In this podcast I have back well-known Board of Director thought-leader Sheila Hooda for a discussion on Boards can deal with the disruptive nature of current climate of economics, politics and business. She provides a clarion call for Board renewal through refocusing on strategy as a Board imperative. We explore several areas of Board refocus and renewal. 

We begin with some of the disruptions Boards face including digital, market, and regulatory disruption. We are seeing massive disruption – at a scale and pace never seen before and the pace is accelerating. There is disruption across industries and business models, brought about by a confluence of factors including Technology and digital forces, changing demographics and consumer preferences, regulation and market forces.

Tech has moved from being the enabler and supporter of business to being the primary driver and the differentiator. It has literally become the heart of the business, bringing both opportunity, challenges and new risks. Companies that do not change their strategy, innovate and move as a faster pace to keep ahead of this dynamically changing environment will risk losing their competitive advantage and ultimately go out of business.

 We next consider the implications for the Board, since the Board’s fundamental obligation is to enhance the long-term value of the company on behalf of shareholders. Therefore, the Board’s responsibility for dealing with disruption is grounded in this principle and this reality. As business disruption threatens the very sustainability of a company – it is the core fiduciary responsibility of the Board to manage, navigate and mitigate the risks of disruption for the companies they oversee.

Hooda believes that to discharge their responsibilities, Boards will need to evolve their practices and priorities with an urgency to remain relevant and to pivot and future-proof the companies they oversee. Boards set the tone at the top and with management for the organization. Embracing change, managing risks and fostering innovation-lead growth is needed to stay ahead of this tsunami of disruption to empower the organization to evolve faster and to succeed. Boards will need a new and enhanced role to play in managing change and disruption. High performance governance must lead, it does not follow.

With all this disruption on the horizon, what is the Board’s role and how can they be part of the solution to insure their company is ahead of the curve and competitive? Hooda believes that to answer the call for Board governance renewal, what can Boards do to reshape their roles to (1) Embrace change and disruption ; (2) Foster innovation; and (3) Manage the inherent risks.

Hooda concludes by noting that leading through disruption and fostering innovation is not easy and will require a delicate rebalance of the fiduciary responsibility of the Board and the executive power of management. To achieve this, she says there needs to be a brand-new way of thinking about Board-management engagement. Management and their Boards need to begin to have a different kind of dialogue, one that is characterized less by fully baked ideas and more about an open-door policy characterized by a free exchange of ideas and perspectives. This shift requires a new vulnerability on the part of management and the willingness to seek out Board members’ perspective on a regular basis.

On the Board’s part a stronger partnership with management is needed to share ownership. This will require a higher level of trust and transparency. Sufficient time should be allocated on the Board’s agenda to continued education, brainstorming, debate and discussion, and honest feedback about ideas. This model of governance also requires both management and Boards to stay current which is a major challenge in the face of constant change. Boards will need to be create some space to have blue ocean type of continual education and thinking so that Boards and managements can discuss alternatives, changing assumptions and the competitive environment.

The Compliance Evangelist is still on assignment in Brazil. Today’s compliance lesson came from a tour of the Fazenda Nossa Senhora Da Conceição coffee plantation (www.fnsc.com.br). Our tour guide and host was the plantation owner Antonio Ferreira Sestini. The plantation has been an ongoing commercial concern for over 200 years. It still produces some wonderful coffee and the tour includes a Coffee Museum, Chapel, tour of the hacienda, production facilities and fresh lunch cooked in the restaurant to end the thorough lesson in coffee and Brazilian history around the phenomenal bean. Truly Adam Smith and the Invisible Hand are alive and well in Brazil.

Our host told about the life of coffee in Brazilian society, how his family had immigrated from Italy and started farming coffee. His family history was interesting and chocked full of the history of this part of the country. The hacienda still has many of the items used by his grandparents when they were still alive. Finally, with a nod to Ken Randolph and Dan Chapman, our host attended the University of Kentucky on a soccer scholarship so he had an American connection. Senor Ferreira is very much a jack of all trades, running the plantation, giving tours, heading the upkeep of the museum and memorials as well as creating and serving some excellent coffee. In short, he is a modern Adam Smithcharacter.

I thought this side variety of services by Senor Ferreira and products created by the Fazenda Nossa Senhora Da Conceição coffee plantation when I read some of the (yet again) commentary about representatives from the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) appearing at for-profit conferences to give presentations to attendees. Personally, I was shocked, simply shocked, to find out that one has to pay to attend these events. Further, it appears that one or more of the companies running these events, ACI, Momentum, IQPC, HansonWade, among others, might actually be for-profit companies. It was intimated that one of the ways the conference providers enticed registrants to pay their fees was to provide a forum of lawyers practicing in the Foreign Corrupt Practices Act (FCPA) space, that representatives from the DOJ and SEC could speak to. Now I am really, really, really shocked to find that people actually pay to obtain knowledge.

