Battle of the Somme VToday, July 1 is the 100th anniversary of the first day of the Battle of the Somme. As I have written this week, there is no single battle in modern British history that has made a greater impression on the British psyche. The five month long battle cost the British some 420,000 casualties. For territory, it was worth a few miles. Daniel Todman, writing in the Financial Times (FT) article entitled “Stories of the Somme”, said, “Both in its scale and duration, the Somme was different to anything the British had done before. With wartime volunteers involved en masse in the most intense combat for the first time, the impact of the battle was felt throughout the Empire. The second world war saw combat that was just as horrific — and a global slaughter that was much worse — but Britain avoided the same enormous and prolonged commitment of its army to the task of breaking the strength of a great power opponent on land.”

As a Texan, brought up on tales of the Alamo and other last stand battles, I understand commitment. The Spartans certainly had it at Thermopile. Yet I think the Somme was something different. When you have 60,000 casualties on the first day (July 1, 1916) what makes men continue to go over the top for another five months, when the slaughter was almost as great. During most of my life, I believed “The scar tissue left by the Somme was not concealed by subsequent suffering. As time went on, its mythology became more parochial. After the Great War’s more awful sequel, later generations reified the battle not just as a distinctly British tragedy, but also as a moment when the illusions of the pre-1914 order were shaken to their core.”

Yet modern historians have come to a different interpretation of the event. They now view the battle of the Somme as the seminal battle of World War I (WWI) that began to turn the tide for the Allies against the Central Powers. First was the development of new tactics and weapons to break the stalemate on the Western Front. Certainly the tank was hastened in its development from the slaughter at the Somme. The German Army was significantly hurt at the battle as well, losing nearly as many men as the British. Finally, the British Army became a truly professional fighting force from this experience, while the German professional core was eroded in the slogging battle.

The Germans did not have the combined resources of both the British and French. Then a year later when the American entered the war, they simply could not muster enough men and material to resist the ensuing onslaught. Does this make the Somme worthwhile? I cannot answer that question but it may mean that the Somme was necessary.

As I said when I began this series on Monday, the battle has affected me in a way that most do not. So I appreciate your patience with me during this series, especially if you are not a military history maven like myself. Yet there is a pay-off for making it this far. I have posted three new episodes on my recently introduced podcast 12 O’Clock High, a podcast on business leadership. They are:

Episode 3: The Psychology of Persuasion – in this episode I explore the research of Robert Cialdini and his work “Influence: The Psychology of Persuasion”. In this book, he laid out what he believed to be six universal principals of persuasion that can be used to hone your leadership skills. In this episode my co-host Richard Lummis and I explore those principals and give you pointers on how you can incorporate them into your own business experiences.

Episode 4: Entrepreneurial Leadership – in this episode, I visit the area of entrepreneurialism as an area for leadership influence that can be found by looking at the skills needed for entrepreneurial leadership. In an article entitled “10 leadership skills for entrepreneurs”, Gregg Swanson wrote about how an entrepreneur understands “how to handle a demanding situation while leading others”. While Swanson’s piece was designed to help an entrepreneur understand “how to handle a demanding situation while leading others,” I also found his ideas useful for any leader to consider.

Episode 5: Your First 100 Days as a New Leader – in this episode, I discuss the age old question (at least since the Presidency of Franklin Roosevelt) of what can you do to hit the ground running after you have finally been able to secure a new position as Chief Compliance Officer (CCO). What are some of the things that you can do in your first 100 days? Hopefully you will not be dropped into a dire corporate situation but the reality is that many new heads are judged on these mythical first 100 days. I give you 10 specific items you should try and accomplish in your first 100 days as a new leader in an organization.

I wish each and every one of you a most Happy and Joyous Fourth of July. It has always been one of my favorite holidays so I hope you will take a few minutes to consider the sacrifices of those before which allow us, some 240 years after the first 4th was celebrated to continue to do so.

I will have an extraordinary story for my July 4th blog post on what it means to be an American.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

Battle of the Somme IVToday I continue my exploration of the Battle of the Somme, which began on July 1, 1916. Daniel Todman writing in the Financial Times (FT), in an article entitled “Stories of the Somme, insightfully noted that for all the failures of leadership and the loss of troops did not affect Britain’s commitment to the war effort. Todman said, “what is surely the key fact of Britain’s Somme: that neither the disastrous losses of the first day nor the months of ensuing struggle led to a widespread popular rejection of the war. Instead, all the suffering upped the political ante: only victory could validate the pouring out of so much blood. The belief that sacrifice must be redeemed kept the great nations of Europe at war past any reason; a point that is important to bear in mind amid the parroted rhetoric of remembrance at the centennial commemorations.”

