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FCPA Compliance Report

Tom Fox has practiced law in Houston for 30 years and now brings you the FCPA Compliance and Ethics Report. Learn the latest in anti-corruption and anti-bribery compliance and international transaction issues, as well as business solutions to compliance problems.
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Now displaying: Category: board of directors
Feb 15, 2018

One of the ongoing questions from members of Board of Directors is how to resolve the tension between oversight and managing. I recently had the opportunity to visit with Joe Howell, the Executive Vice President (EVP) of Workiva, Inc. on this subject. Howell has worked on and with Boards of Directors at various companies and I wanted to garner his understanding of the role of a Board and both senior management and a Chief Compliance Officer (CCO). Howell had a short response which I thought was an excellent starting point to understand the role; put sand in the shoes of management.

The key to such a metaphor succeeding is that a Board of Directors, “by continuing to challenge management on these scenarios that management has considered and the stories management is telling itself about what could go wrong”, can “help get management out of its comfort zone by and large executive teams begin to believe themselves when they talk about how well they’re doing. The independent challenge that the board can offer putting the little bit of sand in the shoe to make sure that you’re thinking about things carefully can cause you to step back and really focus your resources where they're needed.”

Board’s do this by posing questions to management that help them challenge their own assumptions, especially those assumptions which senior management is most confident about. Howell said that Board’s “need to help senior management consider the things that management is so sure about that maybe are going to play out the way that they expect. For example, the things that can hurt investors more than anything else is a surprise. Chaos does not help investors in general. The things that surprise investors frequently are the things that also surprise management. Does management consider all of the things that can go wrong and have they built an environment where they can both help prevent those things from happening and detect them when they’re small and they can actually do something about them.” 

Howell noted the role of the Board is not management but oversight, focusing on governance. To do so, an effective Board should challenge senior management not only on what they have planned for but what they may not have considered or may not even know about. He said, “one very good example is the whole, the reputation of those stakeholders involved in the company and that can be the management team itself, the employees, and the board members themselves.” This is because reputational damage hurts everyone. Howell went on to state, “it’s very important as we go through some of the ways the board can help management in that role. I think the things that really make a difference to management is when the board is able to be an effective devil’s advocate. Not managing management but helping them in their governing role by helping management to step back and think critically of their own underlying assumptions and biases.” 

One of continuing struggles I hear from Board members is asymmetrical information, largely due from the siloed nature of company information and structures. Howell acknowledged, “These sorts of barriers are pervasive in any company of any size that has a particularly operations and different product lines and different markets and different countries and different time zones. These limitations in the free flow of information by themselves create a risk to the organization, to the investors of the organization, to the employees of the organization and the board’s ability to ask questions. If nothing else in their governance control creates this reminder to management to open up itself to itself and listen carefully to its own organization and be able to link information to all of the places it needs to be fed.”

I asked Howell to further explain his phase “open itself up to itself and listen”. He provided the following example, “how can the Chief Financial Officer make sure that he is giving all the information that the Chief Compliance Officer needs to do his job? Those questions from the board can be very valuable in making sure that the Chief Financial Officer doesn’t forget these issues and the Chief Compliance Officer has an opportunity to engage constructively with the Chief Financial Officer and others in the organization.”

Somewhat counter-intuitively, Howell noted that when it comes to the Board’s oversight role around internal controls, less is often more. This occurs by helping management understand a company can overdo a control environment, “in the sense that when management guides controls around risks that are not going to be the most serious risks to the company, that they end up building excessive amounts of energy and protection where they're not really needed. That you as a management team end up deluding your attention and deluding your resources.”

Howell went on to explain it is simply a matter of resources, “When things do go wrong, you’re in effect spread so thin that you don’t see those risks coming at you. The real question where less is more can be very valuable is when the board continues to challenge the management team on the scenarios that could play out. That could be devastating to an organization where risk really matters.”

I asked Howell if he could provide any discrete examples and he pointed to the food service industry for the following., “For example, in a food service company or a restaurant company, if there were contamination or if there were things that could happen either at the plant or by people who are touching the food. Those are very serious risks that a company needs to both be mindful of and to be able to prevent. If something goes wrong, you need to be able to detect early. When customers of the company or others are hurt that there’s a consequence of failures that can be devastating.”

