Category Archives: Governance, Risk & Compliance

Valukas GM Report ‘Deeply Troubling,’ Barra Tells Employees

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The Chevrolet Cobalt, on display at the Minneapolis International Auto Show on March 28, 2009, was criticized in the Valukas report.

An investigation by former U.S. Attorney Anton Valukas into General Motor’s ignition switch recall was described as “extremely thorough, brutally tough and deeply troubling” by General Motors CEO Mary Barra today.

In her remarks to employees about the report findings, which were presented to the GM board of directors on Monday by Valukas, Barra said, “For those of us who have dedicated our lives to this company, it is enormously painful to have our shortcomings laid out so vividly. I was deeply saddened and disturbed as I read the report.”

The Valukas report makes a series of recommendations in eight major areas, which she said the company is already acting upon. “We are taking an aggressive approach on recalls,” she said, adding that a number of personnel decisions have also been made.

“Fifteen individuals, who we determined to have acted inappropriately, are no longer with the company.  Some were removed because of what we consider misconduct or incompetence. Others have been relieved because they simply didn’t do enough: They didn’t take responsibility; didn’t act with any sense of urgency,” she said.

Ray DeGiorgio, lead design engineer for the Chevrolet Cobalt ignition switch was among those who were fired. Disciplinary actions have also been taken against five additional people.

Barra said the key conclusions of the report were:

  • GM personnel’s inability to address the ignition switch problem, which persisted for more than 11 years, represents a history of failures.
  • While everybody who was engaged on the ignition switch issue had the responsibility to fix it, nobody took responsibility.

  • Throughout the entire 11-year history, there was no demonstrated sense of urgency, right to the very end.
  • The ignition switch issue was touched by numerous parties at GM – engineers, investigators, lawyers – but nobody raised the problem to the highest levels of the company.
  • Overall, the report concludes that from start to finish the Cobalt saga was riddled with failures, which led to tragic results for many.

RIMS Risk Maturity Model: ERM Approach and Process Management

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Last week, we introduced the latest findings from studies of the RIMS Risk Maturity Model. In an effort to explain the model and results of the study more fully, it’s beneficial to break the RMM into each of its attributes. Here we’ll examine the first two attributes of an effective ERM program, ERM Based Approach and ERM Process Management.

ERM Based Approach

The emphasis of this attribute is to move organizations from an old, obsolete style of governance to a more holistic, integrated approach. Old-style governance is focused on regulatory compliance and silo specific risk management. The problem with this approach is it leaves the organization exposed to risk that isn’t governed by regulatory mandates, as well as cross functional risk that may be systemic to the company.

We see examples of failures in this approach all the time. West Virginia’s water contamination crisis, for example, was caused by a series of risks with inadequate controls—the chemical tank was not adequately surveyed, the employees were not directed to immediately report the leak, even the water filtration organization wrongly estimated that it could filter the chemicals out. None of these entities were at fault from a regulatory perspective, but they were still on the hook for millions in remediation (the chemical plant filed for Chapter 11 bankruptcy in January).

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An ERM approach moves organizations past regulatory concerns, which are only a subset of the overall risk universe. This requires a number of activities that the Risk Maturity Model identifies as drivers of ERM Maturity—tone from the top, assimilation into front line activities, risk ownership—which when combined result in a more risk-aware enterprise.

RIMS Risk Maturity Model: ERM Process Management

With a new governance mindset in place, organizations can move to applying a risk-based process framework of Identify, Assess, Evaluate, Mitigate and Monitor within each business process.

The RMM assesses the degree to which these activities are pervasive inside business processes. Many executives misinterpret these processes as unique to ERM, when in fact the steps are iterative, constantly reoccurring within organizations but without any defined process or standardizations.

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The key to ERM process management is to create a common language and structure so areas can better transfer knowledge to each other where beneficial.  This is done by integrating these framework steps into the business in a way that provides accountability, repeatability, and adequate reporting. A great example is the Vendor Management Governance function. Vendor management is frequently tasked with identifying critical vendors, assessing their risk (such as “due diligence”) and then managing through mitigation (contracts, insurance certificates) and monitoring (shipping times, order completion).

The problem is that vendor management, like other functions, is operating independently with too little information exchanged between vendor management and other governance functions.

Why is this important?

Strategic imperatives are by nature cross-functional, but are rarely linked to processes and activities on the front line. When not linked, risks to corporate objectives are either not addressed or treated differently by the business processes. This alignment is a critical driver of ERM maturity. Organizations that can effectively communicate goals—not just at the corporate level, but down to the front lines—are better equipped to achieve results and elevate concerns.