Armed with the new piece of information that there is a marketplace where people actually pay to obtain information, I have decided to practice what I preach and perform a self-assessment to determine if I am part of this commerce in ideas. Unfortunately I have come to the understanding that not only do I participate in that marketplace but also I actually use information provided by representatives of the US government in my very own marketing and commerce. So, with a nod to Adam Smith’s Invisible Hand of the Marketplace; I now fully self-disclose that I digest to what US government regulators say about the FCPA compliance, repackage it and then (try) and make money from it. (I know you are probably as shocked, shocked as I was to discover this.)

Where can one go to find out information about the FCPA, its enforcement and how the DOJ and SEC view compliance programs? First and foremost is the FCPA Guidance, jointly issued by the DOJ and SEC back in 2012. It is still the best one volume resource on the government’s thinking on a wide range of issues relating to the FCPA. For a ‘Nuts and Bolts’ guy like me, it even has some suggested building blocks of FCPA compliance called the Ten Hallmarks of an Effective Compliance Program. Of course, such a treatise must cost thousands of dollars so that it is only available to a very select few. Oops, it is available for FREE on the DOJ website. Darn, as I planned to buy up all of the copies and then put on for pay seminars across the world as the only source of such knowledge.

Since the FCPA Guidance is available for free, perhaps I can corner the market on all known enforcement actions and Opinion Releases. I am sure that they will provide lots of good information such as what might constitute an effective compliance program, what are some of the actions that got companies into FCPA hot water and suggestions by the DOJ and SEC as to what might have constituted compliance failures. I have even heard that in Opinion Releases, the DOJ will pass upon fact patterns and indicate if they believe such facts might be prosecuted for FCPA violations. Double oops, as all of those are publicly available as well and for FREE. Double Darn.

OK, well if the FCPA Guidance is free and all the enforcement actions and Opinion Releases are available for free; maybe I can corner the market on court opinions, which discuss the FCPA. I am a lawyer and I bet all the other lawyers would pay me if I were the only person in the world who had access to them (or even better yet we were in China where the trials are held in secret – imagine that market!). I know there are only a handful of such cases but imagine the power I would have if only I knew about them. Why I could I put on seminars and pay people to attend. Triple oops, as I just found out that the court decisions are public recordand available for FREE. Drat.

Well if all this information about the FCPA is available for free what can I do to make money?Hmm, maybe, just maybe, if I put information together from all of the above sources in a book people might be interested in buying it. What if I wrote multiple books? Do you think there might be a market for such written texts? I certainly hope so and to further entice you to join in this nefarious act of for-profit commerce, perhaps you might want to purchase one of the other 15 books I have written on the FCPA, compliance and ethics and leadership. But wait a minute, wouldn’t that mean I am making money off free government information? I guess I better self-disclose those facts and let the chips fall where they may. Hopefully Adam Smith will give me a declination of the Invisible Hand.

If no one will buy any of the books I have written, maybe they would attend training that I might put on. I could talk about all this free government information, put it in power points slides and other written materials and then charge people to get trained. I could even call it the Compliance Master Class Training. Maybe I could go to other parts of the country and put on training, maybe in places where they might not have heard about all the free DOJ and SEC information. Of course, I would have to find such a place. But wait a minute, wouldn’t that mean I am making money off of free government information. I guess I better self-disclose that as well.

If no one will buy any books I write or go to training seminars that I might put on, I could always write a blog. Do you think anyone would pay to read a blog? Nah. How about if I started a podcast, or even founded an entire podcast network, do you think companies might pay to sponsor a podcast or even an episode? Maybe.

How about the following as a business strategy? I will tell people I am lawyer and I will give them legal advice on compliance. Of course, to do so, I will have to use all of these free resources listed above and then charge for my legal services. Think there might be a market for that legal advice? I am not really sure so perhaps I should make a provisional self-disclosure that if any clients came to me for legal advice, I would charge them and hence engage in commerce. It would also allow me to apply to join that hallowed group, FCPA INC. whose members (1) practice law around the FCPA compliance, (2) put on FCPA compliance training, (3) write books on compliance and (4) generally pontificate on all things FCPA and compliance. Sounds like a great group to belong to, you think they will take me? If so I can’t wait to learn the secret handshake so I can proudly commune, in secret, with its members. Hopefully they will not haze pledges too badly, as I am way too old to survive another Pledge Week.

