Category Archives: Governance, Risk & Compliance

The Most Influential People in Corporate Governance

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Each year, the National Association of Corporate Directors (NACD) publishes the Directorship 100 — a “combination of leading corporate directors, corporate governance practitioners and public policy leaders who are recognized as the most influential people in the boardroom and the corporate governance arena.”

The NACD Directorship surveyed 15,000 public company directors and executives to form the final 100 honorees.

“The esteemed boardroom leaders on the Directorship 100 share a common characteristic as proactive agents of change in the boardroom community, shaping the future of corporate governance at a time when American business looks to restore investor confidence and restore economic growth,” said NACD CEO and President Ken Daly.

Among the top 100 honored are a select group of D&O insurers and governance advisors, including:

  • Robert C. Cox, Chubb Group
  • Mark Lamendola, Travelers
  • Timothy J. O’Donnell, ACE USA
  • Daniel W. Riordan, Zurich Financial Services
  • Michael W. Smith, Chartis
  • Richard A. Bennett, The Corporate Library
  • Gavin Anderson, GovernanceMetrics International
  • Steve Harvey, Martha Carter, Carol Bowie, Patrick S. McGurn, ISS Governance Services
  • Robert McCormick, Glass Lewis & Co.

The association noted that it has seen a shift in the type of leader exerting the most influence on corporate governance. For the first time, professionals in the “regulators and rule makers” category received the most nominations.

Demand for Oil Cos To Prove Disaster Preparedness

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In a likely move, investors are demanding improved disclosure of oil disaster response plans. In fact, 58 investors representing $2.5 trillion in assets came together recently to demand just that.

The group penned a letter to G. Steven Farris, chairman and CEO of Apache, a company that recently purchased $7 billion of oil and gas fields from BP. As the letter states:

“The April blowout at BP’s Macondo well in the Gulf of Mexico, and the explosion and fire on the Deepwater Horizon drilling rig that killed 11 workers, has led to one of the greatest environmentally-related destructions of shareholder value in history. The shareholder harm that has flowed from the BP spill has focused investor attention on governance, compliance and management systems needed to minimize risks associated with deepwater offshore oil and gas development worldwide.”

The 1-page letter (with 10 pages of questions and signatures) goes on — urging all companies, including Apache, involved in subsea deepwater drilling to be open and transparent with investors and stakeholders regarding the programs they have in place for managing risks. The questions submitted inquire into the amount of money spent on R&D with respect to safer offshore drilling technologies, contingency plans, lessons learned from BP Macondo and the well blowout, contractor selection and oversight and governance and management systems.

With pressure like this, it is hoped that the Exxon’s and BP’s of the world will be forced to answer tough questions regarding managing the extreme risk they encounter. Like every other public company, they must answer to the owners — the shareholders. Let’s hope they do . . . and do so truthfully.

Whistleblowing Pays

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Sure, sure, whistleblowing pays off by relieving one’s conscious. But did you know it now also pays a much higher monetary reward?

With the Dodd-Frank Wall Street Reform bill now in place, whistleblowers will not only have even more protection from their employer seeking revenge, they will also be rewarded financially at a much greater rate than in the past. According to the recent reform, successful informants will be entitled to collect “10% to 30% of the wrongdoers’ payout” to the securities and exchange commission.

Historically, the SEC could only reward whistleblowers who were involved with insider trading cases. And apparently, they weren’t very generous.

During its 20-year existence, the SEC’s whistle-blower program has paid out only $159,537 to five claimants. No wonder observers of securities fraud have had little incentive to spill the beans. “Basically, [whistleblowing] ruins your life,” says Luigi Zingales, a professor at the University of Chicago Booth School of Business who has studied the issue of whistle-blowers. “What is worth your life getting ruined? It’s pretty expensive.”

Expensive no more?

That’s what many interpret from the new financial reform bill. Besides generous monetary rewards, the new law also greatly expands whistle-blowers’ rights. Now, if you tell on your employer, you are allotted a whopping six years to bring your case to court, as opposed to a mere 90-day statute (the rule under Sarbanes-Oxley).

The National Whistleblowers Center was nice enough to compile everything pertaining to whistleblower protections from the Dodd-Frank Act. Also, our own Jared “Dubs” Wade blogged about the topic — and included a sweet example of his photoshop skills.

whistleblower

Turning Whistleblowers into Millionaires

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The U.S. Foreign Corrupt Practices Act is not new. Founded in 1977, the act’s main mission has always been to curtail improper accounting practices by companies operating internationally and prevent bribes. Thus, the “corrupt” aspect. In many parts of the world, there is a thin line between a “gift” and a “bribe,” and this regulation is designed to better demarcate that line and ensure that those businesses that overstep it have to pay a penalty for doing so. (Here’s a more detailed explanation if you’re into reading legalese.)

Only in recent years, however, has the act started to gain any real teeth.

Dow Jones reports on the expansion of the FCPA of late.

There have been a rising number of FCPA enforcement actions in recent years…with 34 prosecutions netting $435.3 million in penalties in 2009, according to the Department of Justice. In 2008, Justice said 17 prosecutions netted $497.6 million in penalties.

Because of this ramped up enforcement, companies should be sure to revisit compliance efforts. In fact, we ran a piece by Jonathan Marks of Crowe Horwath on that very topic last November, offering 10 tips on how to make sure your foreign operations are on the up-and-up. (“Global Presents”/global presence … Get it? We’re very clever … We know.)

Thus, the real news now is not more fines — it is the coming overhaul of the incentives that will be awarded whistleblowers going forward. The Senate and House bills for financial regulation differ on the matter somewhat, but both will create what is being termed a “bounty program,” in which the person who reports the FCPA violation would receive a percentage of whatever the related fine ends up being.

The final percentage will obviously hinge on what is actually written into legislation, but regardless, it has the potential to turn a whistleblower into a millionaire overnight.

Among key language differences between the bills, the House version, which passed in December, has no set minimum percentage of the collected funds in a case for the SEC to pay to a whistleblower. The SEC has greater discretion in determining the bounty than it does under the Senate’s version, which has a 10% minimum. Both have a 30% maximum payout.

Theoretically, a whistleblower could come into a huge windfall based on this formula. Consider the case of Siemens AG, which paid $800 million in fines to the SEC and the DOJ in 2008 after pleading guilty to violating the FCPA. Had those penalties been the result of information obtained by a whistleblower, the person could have received a $240 million payout, or a minimum bounty of $80 million based on the Senate language.

$80 million for tipping off the G-men about a foreign infraction? That’s a lot of coin. Certainly enough to motivate employees, you would think.

Mike Koehler, an assistant professor of business law at Butler University in Indiana, who is an expert on FCPA-related issues and blogs under the name FCPAProfessor, sees such sums being an effective incentive.

“Any time you incentivize rank-and-file workers with a lot of money, rational actors are going to respond. You’re going to see an increase in enforcement activity regardless of whether the action violates the law,” Koehler said.

I know I’ll be on the look-out

whistleblower

The future whistleblowers of America?