When the Criminal Becomes a Compliance Leader
May 8, 2008 | Filed Under Criminal Liability, Compliance
The Financial Times management blog notes a different twist on the “do as I say, not as I do” bromide:
Students at Canada’s Richard Ivey School of Business will have an unusual guest speaker on Thursday: Nick Leeson, the rogue trader who served four years in prison after bringing down Barings Bank. Mr. Leeson will aid the students in a case study analysing the bank’s collapse, while giving tips on the safeguards needed to prevent similar debacles. Afterwards, the students will take part in the “Ivey Ring Tradition Ceremony”, in which they pledge “to act ethically and honestly in all their activities”.
The school’s press release touts the benefits of business-barons-to-be of listening to Mr. Leeson:
For future business leaders, it’s important not to just focus on success, but to also hear how people get themselves into trouble. Mr. Leeson will also highlight the importance for all businesses of integrating financial oversight into an enterprise-wide system that supports and promotes ethical behaviour.
Having a criminal lead a compliance case study is one way to teach a lesson; part of the message here could be that crime does pay eventually, as Mr. Leeson gets $15,000 or so for talks such as this.
It’s not clear whether Mr. Leeson will hand out the Ivey Rings; we have obtained closed-circuit camera footage of the ring Mr. Leeson wore around the time of the Barings collapse:
Legal costs over-control?
March 14, 2008 | Filed Under Cost Control, Compliance
Is there an excessive emphasis on the control of legal costs by some in-house departments?
George Terwilliger of Wise & Case wonders and writes about this in the National Law Journal.
Mr. Terwilliger sees a troubling trend in certain cases:
Today, however, the corporate discussion seems to be shifting from “How much does it cost?” or “Can we do it in-house?” to “Can we do without it?”
Two examples given of this potential short-sightedness are avoiding plaintiff IP litigation and potentially cutting corners on FCPA compliance.
These are two clear high-reward, high-risk areas. The legal department can become a revenue center with the right case and effective IP counsel. On the FCPA front, many companies learn the hard way that the global sales bazaar is not always an easy place to navigate.
Mr Terwilliger rightly notes that in-house departments have to have a proper focus on costs, and that the CFO often demands it.
All good so far, but one comment caught my eye:
That said, however, in a very real way, companies tend to get what they pay for when it comes to purchasing legal services. Companies benefit most from legal advice based on specialized training, expertise and judgment gained through long experience.
All true, when talking about a certain team at a specific firm. The challenge for the GC and other managing counsel is to make the right match. Rare are the firms that have the needed expertise that justifies premium rates across all practice areas.
I think I’ve said somewhere before that cost does not equal value. In some cases the services may be overpriced; in Mr. Terwilliger’s case, heading up the white-collar practice group at a major firm can make his hourly rate a relative bargain.
Today’s GC should definitely not skimp when it comes to necessary support from experienced and service-oriented outside counsel.
But given the depth and breadth of outside legal costs, the focus on control is there, it’s increasing, and it ain’t goin’ away. This raises many challenges for law firms that I’ll save for another day.
I must say right here that I see this trend causing enlightened law firms to look hard at what they offer and who they have doing it. They may find in some cases that they are at a fork in the road.
It may closer than some think; sort of a legal off-ramp?
General Counsel Liability
February 18, 2008 | Filed Under GC Liability, Compliance
The Fulton County Daily Report has an excellent summary of the state of GC liability. The list of those involved isn’t large in an absolute sense, but is growing.
According to Roscoe C. Howard Jr. of Troutman Sanders (and a former U.S. Attorney):
“There was a time, quite frankly, when you could be a director or officer and hide behind a corporate shield. Individuals weren’t held to any law enforcement accountability. Now, if you’re CFO, you’re going to jail. They’re going to turn to their GC and say, you need to keep me out of trouble.”
The challenge of course is that neither the GC nor the legal department can be looking over everyone’s shoulder all the time.
But that doesn’t always matter when the authorities come knocking…
Sacre Bleu!
January 25, 2008 | Filed Under Criminal Liability, Compliance
$7 billion buys a lot of compliance training and even more monitoring technology, n’est pas?
Here’s a slide to put in the deck:
And who says life doesn’t imitate art?
Jerome Kerviel, Societe Generale, 2008
Bud Fox, Wall Street, 1987
Sarbanes-Oxley, Three Years On
November 26, 2007 | Filed Under Compliance
The Financial Times reports the results of a Compliance Week study on Sarbanes-Oxley results.
The study finds that the number of “material weaknesses” in these companies – identified shortcomings in accounting controls – fell to 5.9 per cent from November 2006 to May this year, compared with 16.7 per cent in the 12 months to November 2005.
There’s also the hint of costs coming down:
When Sarbox was passed in 2002, it was estimated that it would cost the US economy about $1.6bn (£776m, €1.1bn). By 2004, estimates of compliance costs rose to $4m per listed company – or about $35bn.
However, costs have come down significantly at the largest companies which have developed systems for complying. Costs are expected to fall further after US regulators made it much easier to implement Section 404, the most contentious part of Sarbox that deals with internal controls over financial reporting.
That probably comes as news to most GCs and CFOs. While larger companies may have the systems and staff resources to realize efficiencies going forward, smaller companies may still be weighing the costs when they decide whether to go public. And where to go public.
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