Author: Doug Cornelius

You can find out more about Doug on the About Doug page

Does Your D&O Policy Cover Criminal Investigations?

Kevin M. LaCroix of The D&O Diary weighs in on coverage of criminal investigations: D&O Insurance: Corporate Criminal Investigations. He references a December 2008 article by Patricia Bronte of  Jenner & Block entitled D&O Coverage for Corporate Criminal Investigations (.pdf).

The main issue is how your policy defines “criminal conduct.” Some policies defines it with “commenced by the return of an indictment.” That definition leaves out a lost money spent trying to avoid (or avoiding) indictment and responding to an investigation.

Hedging Risk In Real Estate

pionline_logoNeal Elkin of PIonline.com writes in A Better Way To Hedge Risk In Real Estate: “What if institutional investors, while increasing their allocations to both residential and commercial mortgage-backed securities, had been able to hedge their exposure to the underlying collateral?”

The author looks at some of real estate based indexes tracking U.S. property prices and the new derivaties that allow for hedging risks. Perhaps we will see this real estate derivates market become more active as a result of the current market conditions?

At Siemens, Bribery Was Just a Line Item

The New York Times ran an in-depth look at how entrenched corruption had become at the multi-national corporation: At Siemens, Bribery Was Just a Line Item.

For his part, Mr. Siekaczek is uncertain about the impact of the Siemens case. After all, he said, bribery and corruption are still widespread.“People will only say about Siemens that they were unlucky and that they broke the 11th Commandment,” he said. “The 11th Commandment is: ‘Don’t get caught.’ ”

As Chris MacDonald at The Business Ethics Blog points out:

When you pay a bribe, you’re attempting to induce someone to make a decision that is favourable to you, rather than a decision that is favourable to their employer. Perhaps that moral argument is obvious to everyone. The less-obvious point, perhaps, is that bribery also represents an unwanted expense for companies…an expense that all companies would like to be able to avoid, if they could. Paying bribes only works if you out-bribe the competition. If you & your competitors are all bribing with equal zeal, no one wins (and you’ve all suffered unnecessary, indeed, useless, costs). But of course, if everyone else is paying bribes, then the company that declines to is going to suffer losses. It’s a classic ‘collective action’ problem.

ACFE Report to the Nation Occupational Fraud and Abuse

According to research conducted by the Association of Certified Fraud Examiners (ACFE), U.S. organizations lose an estimated 7 percent of annual revenues to fraud. Based on the projected U.S. Gross Domestic Product for 2008, this percentage indicates a staggering estimate of losses around $994 billion among organizations, despite increased emphasis on anti-fraud controls and recent legislation to combat fraud.

The ACFE’s Report to the Nation on Occupational Fraud & Abuse details the survey results of 959 Certified Fraud Examiners (CFEs) throughout the US who were asked to provide specific information on one fraud case he or she had personally investigated that met the following criteria:

  • The case involved occupational fraud;
  • The fraud occurred within the last two years;
  • The investigation of the fraud was complete; and
  • The CFE was reasonably sure that the perpetrator had been identified.

The end result is a comprehensive report that sheds light on occupational fraud and abuse while offering stark lessons and valuable insights about its prevention and detection.

Institutional Investors Taking A Proactive Stance With President- Elect Obama

A group of 60 institutional investors send a letter to President-Elect Obama.  More than 60 institutional investors were signatories to this letter encouraging President-Elect Obama to improve financial risk disclosures by U.S. corporations.

The letter encourages President-Elect Obama to Work in First 100 Days to Reverse Recent SEC Roadblocks to Shareholder Proxy Resolutions Inquiring About Risks.

The letter specifically calls for a reversal of Staff Legal Bulletin No. 14C (June 28, 2005). In that Bulletin, the staff indicated that companies could exclude proposals to the extent they called for some type of internal assessment of risks or liabilities faced by the company as a result of the practices. They were, however, permitted to include the proposals if they were limited to calls to minimize or eliminate operates that could adversely affect the environment or the public’s health.

The Corporate Risk Management Library

Here are my notes from this webinar from Compliance Week, sponsored by CA, Inc.: Enhancing the Risk Profile of Your Organization: The Corporate Risk Management Library

Speakers:
Tom McHale, Vice President of Product Management, CA
Christopher Fox, Principal Consultant, Governance Compliance and Risk Group, CA

We are seeing a movement from executive autonomy to executive accountability and corporate secrecy to corporate transparency.