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Interested in seeing how this approach differs from traditional governance? Watch our short video on Strategic Risk Management.

NY Bill Follows ‘Franken Amendment’

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Class action plaintiffs’ lawyers and their allies generally do not like arbitration, especially where the arbitration agreements effectuate a waiver of the ability of a worker or a consumer to bring a class action. Advocates for workers and consumers have attacked arbitration agreements through various avenues in the courts and in the court of public opinion.

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Recently, their efforts also have focused on passage of legislation.

On May 5, 2014, the New York State Assembly passed legislation – known as Bill A4791-2013 – prohibiting state entities from contracting with any business that requires an employee or independent contractor performing work under the contract to arbitrate claims arising under Title VII of the Civil Rights Act of 1964 or any tort related to or arising from discrimination, sexual assault, or harassment. Such torts may include assault, battery, intentional infliction of emotional distress, false imprisonment, or negligent hiring. If this legislation is enacted, all employers who do business with any State government entity in New York would be required to allow their employees to adjudicate employment claims before the courts instead of using arbitration.

Exempt from the bill is any arbitration that is mandated by a collective bargaining agreement between the employer and/or independent contractor. The bill also provides for a waiver to be granted “to respond to an emergency arising from unforeseen causes,” but the waiver is to be no longer than necessary in duration and the state agency granting the waiver is obligated to list the reasons for granting it.

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The New York legislation follows in the footsteps of a similar federal provision known as the “Franken Amendment,” which was added as part of a defense spending bill and signed into law in 2009. The Franken Amendment, named after Sen. Al Franken of Minnesota, bars federal funds from going to defense contractors that continue to apply mandatory arbitration clauses to claims of sexual assault, assault and battery, intentional infliction of emotional distress, and negligent hiring, retention and supervision. The law requires that subcontractors on federal projects also certify to the same arbitration restriction.

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These pieces of legislation indicate the beginning of a trend towards limiting the arbitration options for employment claims.

The New York bill now moves to the Republican-controlled New York Senate for consideration. Stay tuned for future developments on this front in New York and in other states.

This column previously appeared on the Seyfarth Shaw blog site.

Obama Calls Attention to Aging Infrastructure

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Tappan Zee Bridge. Photo by Laura Glickstein

President Obama is visiting the Tappan Zee Bridge, 25 miles north of Midtown Manhattan, on Wednesday to raise awareness of the nation’s crumbling infrastructure. The message is that funding for projects such as roads and bridges is to expire this fall.

The president’s speech will highlight the need for congressional action on infrastructure spending, the White House announced on Saturday. Obama will use his visit to the bridge site, where work is underway on pilings for a new bridge, to highlight the urgency of replenishing the Highway Trust Fund. The administration predicts the fund will be insolvent by the end of the summer.

Refurbishing the infrastructure is critical, as the American Society of Civil Engineers grades for U.S. infrastructure systems are low. Last fall the organization gave road and transit systems a D, bridges a C+, and levees a D-.

According to The White House Blog funding for infrastructure impacts more than 112,000 active projects to pave roads and build bridges, and about 5,600 projects to improve the country’s transit systems. This doesn’t include almost 700,000 jobs supported by these projects.

The White House plans several infrastructure-themed events, which began with the release of a report on Monday that lays out its argument for infrastructure investment and the ensuing funding crisis if Congress fails to act.

While construction is underway to replace the 58-year-old Tappan Zee Bridge, a $3.9 billion project recently approved for a $1.6 billion federal loan—the largest loan ever awarded under the Transportation Infrastructure and Innovation Act (TIFIA)—the administration is warning that other projects could be halted, slowed or not began in the coming months.

“We have reports that many states are already rethinking their investment plans due to the uncertainty,” U.S. Transportation Secretary Anthony Foxx told a Senate committee last week. Foxx pointed out that one-in-four bridges either needs significant repair or cannot handle current traffic, and that 65% of the nation’s roads are not adequate.

Foxx told the Senate that the administration is open to a variety of possibilities for raising new revenue to finance the Highway Trust Fund. The administration has proposed a one-time infusion of $150 billion into the fund, using revenue generated by corporate tax reform. The proposal, called the GROW AMERICA Act would provide $302 billion over four years for highways, bridges, transit, and rail systems, according to the blog.