In another example Howell said he had seen situations where internal “controls that are used for financial reporting for example, when examined in the light of where the risk really exists for the company, the companies have been able to reduce their controls actually by as many as half and improve their overall control environment and reduce the aggregate risk to the company. It’s interesting that even spending less money on controls by having fewer controls can improve the overall comfort that the company and its management and investors are protected from risk.”

A Board is not simply there to be a rubber stamp for senior management. It must exercise independent judgment, action and oversight. Further, it is the Board’s role to ask hard, difficult and probing questions to make sure management is not only doing its job but has considered other risk possibilities.

Jan 25, 2018

In this episode I visit again with Rakhi Kumar, the Managing Director, Head of ESG and Asset Stewardship at State Street Global Advisors. We discuss the firm’s role in advocating for greater Board of Director Diversity. With a campaign which began with the ‘Fearless Girl” statue in Wall Street, to pushing companies in the US, UK, England, Canada and Japan to include more female candidates at the Board of Director level; SSGA continues to be a leading advocate for a wide variety of Board level ESG issues. 

We discuss Kumar’s role as an asset manager for SSGA, why Board’s should seek both racial and gender diversity and the results SSGA has seen to-date. She also discusses five questions laid out by SSGA State Street President and COO Ron O’Hanley, for companies to use in thinking through how to improve gender diversity at the Board level. He gave this information at a speech to the fourth biennial Breakfast of Corporate Champions hosted by the Women’s Forum of New York on November 14, 2017. 

First, are you assessing unconscious gender bias in the director search and nomination process? And if you think your company is the exception on this issue, you probably haven’t spent enough time examining it. 

Second, are your companies actively assessing the current level of gender diversity within your management ranks? It’s not only about the board. Are you keeping diversity metrics around the percentage of new hires, managers and executives? 

Third, are you acting on those metrics? Are you establishing goals to enhance gender diversity on the board and within senior management? Are you tying those goals to business scorecards, performance and other key metrics? 

Fourth, do you have “diversity champions” on the board and within management? I don’t mean token figureheads — but leaders who are engaged on this issue and who support the initiatives to meet these goals. 

Fifth, is gender diversity something your company actively communicates about to employees, shareholders and the broader public? The conversation about gender diversity in the boardroom shouldn’t be confined to the boardroom. 

For additional information on SSGA’s Board gender diversity efforts, see the following: 

SSGA Report: Q3 Stewardship Activity Report 

Expanding the Call for Board Gender Diversity, speech by Ron O’Hanley

SSGA White Paper: Gender Intelligence: Bridging the Gap with Research, Science and Relevance

Jan 11, 2018

 I. Legal Requirements of the Board Regarding Compliance

A. Case Law

As to the specific role of ‘Best Practices’ in the area of general compliance and ethics, one can look to Delaware corporate law for guidance. The case of In Re Caremark International Inc. was the first case to hold that a Board’s obligation “includes a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate, exists, and that failure to do so under some circumstances may, in theory at least, render a director liable for losses caused by non-compliance with applicable legal standards.”

In the case of Stone v. Ritter, the Supreme Court of Delaware expanded on the Caremark decision by establishing two important principles. First, the Court held that the Caremark standard is the appropriate standard for director duties with respect to corporate compliance issues. Second, the Court found that there is no duty of good faith that forms a basis, independent of the duties of care and loyalty, for director liability. Rather, Stone v. Ritter holds that the question of director liability turns on whether there is a "sustained or systematic failure of the board to exercise oversight – such as an utter failure to attempt to assure a reasonable information and reporting system exists.”

According to Haynes and Boone in its publication, “Corporate Governance and the Role of the Board” a director’s business decisions generally qualify for protection by the “business judgment rule.” Under the business judgment rule, courts presume that directors making business decisions acted on an informed basis, in good faith, and with the honest belief that the action taken was in the best interests of the corporation. In lawsuits brought against directors brought by shareholders, courts applying the business judgment rule will determine only whether the directors making the decision (i) were free from conflicts of interest, (ii) appropriately informed themselves before taking the action, and (iii) acted after due consideration of all relevant information that was reasonably available. Under the business judgment rule, the board’s action will not subject board members to liability if the action or decision of the directors can be attributed to any rational business purpose. Directors that meet the criteria of the business judgment rule do not have to worry about having their business decisions second-guessed by a court, even where their decisions result in corporate losses.

