Year: 2010

Metrics and Measurement: What to Track, Why, and How

What metrics should be tracked, and why? What do they actually tell you? Three unique perspectives will be explored from compliance, risk, and legal officers at Biogen Idec, PSEG, and OfficeMax. The trio will demonstrate, discuss, and debate the data they measure, the metrics they track, and the reasons for both.

Featuring:

These are my notes, live from the session:

How do compliance professionals demonstrate that what they are doing is effective and efficient? It’s difficult because compliance success is usually about what did not happen.

OfficeMax has some measurements that are key to retailers, including inventory shrink.

One risk that have to managed at a public utility is options trading and financial risks. They do lots of  market trading. That means they also have trader compliance issues. They have the classic compliance requirements of wall street, although it’s from the end user perspective.

They are highly regulated so there is compliance risk, of failing to follow the complex rules. There is strategic risk in designing the business operations. Lastly there is tactical risk in deploying the strategy and meeting the requirements of compliance.

Biogen tracks metrics around policy development. They track how long it takes and how much it cost. If it’s taking lots of outside resources, maybe they will consider bringing a resource internally.

One key discussion of the panel was the business impact of the measurements. Ideally, the measurements should impact business decisions and business strategy.

The panel emphasized the need for collaboration across the enterprise. Other units are already measuring business operation. Take advantage of the existing information. You can get better information (and save costs).

The more you understand the business and the more you demonstrate your knowledge of the business, the more successful you will be. Metrics for the sake of metrics is useless.

It’s great to generate stories about the bullets you dodged by identifying issues and risks before they have an impact on the business. Try to transform compliance from a value-add from merely being a cost-center.

Second City and Compliance

One of the surprises of Compliance Week 2010 is the attendance of Second City. I only thought of them as the comedy improv troupe working in Chicago and Toronto. Second City has a long history of great comedians learning their craft and performing for them. Gilda Radner, John Belushi, Tina Fey and Chris Farley are just a few of the stars and superstars that have come through Second City.

About 15 years ago they launched a corporate communications division. Their approach? Humor is an effective device for addressing tough subjects and improvisation is great tool for open, honest communication, creativity and professional development.

I was able to attend a closed door session at Compliance Week 2010, working on personal communications. It was an interesting, informative and fun session.

Engage and Connect: Improvisation as a Tool for Open, Honest Communication: For many companies, a common ethics and compliance challenge is in finding fresh ways to make important topics relevant to their employees—engaging individual contributors and management in the conversation and creating a willingness to discuss tough subjects and grey-zone issues. Second City Communications, the business solutions division of the world-famous comedy theatre, will discuss how they’ve successfully utilized improvisation, humor, and learning methods to help clients improve ethics/compliance education and awareness. This session will include interactive exercises, small-group work, facilitated discussion, and multimedia to showcase how to create conversation, gain stronger insights, and make ethics and compliance topics more relevant for your global workforce. It featured Second City Communications Producer and Director of Learning Sarah Finch and Lee Smart.

Second City Communications has a new line for ethics and compliance. (See Second City Ethics and Compliance FAQ)

We’ll see more of them when they are on the main stage for the closing wrap-up.

The SEC’s Agenda: Enforcement and Regulatory Priorities

Compliance week starts off with a Keynote speech from U.S. SEC Commissioner Luis A. Aguilar, dubbed “The Enforcement Commissioner” by Compliance Week in March 2009, will provide an update on SEC’s enforcement developments and priorities, including topics such as penalty guidelines and the SEC’s streamlining of the formal order process. Commissioner Aguilar will also explore broader regulatory priorities and the SEC.

I’m sure the full text of the speech will be published soon after this speech. (UPDATE- Text of the speech: Market Upheaval and Investor Harm Should Not be the New Normal.) These are my notes, live from the presentation:

(Of course, the statements are his and not necessarily the view of the SEC.)

Its been an interesting year since he gave last year’s keynote at Compliance Week 2009. We have seen breakdowns in the markets and failures that could have been prevented by better and more extensive regulation. Re-regulation was part of the problem and the public expects reform. Wall Street and Main Street are in a struggle over regulation, with Wall Street making the loudest statements and are better connected.