If you have not quite ascertained the point of today’s post, please consider the following – knowledge is power. If you want knowledge about compliance there are plenty of places you can look for free to obtain that knowledge. If you want to hear the DOJ or SEC’s most current thinking on compliance related issues, you can also attend a (for-pay) compliance conference. If so, I am sure I will see you there because I certainly value what they have to communicate to us. I also plan to continue to communicate it to you; sometimes even for profit. Long Live Adam Smith and his Invisible Hand!

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, 2018

As we celebrate all things Star Wars on the May the Fourth Be With You edition, Jay Rosen and myself take a look at some of the top compliance stories over the past week.

  1. Panasonic settles FCPA enforcement action. Tom spends most of the week on it Background, the Bribery Schemes, a 20% Discountand Lessons Learned. Henry Cutter explores the due diligence and Trace Certification issues in the WSJ Risk and CorruptionJournal as does Kelly Swanson in GIR (sub req’d).
  2. Former VW CEO indicted in emissions-testing scandal. Jack Ewing reports in the NYTand Adrienne Roberts and Christina Rogers report in the WSJ. Dick Cassin reports in the FCPA Blog.
  3. What does the D&B declination mean for self-disclosure? Clara Hudson explores in GIR (sub req’d).
  4. An interesting UK court case considers whether lawyer interviews are privileged when the company agrees to a DPA with the SFO. For an English lawyer perspective, see article in the FCPA Blogby Susan Hawley. For another perspective, see the article by Debevoise & Plimpton lawyers Karolos Seeger, Andrew Lee and Robin Lööf in the NYU Compliance and Enforcement Journal.
  5. Are you using data to power your compliance program? If not you are missing the boat say Ren McEachern and Roy Pollitt in the FCPA Blog.
  6. Two looks at speaking up in a company. Jonathan Marks on how to win back employees trust so they will use a hotline. From an article in Fraud Magazine, he cross-posted on his blog. Henry Cutter interview Public Service Enterprise Group Inc. CCO Antonio Fernández on building a speak up culture in WSJ Risk and Compliance Journal.
  7. Matt Kelly joins us for a special breaking news segment on 5 steps law enforcement officials expect you to engage in if you have a data breach. See Matt’s article in Radical Compliance.
  8. What are the GDPR implications for whistleblowing? Vera Cherepanova explores in the FCPA Blog.
  9. Another week, another declination, this time for Transocean. Kelly Swanson reports in GIR(sub req’d).
  10. Tom announces publication date of his next book, The Complete Compliance Handbook, which will be available on May 21, 2018 on Amazon.com. It is available for PreSale here.
  11. Tom has a busy May planned. Join him at Brazil’s largest compliance conference, the 6th International Compliance Congress, held by LEC – Legal, Ethics and Compliance, May 8 to 10, in São Paulo, Brazil. Registration and information here; Hear him speak to the Houston chapter of ACAMS, from 11:30 -2 PM on Thursday May 17thin Houston on “Driving Compliance and Ethics through Data Analysis”. Information and registration here;and join in a session on Using Frameworks to Prove Compliance Competency at Compliance Week 2018 in Washington DC, May 20-23. Information and registration are here.

For more information on how an independent monitor can help improve your company’s ethics and compliance program, visit our sponsor Affiliated Monitors at www.affiliatedmonitors.com.

We continue our exploration of the Foreign Corrupt Practices Act (FCPA) enforcement action involving Panasonic Avionics Corporation (PAC) and its parent Panasonic Corporation (Panasonic). Today, I want to explore what actions led to PAC receiving a 20% discount from the minimum range suggested under the US Sentencing Guidelines.

The penalty assessed was approximately $280 million broken down into a $137 million payment by the company’s US unit, PAC, in criminal penalties to the Department of Justice (DOJ). The Japanese parent, Panasonic, agreed to pay disgorgement of $126,900,000 and prejudgment interest of $16,299,018.93, for a total payment of $143,199,018.93 to the Securities and Exchange Commission (SEC). The DOJ resolution documents included a Deferred Prosecution Agreement(DPA) and a Criminal Information(the Information). The SEC issued a Cease and Desist Order(the SEC Order). Both the DOJand SECalso issued Press Releases.