B. FCPA Guidance and US Sentencing Guidelines

A Board’s duty under the Foreign Corrupt Practices Act (FCPA) is well known. In the Department of Justice (DOJ)/Securities and Exchange Commission (SEC) 2012 FCPA Guidance, under the Ten Hallmarks of an Effective Compliance Program, there are two specific references to the obligations of a Board. The first in Hallmark No. 1, entitled “Commitment from Senior Management and a Clearly Articulated Policy Against Corruption”, states “Within a business organization, compliance begins with the board of directors and senior executives setting the proper tone for the rest of the company.” The second is found under Hallmark No. 3 entitled “Oversight, Autonomy and Resources”, where it discusses that the Chief Compliance Officer (CCO) should have “direct access to an organization’s governing authority, such as the board of directors and committees of the board of directors (e.g., the audit committee).” Further, under the US Sentencing Guidelines, the Board must exercise reasonable oversight on the effectiveness of a company’s compliance program. The DOJ’s Prosecution Standards posed the following queries: (1) Do the Directors exercise independent review of a company’s compliance program? and (2) Are Directors provided information sufficient to enable the exercise of independent judgment?

From the Delaware cases, a Board must not only have a corporate compliance program in place but actively oversee that function. Further, if a company’s business plan includes a high-risk proposition, there should be additional oversight. In other words, there is an affirmative duty to ask the tough questions. The specific obligations set out regarding the FCPA drive home these general legal obligations down to the specific level of the statute.

II. Prudent Discharge of Compliance Obligations

What are the obligations of a Board member regarding the FCPA? Are the obligations of the Compliance Committee under the FCPA at odds with a director’s “prudent discharge of duties to shareholders”? Do the words prudent discharge even appear anywhere in the FCPA? In webinar, entitled “Reporting to the Board on Your Compliance Program: New Guidance and Good Practices”, Rebecca Walker and Jeffery Kaplan, explored these and other issues.

As to the specific role of ‘Best Practices’ in the area of general compliance and ethics, Walker looked to Delaware corporate law for guidance. She cited to the case of Stone v. Ritter for the proposition that “a duty to attempt in good faith to assure that a corporate information and reporting system, which the board concludes is adequate exists.” From the case of In re Walt Disney Company Derivative Litigation, she drew the principle that directors should follow the best practices in the area of ethics and compliance.

According to Haynes and Boone in its publication, “Corporate Governance and the Role of the Board” a board’s role is not to actually manage the company, but instead to oversee and monitor the management of the company. In the realm of compliance, this means the Chief Compliance Officer. The board has the responsibility to fulfill the role of strategic and business advisor to management of the company. In addition, the board has the role of monitoring the performance of the compliance function, including monitoring the performance of it using customary economic metrics, and by overseeing compliance with applicable laws and regulations. While the board is not responsible for auditing or ferreting out compliance problems, it is responsible for determining that the company has an appropriate system of internal controls. The board should also monitor company policies and practices that address compliance and matters affecting the public perception and reputation of the company. Every company should ensure that it conducts appropriate compliance training for employees and conducts regular compliance assessments. Finally, the board must take appropriate action if and when it becomes aware of a material problem that it believes management is not properly handling.

There is no reference to prudent discharge in the FCPA itself. However, a Board member might well think more than twice about the prudent discharge of duties to the shareholders as both the DOJ and SEC now might well wish to look into a Board’s prudent discharge of duties under the FCPA.

Jan 4, 2018

In this episode, Richard Lummis and I consider the recent revelations which came to light that during the tenure of the former Chief Executive Officer, Jeff Immelt, he had an empty plane fly behind his jet on corporate trips. This ghost plane tracked Immelt’s jet and was designed to be available if there was a mechanical issue, which presumably could not be fixed sufficiently in time for the CEO’s busy travel schedule. There were several points a Board of Directors can learn from these revelations going forward. 