He does not lay the blame solely on Wall Street. The legislature and regulators have to accept some of the blame for not reigning in the exotic financial transaction. He put forth four themes:

  1. Regulatory oversight is piecemeal.
  2. The SEC needs a real-time transparent view into the markets.
  3. The regulations  need to revisit the concept of the “sophisticated investor.”
  4. We must remember the crucial role that the SEC plays in rigorous oversight.

He spent some time using the Flash-Crash on May 6 as an example of the problems. There was a significant failure and still, weeks later, we don’t understand what happened or how to prevent it.

He is looking forward to the self-funding mechanism in the Dodd bill to escape the perennial funding shortfall at the SEC.

by Francine McKenna

He thinks the approach to the “sophisticated investor” is short-sighted. Even these investors need transparency and full disclosure. Since these institutional investors are often just an aggregation of small investors, therefore having a huge impact on small investors. A pension fund may have billions in assets, but those assets reflect the retirement savings of its workers.

He wants to focus on effective deterrence, by scaring people with the possibility of sanctions. “I do not want that to happen to me.” That means harsher sanctions, more individual sanctions, and more money penalties (not merely disgorgement). Crime should not pay.

“Corporate penalties come out of the shareholders pocket.” He dismisses that concept. Management controls how money is spent. He thinks lots of that penalty would go to bonuses. He threw out the idea of SEC penalties coming out of the bonus pool for the company.

He thinks insider trading penalties should not be merely disgorgement plus a penalty equal to a disgorgement. He thinks the SEC should set penalties at the maximum under the statute: 3X.

He is also looking for stronger de-debarment powers to kick bad actors out of the securities industry and out of the management of public companies.

Unfortunately, the Commissioner need to run out to the joint SEC-CFTC meeting on Emerging Regulatory Issues.

One question was about the PCAOB case in the Supreme Court. He said the SEC has some contingency plans (he chose not to disclose), but recognizes that it will be up to Congress to change the law.

Other coverage:

Compliance Week 2010

I’m attending Compliance Week’s Fifth Annual Conference. It’s a great agenda. (Although it will hard to top last night’s Lost series finale. Although hopefully it will be less confusing and have more answers.)

I will try to publish my notes from the sessions I attend just as I did from the 2009 Compliance Week conference. Here is my tentative agenda:

The SEC’s Agenda: Enforcement and Regulatory Priorities
U.S. SEC Commissioner Luis A. Aguilar, dubbed “The Enforcement Commissioner” by Compliance Week in March 2009, will provide an update on SEC’s enforcement developments and priorities, including topics such as penalty guidelines and the SEC’s streamlining of the formal order process. Commissioner Aguilar will also explore broader regulatory priorities and the SEC.

Engage and Connect: Improvisation as a Tool for Open, Honest Communication
For many companies, a common ethics and compliance challenge is in finding fresh ways to make important topics relevant to their employees—engaging individual contributors and management in the conversation and creating a willingness to discuss tough subjects and grey-zone issues. Second City Communications, the business solutions division of the world-famous comedy theatre, will discuss how they’ve successfully utilized improvisation, humor, and learning methods to help clients improve ethics/compliance education and awareness. This session will include interactive exercises, small-group work, facilitated discussion, and multimedia to showcase how to create conversation, gain stronger insights, and make ethics and compliance topics more relevant for your global workforce.

High-Performance Compliance Organizations – What Works Best
How do you define “high performance” for the compliance organization? What works best when designing, implementing, and managing a compliance organization? What have other organizations learned as they have developed their compliance organizations? What learnings can you take home that will drive change, performance, and value? These are just some of the issues that will be explored in this interactive roundtable discussion. Join PricewaterhouseCoopers’ Joe Atkinson and chief compliance officers at Visa and PETCO Animal Supplies to gain perspectives on how others define “value” in the function and learn what works—and what doesn’t—in managing today’s compliance function.