We are seeing an evolution in risk management. We need to identify the strategic risks. We also need to figure out how to get ourselves assured that we are addressing all risks. We are in a changing and diverse environment with government investments, stimulus packages, new regulations and new issues.

A “risk library” is comprehensive set of risks for specific categories, with a representation of the scope of risks for an organization, used by enterprise risk management processes. One key is to have an agreed upon classification (or taxonomy) across the organization.

In searching for a risk library where can you start? These are some references:

  • Federal Sentencing Guidelines
  • OCEG Redbook
  • COSO
  • Federal Reserve Guidance
  • CobIT 4.1
  • Federal Reserve URSIT
  • ISO 27002
  • EPA Legislations
  • Basel II
  • SEC  listing requirements
  • Australian Standard 4360

The requirements of a risk library should have a holistic view. Financial risk is only one dimension. You want to also include strategic and tactical risk.

They moved onto examples of a risk library structure.

They set level 1 as internal risk and external risk. Level 2 was broken down into governance, operations, technology, compliance, financial, reporting, environment, international, market and social trends. Then they showed a third level of risk below the level 2 risk of governance. then they show a level 4 of various market conditions  such as demographics, employment, labor relations and exchange rates.

Once you have the corporate risk management library, you decide which risks you can manage. After selecting those to manage you need to report on the risks, set up a compliance program, create policies and procedures, assess the risks and create an action program.

Government Seizes 650 Park Avenue

650 fifth avene

According to the Wall Street Journal, the United States Attorney for the Southern District of New York has filed a forfeiture proceeding against 650 Fifth Avenue in New York.

In its press release: United States files civil forfeiture action against ASSA corporation’s interest in Manhattan office tower (.pdf), the DOJ claims that a 40% interest in the building is held by the ASSA Corporation which is acting as a front for Bank Melli. The Government of Iran controls Bank Melli and ownership is considered an export under the Iraninan Transaction Regulations (Title 31 CFR, part 560)

This post originally appeared in one of my old blogs: Real Estate Space.

The Roles and Responsibilities of the General Counsel in the Organization’s Ethical Culture

The Markkula Center for Applied Ethics at Santa Clara University hosted a panel discussion on The Roles and Responsibilities of the General Counsel in the Organization’s Ethical Culture. The panel consisted of:

  • Tom McCoy, executive vice president, legal affairs, and chief administrative officer, Advanced Micro Devices, moderator
  • Craig Nordlund, senior vice president, general counsel and secretary, Agilent Technologies
  • Martin Collins, senior vice president and general counsel, Novellus
  • Fred Gonzalez, vice president, general counsel, and secretary, SonicWall

You can also listen to an audio recording of the panel discussion. (MP3)

Craig offers up the Winona Ryder paradigm as the reason Enron happened:

“Why did she do it? Well, first of all, she figured she wouldn’t get caught. And secondly, if she did get caught, she figured because she was famous, she would get off scot-free. And so he said in the environment in which Enron was operating, Ken Lay and his executive team had that same sort of sense, that they probably wouldn’t get caught, but if they did, nobody was punishing white collar crime of that magnitude, and so they’d get off and they could move on successfully to another job.”

Craig sees the role of the general counsel shifting from one acting as an advocate to one acting as a policeman. The Chief Compliance Officer, the General Counsel and the Audit Committee are holding the company accountable as a whole.

Martin likes to look at general counsel as a “consigliere,” someone that is turned to for their advice and their judgment. If you are just repeating the law as it’s written down by outside counsel, you are not doing your job. General counsel needs to focused on preventing problems from arising in the first place.

Fred believes that general counsel needs to “avoid underestimating the risk of suppressing facts solely to preserve internal solidarity.”

Is it unethical if you do not get caught? Of course it is still wrong.

Is ethics a function of the general counsel. One response is that it is not a function at all. It is a set of values and a vision.

GE To Stop Offering Quarerly Earnings Forecasts

GE had originally begun making quarterly earnings forecast to display its consistent earnings to Wall Street. According to the Wall Street Journal, some GE observers think the earnings forecast prompted executives to sell assets or make other moves to hit their estimates.

From a compliance perspective, you would be worried that the pressure to hit the numbers could lead to fudging of numbers.

Good for GE for stepping away from their old practice.