Thomas Gryta, Joann S. Lublin and Mark Maremont, writing in the Wall Street Journal (WSJ), said that a GE spokesperson noted the reason for the ghost plane ““This practice, which GE has discontinued, involved business-critical itineraries with tight schedules, multiple international stops and, in most cases, security concerns.”” The spokesperson then gratuitously added, ““We do not believe that the understandable criticism of this discontinued practice fairly reflects on Jeff’s dedicated service to GE for over 30 years.”” However the WSJ piece, citing un-named sources said, “While CEO, Mr. Immelt wanted a backup jet in case there was a mechanical issue that could lead to delays”. The cost to operate the ghost plane was about $6500 per hour, adding up to $250,000 to the cost of each flight. 

The New York Times (NYT) reported that the practice occurred during his 16-year tenure as CEO of GE. Yet it was the subject of an internal whistleblower complaint in 2014. The WSJ reported, “The company told GE’s directors the company had reduced the practice in mid-2014 and that the continued use of the backup plane was limited to isolated situations such as travel to risky destinations. The board members were previously unaware, the people said, and some were dismayed to learn of the practice. “Obviously, this was an excess,” one of these people said.” 

Here was a clear misrepresentation to the Board of Directors. Even if limited to ‘isolated situations’ there was a CEO’s behavior and practices which was so egregious that it took a hotline compliant to change and the company executives were less than truthful to its own Board of Directors that the practice could continue. It was not as if company executives had any lack of understanding that the practice was not approved by the Board. The head of the Board’s Audit Committee mandated the practice must end. 

To hide what was going on, the company went out of its way to hide the ghost plane practice as “Flight crews were told to not openly refer to the backup planes, for fear of raising eyebrows, especially at the small airport facilities for private jets, the people said. One person said the flight manifest sometimes listed “Robert Jeffries” or “Jeffrey Roberts” as the passenger on the second plane, when in fact the seats were empty.” That certainly sounds like someone trying to hide something. 

What about the excuse that it was for security? James Stewart, writing in the NYT skewered that reasoning by citing to Scott Davis of Melius Research who stated, ““Not even heads of state get that kind of treatment.” Moreover, if the security was such a concern, why was GE sending its CEO there in the first place. Stewart wrote, “No one I spoke to in the field of corporate security said that made any sense, especially in the instance when the second plane stayed in Anchorage while Mr. Immelt traveled to Asia. There are plenty of planes there that could be chartered in case of emergency, not to mention commercial flights with first-class cabins and ample security. Robert Strang, a corporate security expert and the chief executive of the Investigative Management Group, told me he had been conducting security audits for chief executives for 29 years and could think of no similar example.” Finally, “If a destination is so dangerous that it requires a backup plane, then a C.E.O. shouldn’t be going in the first place”. And it’s not as if Mr. Immelt had been traveling to war-torn Syria or Afghanistan. 

Next was a point that Immelt himself raised which spoke directly to business leadership. In a letter to John J. Brennan, chairman and CEO of Vanguard and GE’s lead director, Immelt said, “Given my responsibilities as C.E.O. of a 300,000-employee global company, I just did not have time to personally direct the day-to-day operations of the corporate air team.” He added, “Other than to say ‘hello’ I never spoke to the head of Corporate Air in 16 years.” The CEO of the company goes 16 years without once ever having a substantive conversation with the head of the group mandated with handling his air travel? Frankly I do not know whether to laugh or cry at this statement. If it is true what does it tell you about the Imperial leadership style of Immelt. If he is not telling the truth, it tells you about the liberties he is taking with his facts. 

Stuart Davis also raised some obvious issues. If the CEO or his underlings were willing to violate the Board’s edict of no ghost jets; what else did they allow? Davis was further quoted, ““You hear about this and you have to wonder what else they were spending money on. You really have to question the financial oversight and controls and internal audit. You have to question the entire organization.”” 

According to the WSJ article, “GE informed its board’s compensation committee each year about how much the company had spent to fly Mr. Immelt on corporate aircraft, the people said. But those total amounts lacked details such as how many flights the CEO took, the number of pilots involved or the cost of aircraft fuel, people familiar with the process said. Directors assumed that GE’s human-resources executives had reviewed details about Mr. Immelt’s personal and business trips, according to one person. The GE board’s compensation committee should have requested more detail about Mr. Immelt’s usage.” Even if the Board was initially misled by GE executives, it should have asked for the details to test the information presented to it, especially as it had been the subject of a whistleblower compliant involving the CEO. 