This commitment, in the face of such horrific losses, may seem hard to understand today but 100 years ago that was called British resolve. I thought about this type of resolve to move forward and persevere as I considered the recently announced settlement by the US government with Volkswagen (VW) over its emissions-testing fraud. I view this scandal as corruption by another name as VW engaged in a nearly decade long effort to defraud government regulators and the general public by lying about whether its diesel engine cars met government mandated standards for pollution.

VW agreed to pay $14.7 billion to settle claims in the US. This includes $10 billion to buy back cars in the US; $2.7 billion in fines to the US Equal Protection Agency; and finally that the company must spend $2 billion to promote zero emission technology. There was a separate settlement with 44 states, Puerto Rico and the District of Columbia for a total amount of $603 million. (Including the great state of Texas which got $50MM). These fine amounts are approximately 20% of the company’s worth. This settlement is for approximately 490,000 US car owners and with the US and state governments only so it does not include the 8.5 million VW car owners in Europe or with EU regulators. Echoing this final thought, EU industrial policy commissioner Elżbieta Bieńkowska said, “European consumers have been cheated in the same way as US customer, so it is only fair to offer comparable compensation without hiding behind legal arguments.”

As difficult as these negotiations with EU regulators may be, at this point they are only over money. However, back in the US, VW’s investigation nightmare may be far from over. Deputy Attorney General Sally Yates (of Yates Memo fame) was quoted in the Wall Street Journal (WSJ) for the following, “Volkswagen turned nearly half a million American drivers into unwitting accomplices in an unprecedented assault on our country’s environment.” She went on to call “the deception “one of the most flagrant violations” of “environmental and consumer laws in our country’s history.””

The WSJ went on to note, “A related criminal probe examining “multiple companies” and “multiple individuals” is continuing, Ms. Yates said, with investigators still reviewing roughly 1.5 million Volkswagen documents. Potential civil and criminal penalties imposed by the Justice Department also loom.” The FT added additional remarks by Yates, “The settlements do not address any potential criminal liability, although I can assure you our criminal investigation is active and ongoing. We’ll follow the facts wherever they go and make a determination about whether any companies or individuals should be criminally charged.”

Given the tighter focus on individual criminal liability for white collar crimes, as laid out by Ms. Yates in the Memo which bears her name, it may well be the Department of Justice (DOJ) could try and prosecute individuals in a manner they did not attempt in the General Motors (GM) ignition switch scandal and for which the DOJ was widely assailed. One must note that many, if not all, of the individuals would be in Germany so obtaining jurisdiction over them and bringing them to the US to stand trial might well be a very difficult endeavor.

Also noted in the FT piece was an interesting note that “the probe has already spread along VW’s supply chain. The so-called defeat devices contained components from other manufacturers that prosecutors are also investigating.” This could open up a new area of risk and risk evaluation for companies. What if your product could be used in a system designed to violate a law or environmental regulation such as the emissions output from a diesel engine? What level of knowledge or intent must you have to be liable? At this point in the VW scandal and investigation we do not have any answer, only questions.

Another question open from this settlement is around banking and financial institutions. As with most auto manufacturers, VW had its own financing arm; both for customers and dealer floor room financing. In an article in the New York Times (NYT), it reported that New York State’s financial regulators were investigating the financing arm over whether VW had over-charged for cars that did not meet environmental regulations. Finally, there is an insurance investigation, as the state of New York’s Department of Financial Services has “also sought information from the German automaker on insurance coverage required for Volkswagen and Audi cars financed or leased in the US.”

All of these open investigations and issues make clear that this is not the beginning of the end for VW and its woes but, perhaps, only the end of the beginning.

 

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

Show Notes:

  1. To read Miller & Chevalier’s Memo on the Graham decision on the five-year statute of limitations on SEC claims of profit disgorgement on the FCPA Blog, click here.
  2. To read Miller & Chevalier’s Memo on the IRS CCA regarding the tax treatment of profit disgorgement, click here.

Battle of the Somme IIIThere have been a plethora of new books about the Battle of the Somme. Daniel Todman reviewed several in an article for the Financial Times (FT), entitled “Stories of the Somme”. One of the books reviewed, Breakdown: The Crisis of Shell Shock on the Somme, 1916, by Taylor Downing, focused on the relatively new condition identified as ‘shell shock’ a term which became ‘combat fatigue’ in World War II (WWII) and today is called ‘post traumatic stress disorder’. Downing thoroughly discussed the range of symptoms experienced by the combatants. Yet his innovation was to consider the mental health of the entire British nation as the causalities mounted and mounted with no end or even result in sight.