Former SEC Chairman Harvey Pitt: Goldman Sachs, SEC Enforcement, and Lessons For Our Times
Prestigious firms sued by the SEC, subjects of negative reports, forced to endure angry Congressional testimony arising out of their involvement in the financial crisis of 2008, already provide important lessons for corporate executives. Kalorama Partners CEO Harvey Pitt—the former SEC chairman who has penned a Compliance Week column for seven years—makes his fifth appearance at Compliance Week’s annual conference with a look at the lessons executives can learn from current events.

Effective & Cost-Effective Training, Awareness & Advocacy
The compliance leaders at Terex, United States Steel, and Bertelsmann will preview their training programs, discussing how they train, how they track it, and how they gauge effectiveness.

Social Media & Compliance
Compliance, ethics, and legal executives at Johnson & Johnson, Best Buy, and The Travelers Companies will provide details on their social media policies, programs, and experiences, focusing on a variety of cultural, legal, and disclosure-related issues.

View From the Top: JetBlue, Governance & Compliance
JetBlue Airways President and CEO David Barger, and JetBlue Chairman of the Board Joel Peterson, will explore tone-at-the-top, cultures of integrity, and the evolution of JetBlue’s corporate governance and compliance programs. To be explored: How JetBlue built integrity as a core value to be considered in every decision made by every crewmember; why JetBlue separated the CEO and Chairman roles, and more.

Tuesday:

U.S. Rep., House Financial Services Committee Chair Barney Frank
Barney Frank is the U.S. House Representative for Massachusetts’ 4th congressional district. In 2007, Rep. Frank became the chairman of the powerful House Financial Services Committee, which oversees much of the financial services industry, including securities, insurance, banking, and housing. Rep. Frank will address those four industries in his keynote, and will take questions from attendees.

FCPA Issues Facing Multinational Companies
Curtis Lu, SVP and Deputy General Counsel, Chief Ethics and Compliance Officer of Time Warner, and Baker Botts attorneys Andy Baker and Michael Barta will discuss the challenges associated with the growing trend of multi-sovereign enforcement efforts after Siemens, Halliburton and BAE. They will also discuss best practices and strategies for avoiding FCPA problems in international M&A activities after DOJ Opinion Release 08-02.

Metrics, Measurement, and Your Company’s Practices
Join Conseco Chief Compliance Officer Mark Johnson for a closed-door conversation on the metrics and measurement tactics employed by your company. Attendees will have the opportunity to compare and contrast their own policies in a safe environment, discussing the merit of “negative” vs. “positive” metrics, board reporting challenges, and the value of process-oriented vs. results-oriented data.

SEC Disclosure Update With Shelley E. Parratt
Shelley Parratt of the SEC’s Corporation Finance Division will provide an update of the Commission’s disclosure program, including topics such as executive compensation disclosure, climate-change disclosure, and other proxy disclosure issues, as well as updates regarding the Comment Letter process.

Demonstrating ROI and Communicating Value
How do you demonstrate and prove the value and success of your programs? The compliance leaders from The Home Depot, General Electric Company, and Duke Energy will discuss the tactics and data they have used to demonstrate the “net benefit” of compliance, ethics and risk programs.

Organizational Structures That Work: Small-Company Edition
In contrast to our “large company” edition Monday morning, this session will explore how smaller public companies structure their compliance functions. The CCOs at PETCO, Schnitzer Steel, and VeriSign—each with under $5 billion in revenue—will outline, compare and contrast the structure of their compliance organization, focusing on their functions, reporting structure, organization, responsibilities, infrastructure and more.

The 2010 OCEG GRC Achievement Awards Presentation
The Open Compliance and Ethics Group will recognize the great strides that many organizations have made in improving and integrating their approaches to governance, risk management, and compliance.

U.S. Dept. of Justice Acting Deputy Attorney General Gary Grindler
Gary Grindler, the second-highest ranking official at the U.S. Justice Department, will talk about the department’s policy goals and initiatives to fight corporate fraud, including white-collar crime issues such as securities and commodities fraud, healthcare fraud, and the work of the Financial Fraud Enforcement Task Force.