All this would seem to indicate that no one was either (1) running the ship, (2) watching the ship being run or (3) was interested enough to find out what was going on. That is laid at the feet of the Board, in not asking direct, probing questions. It also points to the role of compliance to resolve whistleblower issues and to monitor on an ongoing basis to ascertain if the remediation has been followed or the company reverted to its prior conduct. Finally, any CEO’s excuse that as a 30-year employee, including 16 as CEO and he never had time to say anything other than ‘hello’ to an employee speaks to a CEO who is not only ignoring his employees but clearing communicating that I do not care about you or your job function at this organization. How is that for not only tone at the top but also conduct at the top.

Jan 4, 2018

In this episode, Richard Lummis and I consider the recent revelations which came to light that during the tenure of the former Chief Executive Officer, Jeff Immelt, he had an empty plane fly behind his jet on corporate trips. This ghost plane tracked Immelt’s jet and was designed to be available if there was a mechanical issue, which presumably could not be fixed sufficiently in time for the CEO’s busy travel schedule. There were several points a Board of Directors can learn from these revelations going forward. 

Thomas Gryta, Joann S. Lublin and Mark Maremont, writing in the Wall Street Journal (WSJ), said that a GE spokesperson noted the reason for the ghost plane ““This practice, which GE has discontinued, involved business-critical itineraries with tight schedules, multiple international stops and, in most cases, security concerns.”” The spokesperson then gratuitously added, ““We do not believe that the understandable criticism of this discontinued practice fairly reflects on Jeff’s dedicated service to GE for over 30 years.”” However the WSJ piece, citing un-named sources said, “While CEO, Mr. Immelt wanted a backup jet in case there was a mechanical issue that could lead to delays”. The cost to operate the ghost plane was about $6500 per hour, adding up to $250,000 to the cost of each flight. 

The New York Times (NYT) reported that the practice occurred during his 16-year tenure as CEO of GE. Yet it was the subject of an internal whistleblower complaint in 2014. The WSJ reported, “The company told GE’s directors the company had reduced the practice in mid-2014 and that the continued use of the backup plane was limited to isolated situations such as travel to risky destinations. The board members were previously unaware, the people said, and some were dismayed to learn of the practice. “Obviously, this was an excess,” one of these people said.” 

Here was a clear misrepresentation to the Board of Directors. Even if limited to ‘isolated situations’ there was a CEO’s behavior and practices which was so egregious that it took a hotline compliant to change and the company executives were less than truthful to its own Board of Directors that the practice could continue. It was not as if company executives had any lack of understanding that the practice was not approved by the Board. The head of the Board’s Audit Committee mandated the practice must end. 

To hide what was going on, the company went out of its way to hide the ghost plane practice as “Flight crews were told to not openly refer to the backup planes, for fear of raising eyebrows, especially at the small airport facilities for private jets, the people said. One person said the flight manifest sometimes listed “Robert Jeffries” or “Jeffrey Roberts” as the passenger on the second plane, when in fact the seats were empty.” That certainly sounds like someone trying to hide something. 

What about the excuse that it was for security? James Stewart, writing in the NYT skewered that reasoning by citing to Scott Davis of Melius Research who stated, ““Not even heads of state get that kind of treatment.” Moreover, if the security was such a concern, why was GE sending its CEO there in the first place. Stewart wrote, “No one I spoke to in the field of corporate security said that made any sense, especially in the instance when the second plane stayed in Anchorage while Mr. Immelt traveled to Asia. There are plenty of planes there that could be chartered in case of emergency, not to mention commercial flights with first-class cabins and ample security. Robert Strang, a corporate security expert and the chief executive of the Investigative Management Group, told me he had been conducting security audits for chief executives for 29 years and could think of no similar example.” Finally, “If a destination is so dangerous that it requires a backup plane, then a C.E.O. shouldn’t be going in the first place”. And it’s not as if Mr. Immelt had been traveling to war-torn Syria or Afghanistan. 