As I have previously noted, this matter involved massive bribery and corruption schemes, for nearly 15 years, with the participation of top management at PAC. Two of these men left the company in 2017. They were Chief Executive Officer (CEO) Paul Margis and Vice President of Finance/Chief Financial Officer (CFO) Paul Bottiaux. The corruption schemes encompassed airlines across the globe and even domestically in the US. In addition to the bribery and corruption, the conduct was also anti-competitive in nature. It certainly appears that such illegal conduct was a part of the overall business strategy and business plan of the US subsidiary. It almost begs the question of why there were no individual prosecutions. From the parent company perspective, while there were no individuals identified, one can only wonder how closely, if at all, they were watching their money-making US subsidiary from the compliance perspective.

However, at some point, the company found religion and decided that violating the law as a business strategy was not the way to move forward. Obviously, PAC was aware of potential FCPA violations as far back as 2009 when PAC’s internal audit department flagged that services providers where (1) hired without following procurement department processes; (2) contracted with no oversight; and (3) paid without delivering anything tangible to PAC. The initial internal audit report stated, “consultant payments should be carefully reviewed in light of FCPA regulation [sic] due to lack of clarity in deliverables” [bold in Information] and was circulated to PAC senior management but this highlighted language was removed from the final audit report.

The DPA also noted that PAC was made aware of the allegations by a “whistleblower complaint and civil lawsuit, which the Company took steps to investigate internally.” However, as the DPA dryly noted, PAC “chose not to voluntarily report to the relevant authorities”. The DPA went on to state, “The Company did not receive voluntary disclosure credit because the Company’s disclosures occurred only after the Securities and Exchange Commission requested documents from Panasonic related to possible violations of anti-corruption laws.”

Once when it did gain that old time (FCPA) religion, PAC conducted a “thorough internal investigation; making factual presentations to the Fraud Section; providing facts learned during witness interviews conducted by the Company; voluntarily making U.S. and foreign employees available for interviews in the United States with the Fraud Section and the SEC; in one instance, proactively alerting the Fraud Section to material information relevant to the investigation; collecting, analyzing, and organizing voluminous evidence from multiple jurisdictions; and disclosing to the Fraud Section conduct in the Middle East of which the Fraud Section was previously unaware.”

PAC also engaged in significant remediation. The above-mentioned CEO and CFO left the company. Additionally, caused “several senior executives who were either involved in or aware of the misconduct to be separated” even if it was in a manner which the DOJ characterized as “in some respects untimely”. The company enhanced and “committed to continuing to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth” in the best practices compliance program found in Attachment C to the DPA. Although not part of the penalty calculation set out in the DPA, the SEC Order provided additional information on PAC’s conduct, noting the entity afforded cooperation to the SEC “in the later stages of the staff’s investigation.”, the company “replaced the senior PAC executives involved in the violations”. It also “established an Office of Compliance and Ethics led by a new Chief Compliance Officer, implemented new compliance and accounting procedures, and enhanced internal accounting controls.”

In the DPA listing of the Culpability Score under the USSG, it stated, “The organization fully cooperated in the investigation and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct.” For the conduct, PAC’s overall liability was reduced by a factor of ‘minus 2’. The highest score on this factor can be a ‘minus 5’. However under the 2017 FCPA Corporate Enforcement Policy it states, in the section entitled Limited Credit for Full Cooperation and Timely and Appropriate Remediation in FCPA Matters Without Voluntary Self-Disclosure,the following, “If a company did not voluntarily disclose its misconduct to the Department of Justice (the Department) in accordance with the standards set forth above, but later fully cooperated and timely and appropriately remediatedin accordance with the standards set forth above, the company will receive, or the Department will recommend to a sentencing court, up to a 25% reduction off of the low end of the U.S.S.G. fine range.” [emphasis mine]

One can only conclude that the religion PAC found after the SEC delivered it a subpoena met this threshold.

Tomorrow I will wrap up my consideration of the Panasonic FCPA enforcement action with lessons learned from it, contrasting it with the actions of Dun & Bradstreet Inc. (D&B) who received a full declination.

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, 2018

In this episode, Matt Kelly and I take a continued deep dive the underlying assumptions around the reasons for lack of IPOs by small and mid-cap sized firms. We focus on a speech by SEC Commissioner Robert Jackson recently gave exploring possible reasons why middle market companies aren’t going public. It turns out that the numbers showed that the costs for going public, roughly 7% of the total return has remained constant since the early 90s.

While the Administration has consistently talked about the costs of going public driven by the administrative cost required under Sarbanes-Oxley and Dodd-Frank, it turns out that is only part of the equation. The other part is investment bankers whose fees have not dropped or even become more efficient in nearly 25 years.  We explore the implications from this finding, what it may mean for the SEC’s attempts to bring more small and mid-cap companies into the public market and compliance going forward.

For more see Matt Kelly’s piece More on Declining IPO Trends