Wednesday:

U.S. DoJ Asst. Attorney General, Criminal Division, Lanny Breuer
Lanny Breuer, selected by President Obama to head the Criminal Division of the Justice Department in January 2009, will discuss practical matters for companies dealing with the Justice Department, including topics such as cooperation, attorney-client privilege, and the importance of pre-existing compliance programs. Breuer will also discuss the Department’s increasing use of proactive law-enforcement strategies and tools, such as wiretaps, to combat financial fraud.

SEC Enforcement and Investigations Update
Compliance Week Columnist Bruce Carton, a former SEC Enforcement staffer, and U.S. Securities and Exchange Commission Division of Enforcement, Market Abuse Unit Assistant Director Rob Cohen, will provide a recap of current SEC enforcement actions on topics such as the FCPA and insider trading, and will lead a discussion of the Enforcement Division’s new reforms to accelerate corporate investigations.

Second City Summary: Compliance Week 2010 Conference Wrap-Up
Get ready for a fun, interactive, high-energy conference closer from Second City Communications, the business solutions division of the world-famous comedy theatre. Using observations, ideas, and insights garnered from the entire three-day conference, Second City Communications will play back what they’ve heard, offering a real-time wrap-up of key conference takeaways, and providing a host of ideas you can bring back to your company. This is a closing session you won’t want to miss!

Enterprise 2.0 Conference in Boston

Next month, I’m attending the Enterprise 2.0 Conference happening June 14-17 at the Westin Boston Waterfront. This will be fifth Enterprise 2.0 conference: 2007, 2008, 2009, 2009 San Francisco.

I’ll be talking about social media policies with these folks:
  • Mike Gotta, Principal Analyst, Burton Group
  • Bruce Galinsky, IT Director, Global Insurance Company
  • Abha Kumar, Principal, Information Technology, Vanguard
  • Alice Wang, Senior Consultant, Burton Group

Social Media Policies: Practical Advice From The Trenches

Wednesday, June 16 1:00 PM–2:00 PM – (Location: Grand Ballroom D)
Policy formation, governance and risk management programs are a critical requirement as organizations assess implications to the enterprise (e.g., identity assurance, data loss, compliance, e-Discovery, security), arising from internal and external use of social networking and social media. This panel of social media and Enterprise 2.0 practitioners will discuss real-life approaches that address management concerns.

If you’re looking for a discount, PB Works is offering a discounted pass. You can get 30% off a conference pass or a free Expo pass. Register and use the priority code: CNRREB33.

While you’re there, visit PB Works in Booth 609.

(Disclaimer: I’m on an advisory board for PB works.)

About The Enterprise 2.0 Conference
The Enterprise 2.0 Conference explores the integration of Web 2.0 technologies in the enterprise, from both strategic and tactical perspectives. This annual conference and sponsor pavilion focuses on the tools and techniques that best leverage the technical, productive and social aspects of IT and workgroup environments to build a cohesive collaboration strategy and empower a connected workforce. For more information visit: www.e2conf.com.

Financial Reform Passes the Senate

House Financial Services Committee Chairman Barney Frank (D-MA) issued the following statement on the passage of the Financial Stability Bill:

“I congratulate Senator Dodd on an impressive act of legislative leadership, and I also congratulate Majority Leader Reid for pushing this through. The two bills are very similar, and the House is ready to go to conference to work out the remaining issues. I am confident that we can have a bill ready for President Obama’s signature very soon.”

It’s going to take a while to get through all of amendments to the bill to figure out what changed. (Over 400 were proposed.) Senator Dodd still can add a “manager’s amendment” which is supposed to only make technical changes, but often has substantive changes.

As my Congressman Frank states, the House and the Senate need to hash out a compromise bill that both can pass.

The New York Times has a great chart highlighting some of the differences on the big items.

Compliance Bits and Pieces for May 21

Here are some compliance related stories that caught my eye recently:

The annotated MBA oath by Alex Beam in the Boston Globe

How does a pledge of honor fit into today’s business world? Just read between the lines.

FCPA Red Flags, Hewlett-Packard and Big Papi by Tom Fox

Recently, commentator and former big league manager, Buck Showalter discussed the current batting slump of Big Papi, David Ortiz, by noting that his inability to hit the off-speed was a Red Flag for what is really ailing him, decreased bat speed. Showalter explained that the reason Big Papi’s failure to hit a curve ball was a Red Flag which indicates a bigger problem; Ortiz has to amp up to hit a fastball so much now that he is susceptible to being quite easily fooled by an off-speed pitch. In the FCPA compliance world a Red Flag can also be equally indicative of a larger problem.