Next was a point that Immelt himself raised which spoke directly to business leadership. In a letter to John J. Brennan, chairman and CEO of Vanguard and GE’s lead director, Immelt said, “Given my responsibilities as C.E.O. of a 300,000-employee global company, I just did not have time to personally direct the day-to-day operations of the corporate air team.” He added, “Other than to say ‘hello’ I never spoke to the head of Corporate Air in 16 years.” The CEO of the company goes 16 years without once ever having a substantive conversation with the head of the group mandated with handling his air travel? Frankly I do not know whether to laugh or cry at this statement. If it is true what does it tell you about the Imperial leadership style of Immelt. If he is not telling the truth, it tells you about the liberties he is taking with his facts. 

Stuart Davis also raised some obvious issues. If the CEO or his underlings were willing to violate the Board’s edict of no ghost jets; what else did they allow? Davis was further quoted, ““You hear about this and you have to wonder what else they were spending money on. You really have to question the financial oversight and controls and internal audit. You have to question the entire organization.”” 

According to the WSJ article, “GE informed its board’s compensation committee each year about how much the company had spent to fly Mr. Immelt on corporate aircraft, the people said. But those total amounts lacked details such as how many flights the CEO took, the number of pilots involved or the cost of aircraft fuel, people familiar with the process said. Directors assumed that GE’s human-resources executives had reviewed details about Mr. Immelt’s personal and business trips, according to one person. The GE board’s compensation committee should have requested more detail about Mr. Immelt’s usage.” Even if the Board was initially misled by GE executives, it should have asked for the details to test the information presented to it, especially as it had been the subject of a whistleblower compliant involving the CEO. 

All this would seem to indicate that no one was either (1) running the ship, (2) watching the ship being run or (3) was interested enough to find out what was going on. That is laid at the feet of the Board, in not asking direct, probing questions. It also points to the role of compliance to resolve whistleblower issues and to monitor on an ongoing basis to ascertain if the remediation has been followed or the company reverted to its prior conduct. Finally, any CEO’s excuse that as a 30-year employee, including 16 as CEO and he never had time to say anything other than ‘hello’ to an employee speaks to a CEO who is not only ignoring his employees but clearing communicating that I do not care about you or your job function at this organization. How is that for not only tone at the top but also conduct at the top.

Dec 14, 2017

In this episode, I visit with Sheila Hooda on culture on a Board of Directors and how Board's can drive culture throughout an organization. Some of the topics we highlight are the following:

1. What is good Board culture?
2. What is the Board’s role in building an ethical culture within a company?
3. How can the Board assess senior management leadership to set appropriate culture?
4. How can the Board help to sharpen the company’s cultural focus?
5. What is the Board’s role in cultural evaluation and feedback?
6. What information should the Board ask for or consider in assessing a company’s culture?
7. What information should the Board impart to the Chief Compliance Officer or Chief Integrity Officer regarding culture?
8. Should Board members be a part of CCO cultural initiatives such as town hall meetings or focus groups?

Nov 2, 2017

In this episode, I visit Stuart Levine, one of the country’s leaders on effective Boards of Directors. Levine Chairman of the Board and CEO of STUART LEVINE & ASSOCIATES. Mr. Levine has significant board and executive leadership experience across multiple disciplines including financial services, technology and healthcare specializing in strategy, large-scale change management, leadership development, strategic communication, board governance and customer focus.

We focus on Board optimization and try to answer the question of why your Board is not optimized. We consider what is an optimized board and are you serving on one?  Levine explains the key factors contributing to an optimized board are boards are a strong culture, focus on ensuring company strategy and succession planning and have engaged directors who are prepared for all meetings. Unfortunately, these four factors aren’t easily achieved and require strong leadership from the CEO and dedication from all the directors. 

We consider the recent NACD report communicate on Board culture and how can a Board optimize its culture and collaboration. Explains how tone at the top and a company’s culture truly starts with the Board. Finally, we consider why Boards become operational and look backward instead of focusing on strategy and how to they correct this. 

For more on Stuart Levine and his firm, click here

For more information on Board Optimization see Levine’s article in Forbes.com Why Your Board Isn’t Optimized

Oct 19, 2017

In this episode, I visit with branding expert Linda Justice. We discuss the role of a Board of Directors in corporate branding. We discuss ‘what is branding?’ 

