executive Director Stephen M. Kohn attended a roundtable discussion with National Security Agency (NSA) Inspector General Robert Storch earlier this month and pointed out the serious deficiencies within the NSA’s current whistleblower law.

Current NSA whistleblower law does not provide for back-pay, lost wages, reinstatement of the whistleblower, statutory attorney fees, or judicial review of administrative decisions. Mr. Kohn advocated for informing whistleblowers of their rights under the False Claim Act and potentially arranging proffer agreements with individuals. The flaws within the NSA’s own whistleblower program apply across-the-board in the IC.

The Meyer firing demonstrates anecdotal evidence that the IC continues to conflate leakers with whistleblowers. Instead of firing intelligence officials for coming forward, they should be praised and rewarded for reporting NSA misconduct. The IC should be promoting people who understand this difference instead of firing them.

“Shift Happened,” A Discussion of the #MeToo and #TimesUp Movements

The Compliance & Ethics Blog -

By Sascha Matuszak Reporter, SCCE|HCCA On March 9th, Jen Farthing, Chief Learning Officer, and Marsha Ershaghi-Hames, Managing Director of strategy and development at LRN, presented “Shift Happened,” a discussion of the #metoo and #timesup movements at SCCE’s New York Regional Compliance and Ethics Conference. The presentation focused on the role of social media as the great […]

2 Fertility Clinic Failures a ‘Bad Coincidence’

Risk Management Monitor -

Equipment failures on the same day at two fertility clinics located across the country from each other—in California and Ohio—may have damaged or destroyed thousands of frozen eggs and embryos. The simultaneous “black swan events” appear to have no connection to each other and have experts mystified.

Dr. Carl Herbert, president of the Pacific Fertility Clinic in San Francisco, told ABC News in an interview released Monday that a senior embryologist noticed the nitrogen level in one tank was very low during a routine check of the tanks on March 4. The embryologist, he said, “immediately rectified” the problem by refilling the tank. The embryos were later transferred to a new tank.

Dr. Kevin Doody, lab director at the Center for Assisted Reproduction in Texas and past president of the Society for Assisted Reproductive Technology, told The Associated Press that the nearly simultaneous storage failures are “beyond stunning” but appear to be “just a bad, bad, bad coincidence.”

The Washington Post reported that the services of fertility clinics — and therefore egg- and embryo-freezing — have become increasingly popular in the U.S.

The number of egg-freezing patients jumped from 475 in 2009 to 7,518 in 2015, the most recent year for which figures are available from the Society for Assisted Reproductive Technology. In total, about 20,000 American women have had their eggs preserved.

According to the clinic’s website, its fees for egg freezing are $8,345 for the initial cycle and $6,995 for each subsequent round. Herbert said, for patients still eager to use their eggs or embryos to try to become pregnant, the physicians and other staff will first thaw them to find out whether they are viable. If they are not, he said, “we are going to make our patients happy one way or another.”

Meanwhile, a Pennsylvania couple and an Ohio couple that lost embryos have filed a class action lawsuit against the Cleveland hospital where officials estimate about 2,000 frozen eggs and embryos may have been damaged.

As for risk management of such facilities, Doody noted that the industry in the long run will end up being safer because there will be investigations and other facilities will examine their own backup measures and alarm systems.


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