Running Out of Options
February 19, 2007 | Filed Under On The Dock, Compliance, In the News
You go away for a week, and you know something is different when you see a former GC doing a perp-like walk on the CNBC monitor in the airport.
A good summary of the GC angle on the options backdating mess is from Bloomberg News, via the Philadelphia Inquirer; here’s a highlight:
The exodus is unprecedented among the ranks of corporate attorneys, who ensure the legality of commercial transactions, said Susan Hackett, vice president of the Association of Corporate Counsel. The departures reflect added responsibility that in-house lawyers now bear for company actions, she said.
“I have never seen as much turnover in high-profile positions,” said Hackett, who has been at the Washington-based group representing 8,000 corporations for more than a decade. “This has been a watershed.”
One interesting point is the description of one of the duties of corporate attorneys (and by implication particularly GCs) to “ensure the legality of commercial transactions.” As we are seeing in the options backdating cases, the level of involvement of the GC and the legal department can vary. Rather than looking at just at legality, some of those involved could have started with propriety.
A former officer of ACC gets it right:
“Ten or 15 years ago, general counsels were mainly just asked whether a corporate action was legal or not,” said Al Gonzalez, 52, a past vice president of the Association of Corporate Counsel and currently general counsel at Tyson Foods Inc., based in Springdale, Ark., which is not involved in the scandal. “Today, the first questions they are asked is, ‘Is it ethical? Does it conform to the company’s code of conduct and core values? Is it the right thing to do?’ “
A sign that things may have gone way past “legality” is contained in today’s Wall Streeet Journal ($$$) which recounts alleged options practices at Mercury Interactive. The story quotes documents produced in a court proceeding as referring to “magic backdating ink,” presumably the sort that can lead to a change in an option grant date.
I don’t remember hearing about “magic backdating ink” in law school. But it doesn’t sound like something that would require much research. Perhaps a case study for this upcoming show on Fox?
Another GC is Sentenced
January 17, 2007 | Filed Under On The Dock, Compliance, In the News
This item from the AP says it all:
Steven Woghin, the former general counsel at Computer Associates, was sentenced to two years in prison Tuesday in connection with a scheme to artificially boost the software maker’s quarterly revenue through backdated sales contracts, prosecutors said.
Mr. Woghin had been cooperating with authorities since a guilty plea in 2004; Sanjay Kumar, ex-CEO of Computer Associates, received 12 years last November after his plea.
Here’s a rather vivid glimpse of life before the judge after a guilty plea:
Appearing before U.S. District Court Judge I. Leo Glasser, as well as about 15 friends and family members, Woghin reportedly choked back tears as he apologized for his crimes. According to Newsday, Woghin said his part in the affair was “not a legacy I would like to leave…It was not for personal gain or hubris.” Added Woghin, “I’m deeply sorry for what I have done.”
“I’m sorry you’re here,” Glasser reportedly told Woghin before passing sentence. “I would be happier if I had never seen you before.”
The crux of the offense was this:
In 1992, observed Newsday, Woghin was a 10-year veteran at the Department of Justice when he joined the software company previously known as Computer Associates. He allegedly headed up a team of CA lawyers that “routinely” drafted software licensing contracts with clients after a quarter had closed, according to the newspaper.
This was referred to as the 35-day month (artificially extending reporting months, usually the last month of a fiscal quarter).
The company is now known as CA; there’s something about crimes of former executives that tends to dilute a brand.
HP: The GC Takes One For the Team
December 19, 2006 | Filed Under On The Dock, Governance
Being a GC can be a great job. And as ex-HP GC Ann Baskins has learned, at times it’s an extremely difficult one.
Sue Reisinger of Corporate Counsel magazine gives a very close look at the twists and turns Ms. Baskins’ role in the director leak saga. The entire article is worth a close reading.