Private Equity Council issues statement on proposal to raise taxes on growth investments

“At this time of great market uncertainly, now is not the time to upend more than 50 years of partnership tax law characterizing carried interest as a capital gain. This punitive, 157 percent tax hike on growth investment by real estate, venture, private equity and other firms will hurt those companies that are most desperately in need of capital to sustain or create jobs and drive growth.”

Why E.D. Va. Has Jurisdiction Over Fraud at Public Cos. by Bruce Carton for Compliance Week‘s Enforcement Action

So why is Mr. MacBride gearing up in this way? Mr. MacBride, didn’t you hear that Northern Virginia never quite became the “Silicon Valley of the East” as was hoped back in 2000? Actually, it turns out that MacBride’s plans have nothing to do with companies headquartered or even doing business in Virginia. Rather, MacBride asserts that his office has jurisdiction over most securities fraud because the SEC’s EDGAR database is physically housed in Alexandria, Va. That means that every publicly traded company technically makes their SEC filings in his district.

New Survey Studies Social Media Use by General Counsel by ALM Legal Intelligence

The survey of the social media habits of 164 in-house counsel was conducted by Greentarget Strategic Communications, ALM Legal Intelligence and Zeughauser Group. The survey reveals that sophisticated purchasers of legal services in major corporations increasingly are influenced by attorney-authored blogs in forming opinions that influence law firm hiring decisions. Additionally, nearly 70 percent of respondents aged 30 to 39 expect their consumption of business and legal industry news through social media platforms to increase within the next six months.

Attorney General Eric Holder at Boston University School of Law’s Convocation

Dean O’Rourke, distinguished faculty, proud parents, family, and friends, and, above all, members of the class of 2010. I am proud to salute you. And I am honored to stand with you on the day that, more than any other, marks the start of your journey of service to the law – and to the people it protects and empowers.

Martindale-Hubbell Connected Redesign

Lexis-Nexis gave a sneak peak of some upcoming changes to their Martindale- Hubbell Connected social network site for lawyers.

They cleaned up the user interface, with new colors, improved navigation and improved searching.

The current Connected site has been a disappointment. I have a lot of hope for the site because it has the financial backing of Lexis-Nexis and the ginormous content repository of Lexis-Nexis.

They are trying to better combine the public lawyer directory from Martindale.com to the Connected social network. That means they are also redesigning Martindale.com

One surprise was the inclusion of third party advertising. There was an ad for the  Cadillc SRX prominently on the page during part of the demonstration. (I wonder what Paul Lippe would think about placing advertisements in Legal OnRamp.)

They are also creating a subscription model so that you need to pay for access to the full features of the site. It sounds like you get full access to Connected if you have a subscription to Martindale. They were dodgy on the details during the demo. You need to be a premium member to create a group and to send messages to people that you are not “connected” to.

The site will try to push content to you based on you interests. Supposedly the more complete your profile, the better focused the information that will be pushed to you.

They added a “Diversity Information” section, sponsored by the Minority Corporate Counsel Association.  (Unfortunately, there is not much there for a white guy like me.)

The Martindale Peer Review gets a prominent display and lots of detail on how the rating was compiled. That may resuscitate lawyers’ interest in paying for that AV or BV rating.

They are continuing the emphasis on groups within the community. They went a step further and allowed for subgroups within groups. Personally, I think the use of groups is over-emphasized, merely leading to fragmented content. Groups are great for focusing an filtering information. You only need to filter when there is a big flow of information. Connected has too little information flowing to need many filters. LinkedIn had groups for a long time that merely acted as profile badges. Even now that LinkedIn groups can have substantive discussions, most are filled with self-promotion and spam.

They are also changing the privacy, allowing non-members to see the content in public groups and allowing Google to index the public groups. (I’m not sure there is much content to index.)

The redesign is scheduled to be deployed on June 2.