I thought about Taylor’s insights when considering the collective mental state of Great Britain after the Brexit vote or, as we would say in Texas Breeee-exit. The topic has certainly dominated both the UK and US news since last Friday, although since Monday, the British press is equally talking about the English exit from the European Football Championship, losing to Iceland 2-1. Many have wondered what Brexit might mean for compliance, the Foreign Corrupt Practices Act (FCPA) and enforcement of the UK Bribery Act. I explored some of the these issues with Jonathan Armstrong, from Cordery Law Firm in London, in a podcast earlier this week, you can listen to Episode 262 The Brexit Edition on the FCPA Compliance and Ethics Report.

Regarding enforcement of the UK Bribery Act, Armstrong believes that there is likely to be little change. The UK Bribery Act 2010 is not a part of any body of European Union (EU) legislation and the UK bribery prosecutors are independent of the EU regime. There may be an effect on some investigations, for example into alleged corruption in EU funds, but as the law will remain the same, there should be no change in how it is enforced. My concern would be that the British government would be so low of funds or required to use its resources in other more politically palatable areas that it could lead to underfunding for the Serious Fraud Office (SFO) to conduct investigations and put on trials for companies that do not settle with the government.

Armstrong did opine that there might well be big changes in areas which do impact FCPA enforcement and those are the areas of data privacy and data transfer. Armstrong noted while there has obviously been much debate in Europe about data transfer issues, what happens with the UK after the exit remains to be seen. He believes that much is likely to depend on whether the UK remains in the European Economic Area (EEA) or not. If the UK does, there may well be little practical change. However if the UK leaves the EEA regime, it would likely have to go through some sort of an adequacy assessment under the EU General Data Protection Regulation (GDPR). He indicated that data transfers could be complicated if the UK does not remain in the EEA as there have been allegations of surveillance by UK Government agencies. He concluded that if a working Privacy Shield deal can be done next month the UK would still be a party to that, at least in the short term. He did conclude with the well-known British admonition to ‘Watch this space”.

I was also interested with Andrew Hill’s FT On management article entitled “Five failures of leadership and one hollow Brexit success”. As usual many of Hill concepts translate well over the role of the Chief Compliance Officer (CCO) so I wanted to use this to reflect on leadership issues for the compliance professional. Hill was merciless that over the course of the referendum campaign and the subsequent events since the vote was tallied on Friday that there has been a complete, total and utter failure of British political leadership.

First is the underlying historical failure of British leadership within the EU. Hill wrote, “A dearth of leadership in the EU itself over recent years exacerbated the economic and political mess that repelled many insular UK voters from the European project. A fatal failure to exercise UK leadership in the EU… further primed the electorate to reject the invitation to remain.” For the CCO or compliance practitioner, I think this means you have to actively engage at all levels of your organization going forward. Never forgot that creating corporate allies is an ongoing process.

The second was the failure of strategy. Presciently, Hill notes that having a strategy is not the same as having a goal. Hill quotes UCLA Professor Richard Rumelt for the obvious, “Winging it is not a strategy.” You need to have both a goal and strategy. Based on the continued comments from the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) over the years, you need to have a roadmap for the design, implementation and continual improvement of your compliance program.

Failure number three is the failure of teamwork. The Brexit referendum campaign certainly embodied the age-old adage that politics makes for strange bedfellows. However in this campaign, Hill said, “The formation of opposing groups drawn from across the political spectrum was always going to pose vast challenges.” Moreover, “Scratch teams can do great work. In business the most diverse groups often come up with the best innovations, but such groups are also the hardest to manage.”

The lesson for the CCO is the management of diverse groups within an organization. Obviously the General Counsel’s (GC’s) office should be a natural ally of compliance. Yet the roles of both disciplines within an organization are very different. These differences will need to be managed throughout the existence of any compliance issue. The same is true, perhaps even more so, for other corporate functions.

As a fourth failure, Hill pointed to “disintegration of the opposition Labour party’s fragile unity after the vote has exposed the inability of Jeremy Corbyn, its leader and a reluctant Remainer, to shape the agenda”. Hill recognizes that political leaders can only get out so far in front of their constituents. Yet being a leader means more than simply talking into an echo chamber but also leaders have “a duty to conduct the sound that the chorus makes rather than simply to sing along.”

Here I think the message for the CCO is that you must continually work to shape the message of compliance throughout your organization. This certainly means more than simply coming from the compliance department. You must also get the C-Suite and senior executives to both talk the talk and to walk the walk of compliance.

Finally, is the failure in the post election phase of this disaster, Hill contends that while “Succession is almost always bloodier in politics than in business” this act by British politicians presents a “scene of near-total disarray”. He intones, “Boards often allude to contingency plans in case their chief executive is “run over by a bus”.” For any CCO, you must prepare for such an exigency. More importantly, you must lead this effort for your company.

The implications of Brexit may well be with us for many years. As a CCO you need to not only begin to prepare for some the issues identified by Jonathan Armstrong but also heed the leadership failures identified by Andrew Hill.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016