In-House Counsel Compliance in a Large Corporation

In-House Counsel & Compliance in a Large Corporation Stephen Maloy May 9, 2006

Risk-Reward Analysis for a Compliance Violation in a Corporation Small Company Reputation Penalties Add’l Sale Large Company Reputation impact On rest of Corp Penalties Business Reputation Penalties Add’l Sale Gain from a Violation is Finite, Damage from a Violation is not.

Reputational Damage even when you do the right thing

If you believe that every employee is an equal Compliance Defect Opportunity, Large Companies are more likely to experience Compliance Failures* ECR X n = CCR, where ECR = propensity of each employee to violate a compliance regulation n = number of Employees CCR = Business Compliance Risk *Unless large Corporations can reduce ECR below that in small corporations

The old approach to compliance: “Its like pornography; You know it when you see it” “Just be sure you’re right and then go ahead” “Just say No” “Try to get transferred to another posting before lightning strikes. ”

Three Unfortunate Events: 1. Defective Charging System for Government Contracts leads to time spent on non-Government Contracts being charged to Government. 2. “Bad Apple” aircraft engine salesman colludes with “bad apple” head of procurement for middle eastern country to siphon off money for engine test equipment 3. A Japanese industry practice of sponsoring doctor’s trips to medical equipment shows is found to constitute bribery and four JV salesman are convicted.

Tools for Reducing the value of CCR • Policies • Training • Metrics “If you can measure it, you can improve it” • Computerized Training, Testing and Tracking • Scorecards & digital cockpits • Controls • Process engineering – Removing defect opportunities • Detection • Ombuds systems • Audits • Root Cause Analysis of defects and process improvement • Communication • Leadership and Organization Culture

Compliance Leadership Training Course Outline Compliance Leadership Training Kick-off Talk Heineman Boca Tape Titanic Tape Mini CAP Process Case Study - Break Out Debriefing session Teamwork Skills Soft Side- "Walk the Talk" S & L Leadership Responsibilities EHS Responsibilities NBC Spirit & Letter Tape Soft Skills and Tools Ombudsperson Process Session D Process Role of Compliance Review Board Resourcing Compliance More Tools/Process Overviews Metrics for Employee Compliance- Breakout Organising a Compliance Calendar Compliance Metrics & Performance Measurement What to do when things go wrong Feedback Survey Handling problems Targeted Compliance Training for GE

Four Continuing Concerns • Creep • Inability to recognize potential for conflict between two laudable goals • Am I my brother’s keeper? • Anticipating Compliance risk in a dynamic world

Creep • Ambiguity in a Rule • Multiple Possible Interpretations • Lack of enforcement activity for long period • Lack of understanding of the rationale for the rule • Lack of “safe harbors”, “bright lines” or clear presumptions

Inability to recognize potential conflict between laudable goals Example: “The Customer is always right”, The company’s key mission is to satisfy its customers. Result: Unquestioning compliance with customer requests.

Am I my Brother’s Keeper? • What is the Corporation’s responsibility for actions of: • Customers, including OEM’s, Contractors, etc. • Suppliers • Other players in the industry, including competitors

An Asian Compliance Model Standard of Conduct Yesterday Tomorrow Legal Standard Xinhua or SCMP Test Time Business problems often stem from using a static experience model in a dynamic environment