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est practices COMPLIANCE AND ETHICS: Training the Board STEPHEN MARTIN | CORPEDIA, INC. Stephen Martin is general counsel and vice president, strategy, at Phoenix-based Corpedia, Inc., an ethics and compliance consulting company, and a clinical professor at the University of Denver. He was a recent Counsel to Counsel forum co-chair. Contact him at smartin@corpedia.com. implementation steps Personal liability for compliance and corporate situation ethics failures for board members is at its peak. Yet, despite recent amendments to the Federal Sentencing Guidelines—and corporate financial scandals that have held board members personally liable for millions of dollars—many companies still do not provide board members with compliance and ethics training. in-house counsel challenge Companies must address FSG board member oversight requirements of the organization’s compliance and ethics programs and company responsibility for communicating program standards and procedures by “conducting effective training programs and otherwise disseminating information appropriate to the [board of directors’] roles and responsibilities.” Although directors want such guidance, most companies do not have formal board training programs. In-house counsel must explain the expanding liability issues, both to the company and the board, and establish a comprehensive training program. approach adopted Meet with management and explain the impact of the recent amendments to the Guidelines. Impress upon them the necessity of training the company’s board to protect the company and individual directors. Then, meet with the board, underscore the importance of the training and assess each member’s desired training topics. Popular and key training topics include: data protection/customer privacy; gifts/entertainment; recent rule changes by the National Association of Securities Dealers and the Securities and Exchange Commission; appropriate board oversight of a compliance program under the Guidelines; D&O liability and proactively addressing risk; and what ethical leadership by directors means today. Once needs are assessed, determine how to deploy the training. Will internal or external experts conduct it? Will you employ electronic tutorials, classroom sessions or workshops with break-out groups? Ensure quality and effectiveness while maximizing board time. A typical agenda might include: • Overview of Board Oversight Responsibilities. • Substantive Discussion. Includes interactive scenario-based situations, best practices workshops and Q&A. • Demonstrate to senior management the need for board training. Cite supporting information, e.g., the amended Federal Sentencing Guidelines, corporate and personal liability issues revealed by recent scandals and/or examples of best practices. • Assess the board’s training needs. Check with peers to see how others handle training. Determine who will conduct the training and establish the format. • Conduct the training and canvass the board to gauge effectiveness. Compare results with those of peers or consultants. Use the feedback to refine all aspects of future training. • Consider informing stakeholders, customers and employees that your training has occurred. This could be great positive internal and external press. • Ethical Frameworks and Values-Based Leadership. Includes driving long-term focus, profit and sustainability as an enterprise, including handling ethical dilemmas. A day of formal training, separate from the board’s normal duties, is ideal. Discuss with management the available (and appropriate) amount of time that can be dedicated. Provide written reference materials and ask the board to evaluate training effectiveness. Compare your findings with those of peers or third parties. Use the feedback to refine future board training. measuring success Providing compliance and ethics board training complies with the Federal Sentencing Guidelines, fulfills board oversight duties, protects the company and individual directors and helps the company’s drive toward increased long-term profitability and corporate sustainability. future issues to consider Consider approaches for retraining, onboarding new members and avoiding complacency. Keep things fresh with continued communications and training that share best practices and updates. 10 www.martindale.com
DUANE MORRIS LLP Elements of Triage best practices The recent E. coli outbreak linked to spinach, which situation began as an agricultural processing accident, demonstrates that what appears to be an isolated product liability incident can quickly morph into a full-blown criminal investigation. Establishing and addressing legal liabilities at the outset—a form of legal triage—can greatly reduce the impact of a crisis on any organization. in-house counsel challenge minimizes potential legal risks. As the company’s legal steward, inside counsel must play a leadership role in developing and executing a crisis response strategy that averts or approach Gather your crisis team immediately. Prosecutors adopted always look at how quickly a company reacts, so don’t let anything fester, even for an hour. Identify the legal risks and risk sources and list them in order of importance. Begin by identifying the core problem and the potential for continued injury, death and/or financial loss, and then take remedial action. If you’re a food, toy or drug supplier, will you need to issue recalls? Should you temporarily stop buying from your suppliers? A factory explosion that injures workers may have been caused by leaks in aging piping. What must be done to prevent further harm at this facility or others like it? Can the problem be isolated, or will the entire plant have to be shut down? Retaining outside consultants—for example, a firm specializing in evaluating and replacing piping—will obviously affect your response and enhance your image with regulators. At the same time, institute internal measures to prevent a cover-up. Take steps as soon as possible to prevent employees from destroying and/or falsifying operating logs or other records. Once the problem is identified and remedial measures are in place, develop a verifiable message that addresses internal and external audience concerns. Appoint one spokesperson to ensure consistency. If an investigation is under way and you have no information to release right now, say so. Reach out to state and federal enforcement and regulatory agencies. If you enlist regulators as your colleagues, they will be less likely to bring charges against you. Have Sales contact key customers. Explain the situation and how you’re reacting. Send updates by fax, email or both to keep customers in the loop. If appropriate, consider reaching out to your competitors. They’ve probably been through similar crises and may be willing to sell overnight production time—or even the product itself—to help you continue to sell under your own name. implementation steps • Assemble the crisis team as soon as possible. • Identify the root cause of the problem. • Establish and implement corrective measures. • Secure all internal records. • Craft a public message/response. • Reach out to regulators and customers. • Conduct post-crisis analysis. Finally, your primary outside counsel should be part of the crisis team. They know your business well and often bring experience from other crises. measuring success Effective crisis management will prevent, defuse or win private lawsuits and indictments. Further, it will protect businesscritical licenses and registrations; reimbursements and grants from local, state and federal agencies; and long-term relationships with customers, insurers, lenders and other business partners. future issues to consider If you haven’t already done so, identify and schedule your first meeting with an internal, go-to crisis management team. Howard M. Hoffmann, former chief of the criminal division and deputy U.S. attorney for the U.S. Attorney’s office in Chicago, is a senior trial and appellate partner with Duane Morris LLP. Howard is Peer Review Rated. He can be reached at hmhoffmann@duanemorris.com. Richard L. Seabolt is a Duane Morris partner/litigator, focusing on complex trials and appeals arising from commercial disputes, including those involving technology, construction and insurance. Richard is Peer Review Rated and can be reached at rlseabolt@duanemorris.com. JULY 2007 11
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