  • Perception of a company?
  • The customer experience?
  • The stakeholders’ experience?
  • Investors experience?
  • Employees experience?
  • Is it found in print, advertising, word of mouth?
  • Or is it LIVE—as in Twitter, Customers complaining or praising in real time? 

Linda explains how branding is all of these things. She explains why a Board should care about branding as it helps to grow the company and protects (or harms) the company’s reputation. She also explains how With a STRONG BOARD and a STRONG ETHICAL BACKBONE and CULTURE, this enhances branding for Customers, Employees and other stakeholders. Justice also relates that a company grows on the strength of its employees and on customers buying their products and services and concludes on the note that ethics must be part of the brand to sustain and grow both.

Oct 12, 2017

In this episode I visit with data and IT security expert Brad Davis, CEO of EverSolve, a company specializing in data security. We discuss the role of the Board of Director's in data and IT security in both oversight and going into the weeds. We consider how the corporate head of IT and security can educate their Board on their role in this burgeoning field. Finally, we consider how a Board should respond when the inevitable IT or security breach occurs.

Check out EverSolve by clicking here

Brad Davis can be reached at bdavis@goeversolve.com

Sep 28, 2017

Today, I visit with noted fraud examiner, Jonathan Marks, a partner at Marcum LLP on the relationship of the internal auditor, fraud good governance and board governance. Marks began by noting that an organization which has in place a strategically integrated governance risk management structure at the Board level has an ethical and operational backbone against which an entire business can be managed. While doing significant fraud investigations he has found that when one considers the governance, it often has a key role in the overall determination. He went on to note that corporate government is the systems and processes and organization has in place to protect the interests of the first diverse stakeholder group. Good corporate governance consists of the Board of Directors, its committees managing the legal and regulatory environment where business practices intersect all around transparently monitoring enterprise risk management. 

The Board has a key role in any organization helping determine their risk profile through its oversight of management. He believes it is the Board which has ultimate responsibility of risk parameters and setting the risk profile. Moreover, from an oversight perspective the Board should be ensuring that management is not doing things which put the organization at risk. Marks stated, “We all know from the various frauds that have already occurred and have been in the newspapers and in the public eye are looked at from a siloed perspective and not looked at in the aggregate.” 

A Board should ensure that management does not overstep its boundaries when management is looking at certain transactions. It is important the Board take an active role. They need to ensure that management is doing risk assessments on a regular basis. If one considers the Hewlett-Packard acquisition of Autonomy to see how the Board failed in its oversight role in the merger context by not asking the right questions or seeking enough relevant information from the CEO. More recently is the Telia FCPA enforcement action, where the Board allowed senior management, literally right up to the CEO, engage in bribery and corruption to do business in Uzbekistan. 

Marks emphasized the Board’s role should be looking “at this from a fresh set of eyes and really understanding what the risks of the organization might be to help the organization better manage their risks. And the other thing the board can do is ensure that management is constantly thinking about the ways that things can actually go wrong.” This is critical when considering internal controls around fraud or even financial reporting and disclosure required under SOX.

One of the most asked questions is how much information should a fraud examiner or other provide to a Board. Marks considered it from another perspective saying, “I'm less concerned about the quantity I'm more concerned about the quality of information. For me, it is about getting the right information to the Board. A Board book filled with white noise does the Board no good. You would hope that it would not be the case but it often is.” He believes the key is to put together information that is almost surgical in approach, with very detailed information allowing Board members to assess for themselves. 

It is all about good communication. From an information perspective, Marks would provide the Board the information it needs to properly assess the risk of the business. This should lead to a dialogue with them. The Board should be actively engaged and ideally would have questions back to the fraud examiner. Marks emphasized that communication includes feedback you know so you know they have not only reviewed but thought about the information you have presented.  

Sep 7, 2017

In this episode, I visit with Rakhi Kumar, the Managing Director, Head of ESG Investing and Asset Stewardship for State Street Global Advisors (SSGA) on the firm’s recent white paper entitled, “SSGA’s Perspective On Effective Climate Change Disclosure”. While the white paper focused more specifically on climate impact and climate risk to businesses in the energy and mineral extractive industry, it set out a protocol which every Board of Directors can use for a wide variety of risks, including compliance risk.

