Tag: GE

Don’t Be Evil: Imagination at Work with Google and GE’s Compliance Programs

I am attending the Global Ethics Summit 2010, hosted by Dow Jones and Ethisphere. Here are my notes from this session:

General Electric and Google are two very different, yet equally substantial powerhouses with varying businesses to each company’s name. Ensuring compliance with U.S. and foreign regulations while maintaining Google and GE’s respective competitive edges in today’s increasingly complex and competitive marketplace can be daunting, to say the least. Brackett Denniston, Senior Vice President and General Counsel for GE, and Andy Hinton, Chief Compliance Officer and Associate General Counsel for Google, compare notes about how each company tackles critical issues, what has worked and what hasn’t and what issues most concern them going forward.

This session was held during lunch so my notes are sparse.

My first observation is that Brackett showed up in a dark suit, white shirt and a blue tie, looking very GE-ish. Andy was dressed in jeans and sport jacket, looking very Google-ish. (Although Andy came from GE and is a self-proclaimed GE disciple.)

Andy uses lots of measurements in his compliance program. He is trying to model the Google program on his experience at GE. GE has a reputation for lots of measurement

It is important to let people know that their jobs are at risk for compliance failure. You don’t want to just find scapegoats. You need to find the real bad actor.

You also need to reward employees for good behavior. It is important to point out the good stuff and the bad stuff.

Response is they key part of the process. Get the facts fast and disclose fast after you have those facts.

Google relies even more on their brand than GE. It’s hard to replace a nuke reactor. It’s easy to switch search engines.

Without your reputation, it’s hard to business. Your company’s reputation is a big part of a company’s value.

Build a case for value. You are better off missing the numbers than creating a reputational risk. Balance the risk and cost of the violation against the small dollar value of the gain from the bad act.

As long as you have board and CEO buy in then you can do a lot with limited resources.

You want to hire and promote people you can trust and that live and breathe the company culture.

The compliance group at Google is not trying to be cutting edge, unlike the rest of the company. The want to be block and tackle.

In regulated enterprises you need to have heightened awareness and a different approach to compliance. And there is more regulatory risk coming. Even China is promulgating thousands of regulations.

You have to be better than merely meeting the base regulations.

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.

Securities Litigation and the FCPA

last week the Ninth Circuit handed down a decision in a securities litigation case related to FCPA violations in Glazer Capital Management LP v. Magistri.

Glazer’s claims arose after InVision Technologies, Inc. (InVision) announced, in March 2004, that it had entered into a merger agreement with General Electric (GE). Several months later, in July 2004, InVision issued a press release, casting doubt on the merger because of the discovery of potential violations of the Foreign Corrupt Practices Act of 1997(FCPA), 15 U.S.C. § 17dd-1. Although the proposed merger ultimately was consummated, the July 2004 announcement resulted in an immediate drop in InVision’s share price. A class action complaint was filed by InVision shareholders and Glazer was appointed lead plaintiff.

The suit was largely based on three alleged misstatements in the merger agreement attached to the 10-K filed to announce the transaction. The merger agreement has representations that InVision was in compliance with all applicable law, in compliance with the books and record provisions of the FCPA and that the company had no knowledge of any FCPA violations. The merger agreement was signed by the President/CEO and the COO of the company.

One element of securities litigation is to show the element of scienter, that is the the required state of mind for the violation. In this case, that the defendant intended to commit the fraud. There is a concept of “collective scienter” where the intent of the company is imputed on the individual.  In this case, the court found that since the CEO and COO are the ones that signed the merger agreement the plaintiff needs to prove that one of those two new that the statements were not correct.

As Kevin M. LaCroix of the D & O Diary points out:

[I]n the InVision case, “the surreptitious nature of the transactions creates an equally strong inference that the payments would have deliberately kept secret – even within the company.” Obviously, payments of this kind invariably are of a surreptitious nature and of a kind that would be kept secret, even within the company. The implication is that in order for a securities claim alleging FCPA-related disclosures to survive the initial pleadings stage, the claimants may have to plead that the company officials who prepared the company’s public disclosures were aware of the improper activities.