Beginning like the first page of a novel by Dickens, Ms. Reisinger lets us know quickly who is going to take a large part of the blame:
While Baskins sat quietly, former HP Chairwoman Patricia Dunn and CEO Mark Hurd told the committee that Baskins was to blame for the mess. They said that she had given them bad legal advice, and that she knew about and permitted the use of “pretexting” — using false pretenses to obtain personal information about others. Even Baskins’ longtime friend and HP’s outside counsel, Larry Sonsini of Wilson Sonsini Goodrich & Rosati, told Congress: “I think the record has become quite clear that who was in charge [of the spying] was the HP internal legal department. They took the responsibility on, rightly or wrongly.”
So much for teamwork, which is tough to expect when you have to go through this:
(Credit: Chuck Kennedy/MCT)
A reaction from a quoted-but-anonymous GC caught my eye:
One GC who has overseen investigations for his Fortune 500 media company says that beyond the legal and the ethical issues, Baskins failed to ask the crucial question: “How will all this affect the company if it shows up on page one of The New York Times?”
Bingo. That’s a line I’ve used in every compliance training I’ve ever performed. (Note: just insert name of local paper; the Times doesn’t resonate everywhere west of the Hudson.)
At the hearing, Congress couldn’t resist the opportunity to manufacture sound bites, either. Why don’t they spend more time on issues that are truly in the national interest? Like steroids in baseball?
In fact, Congress is engaged in some pretexting itself; CEO Mark Hurd still find himself under scrutiny for stock sales at the time things were starting to unravel.
As the position of GC becomes more high-profile, risks can accompany rewards. Prof. Peter Henning has written recently about some of these GC-specific risks.
(Update: Or a GC can get thrown under the train; Amtrak has fired five and appointed a new GC.)
Close GC Supervision
October 24, 2006 | Filed Under On The Dock, Compliance
Intrepid law.com reporter Sue Reisinger at Corporate Counsel has a sobering account of Prudential Financial’s experience in settling claims with US DOJ of alleged wrongoing at a brokerage subsidiary.
Other companies have had requirements of outside oversight over post-settlement compliance programs. The new twist for Prudential Financial is that some of these terms focus on its GC; indeed, the settlement:
“…requires GC Susan Blount to personally design, install, and oversee a complex compliance program. Moreover, Blount must report on the program to federal prosecutors twice a year for the next five years.”
What is unclear as to how this will work in practice. Twice-yearly reports to a US Attorney. What if there is a disagreement in the scope or substance of the compliance program? Ms. Reisinger’s article also raises the specter of GC Blount’s own liability for the effectiveness of the program. That would be a potential expansion of a job description.
This oversight will undoubtedly give ample fodder for increased substance to compliance training programs at Prudential Financial in the future. That and the $600 million in fines and penalties.
Here’s the obligatory DOJ press release. Some good news, though: BusinessWeek still rates Prudential Financial a buy, the settlement notwithstanding.
Look Before You Leap In-house
April 25, 2006 | Filed Under On The Dock, Regulation
So says Scott Wiegand.
And from his harrowing days as GC at PurchasePro, he should know. That experience included a criminal trial on federal charges; Mr. Wiegand was acquitted on all of them.
In an excellent and straightforward article in Corporate Counsel magazine, Mr. Wiegand provides six “lessons learned” to once and future GCs, who should consider the downside before grabbing the alleged gold in-house ring when it is seductively dangled in front of them.
I won’t summarize all six; Mr. Wiegand and his coauthors (attorneys on his defense team from Nutter McClennen & Fish) do so very ably.
Item #2, looking closely at the CEO and CFO are key, particularly in the post-Sarbox world. Item #4, talking privately to outside auditors is a great idea; but I wonder how that would work during the courtship that is the recruitment and interview process for a C-level position.
Item #5 is the key for me, albeit one that works only after you’ve accepted a GC position: remember that you are the company’s lawyer. That is a perennial challenge for GCs, particularly with smaller companies facing difficult issues.
Mr. Wiegand is now associate general counsel at Harrah’s Entertainment Inc. He is moving on, but notes the financial toll such charges can take. It’s gratifying to know that there are employers out there who see baseless charges for what they are, and keep a good lawyer regardless.
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