We consider the purpose & methodology of SSGA’s white paper. We take a deep dive into the four areas of how a Board can better position climate change risk:

  1. Governance and board oversight of climate risk
  2. Establishing and disclosing long-term GHG goals
  3. Disclosing information on carbon price assumptions
  4. Discussing impacts of scenario planning on tong-term capital allocation impact

We then consider the SSGA approach in the context of a broader risk management process through the exploration of such issues as

  1. How broadly do climate related changes impact businesses?
  2. How should businesses prepare for disruption due to climate change or climate impact?
  3. Is there a business opportunity for companies which engage in strategic risk management around climate change?
Aug 24, 2017

In this episode, I visit with Joe Oringel, co-founder of Visual Risk IQ, a data analytics and visualization company. They have developed a manner not only extract data but present it in a way that is very interesting very useful and very informative for a very variety of stakeholders, including Boards of Directors. He's made presentations to boards. Joe is formally trained in internal audit and he has worked with and in a wide variety of corporate positions which have allowed him to gain some very good insight into what types of information a Board of Director’s needs. We discuss the types of information that can lend itself to visualization what a Board of Directors would want, what the Board of Directors should ask for and finally what a Board of Directors would want in a dashboard of information so that it can facilitate an unstructured dialog by the Board and reporting executive.

Check out more about Joe Oringel and Visual Risk IQ by clicking here.

Aug 17, 2017

In this episode, I explore why Wells Fargo needs a true compliance expert on its Board of Directors. The Wells Fargo Board needs someone with compliance expertise to oversee of the role of the Chief Compliance Officer (CCO) and the bank’s compliance function which clearly was not up to the task of preventing illegal or even unethical conduct. With Board oversight of compliance, the senior executives provide the Board with a certain level of information and reporting which is an outcome of how senior management and the C-Suite has defined the compliance risk appetite.

My plea to the company is to hire someone with direct compliance experience for this final seat on the Board of Directors. While some Directors has experience in the regulatory world is very different from experience in the compliance realm which focuses on the mission, vision and values of a corporation through the tripartite process of prevent, detect and remediate. In addition to getting its regulatory house in order, Wells Fargo has one very large culture problem which needs compliance expertise. Even for a former Bank president, the issue of compliance is at the absolute forefront of Wells Fargo’s miasma.

Wells Fargo needs a true compliance expert on its Board of Directors.

Aug 8, 2017

Sheila Hooda is an independent director, advisor to CEOs, former C-level operating executive with 30+ years of global experience. She has provided strategic direction, driven growth and transformed Fortune 500 firms.

Ms. Hooda is CEO of Alpha Advisory Partners and serves on the boards of Mutual of Omaha Insurance Company and Virtus Investment Partners. She is a thought leader and regular contributor and speaker on governance, strategy and leadership.

Prior to her board service, Ms. Hooda has held senior operating roles at TIAA, Credit Suisse Investment Bank, Thomson Reuters and McKinsey & Co., across the US, Europe and Asia/India. Ms. Hooda is a lifetime member of the Council on Foreign Relations and also serves on boards focusing on Education, Women’s Empowerment and Global Policy.

In this episode we discuss the key role Board of Directors around oversight of strategy. She discusses her views on the Board’s role in working with senior mgmt strategy. We then consider risk as a key compoenet of strategy and the Board’s role in assessing risk as it intersects with strategy. We then turn to the stpe in the risk management process of (1) forecasting, (2) risk assessment and (3) risk based monitoring and the Board’s role in this process. We also discuss the types of information a senior executive should present to a Board around stratetgic risk and what types of training should a Board member received on risk, risk management and strategic risk.

Aug 3, 2017

In this inaugural podcast of Across the Board, I consider the Holder Report to the Uber Board of Directors, which led to the resignation of CEO Travis Kalanick. In June, the law firm of Covington & Burling LLP (Covington), released its long-awaited report (Report) to the Special Committee of the Board of Directors of Uber Technologies, Inc. (Uber). It is truly one of the most unique corporate documents you will ever see. The Report was commissioned after Susan Fowler, a former engineer at Uber, published a blog post detailing allegations of harassment, discrimination, and retaliation during her employment at Uber, and the ineffectiveness of the company’s then-existing policies and procedures. The next day, Uber retained Covington. This podcast discusses the Holder Report and the role of the Uber Board. 

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