Beyond Benchmarking: How Should Law andCorporate Compliance     Intersect?        MICHELE DESTEFANO   FOUNDER, LAWWITHOUTW...
Corporations Around the Globe             Are Facing a HUGE challenge11/14/2012              DeStefano            3
Despite the current freeze               on legal expenditure                   corporations                   are having ...
. . . in managing the legal risk of business11/14/2012            DeStefano                  5
Questions?Questions?Questions?  Where does legal      How Is Compliance end and compliance      Managed and by       start...
In large publicly traded corporations,                      *historically*              the compliance department         ...
In many respects,                   this is                 still true                   today11/14/2012         DeStefano...
Many corporate practices, and mandates put   compliance in the hands of lawyers . . .11/14/2012         DeStefano         ...
Practice/Mandates/Guidelines ABA Task Force on              46% of ACCA survey      Corporate   Responsibility            ...
Recently, this has begun to . . .11/14/2012       DeStefano             11
Although the government         (e.g., OIG of the SEC and the DHHS)                         does not                      ...
...               their             unofficial              stance                 is               that               the...
Indeed,              the SEC and the DHHS             have forced corporations               that have misbehaved         ...
To develop                        distinct              Compliance Departments                          And               ...
Consider                 the             following               Four             examples11/14/2012     DeStefano   16
2004 – Medicaid Pricing Fraud11/14/2012   DeStefano       17
In its Corporate Integrity Agreement (CIA),            Schering-Plough had to                  pay $293M,               es...
2004 – Fraudulent Revenue Projection 11/14/2012     DeStefano        19
In settlement,                      Quest                    agreed to                  pay $250M,                       a...
2009 – Illegal Promotion of Drug Uses 11/14/2012     DeStefano         21
Pfizer paid $2.3 BILLION,                     plead guilty to a               felony criminal violation,                an...
2010 – Insider Trading Investigation11/14/2012     DeStefano          23
To appease,                the SEC created                    a “real”                  and singular             complianc...
In Sum, the reaction by the DDHS           and SEC has been to11/14/2012        DeStefano         25
To emphasize                the structure,                management,                  policies,                and progra...
To demand                    that                 malfeasant                corporations                  separate        ...
Designate a CCO                   that is                 not also                  the GC                    and         ...
And               that has             direct access                to the                Board                  Of       ...
This Reaction is Consistent with Recent Laws and Recommendations    SECs Compliance           Federal Sentencing  Rule 200...
And more and more corporations          seem to be following suit11/14/2012         DeStefano        31
Over the past few years,                    in the wake              of corporate scandals               that span industr...
There              appears               to be                an             emerging               trend11/14/2012     De...
to separate                         the               compliance function                        from               the le...
compliance departments                       largely led                    and comprised of                      non-lawy...
Why and Should This Be So?             Why Have Organizations              Adopted this new stance                       o...
Questions?Questions?Questions?                Do Inhouse Lawyers                  - when they work             in the lega...
Questions?Questions?Questions?                  Are lawyers             – acting as lawyers –             less able to pre...
Questions?Questions?Questions?               Does taking compliance                   out of the hands                of p...
“ A number of the early mover companies    that created compliance departments did    so as part of resolving a major mish...
Purpose: Explore 3 Questions  (i) What is “compliance”? (ii) How is it managed, where is it   currently housed in large, p...
Research MethodologyStage 1• 2007 - completed before meltdown• 40 brief interviews (avg. 8 min) with  General Counsels of ...
Research MethodologyStage 2• 2010-present• 30-40 in-depth interviews (avg 60 min)  with General Counsels and Chief  Compli...
Research MethodologyStage 2 Goals:1. 30-40 interviews comprising of 2 to 3   companies per industry2. 1 ex-GC in each indu...
Caveats1. Sample size is very very low2. Still in the process of coding some   interviews3. This study is not comprised of...
Key Findings to Date: Stage 2   Who Oversees Compliance? • GCs had ultimate responsibility for the   compliance function f...
Key Findings to Date: Stage 2   Who Oversees Compliance? • Where GC/CLO did not have ultimate   oversight, generally compl...
Key Findings to Date: Stage 2   Who Oversees Compliance? • Compliance Departments are made up of   a lot of lawyers11/14/2...
Key Findings To Date:    Role of the CCO vs the GC?11/14/2012    DeStefano      49
Problem often faced                      by the CCO             is the giving of legal advice                           .....
Role of the CCO vs the GC?      Consensus Similarity         Legal and Compliance Departments                        rely ...
Role of the CCO vs the GC?     Consensus Distinction                The CCO focuses on       1) building policies and proc...
Role of the CCO vs the GC?  Claimed Distinction 1    Compliance Officers (vs. GC)              care about       preventing...
Role of the CCO vs the GC?  Claimed Distinction 2        Compliance Officershave different reporting obligations,      are...
Role of the CCO vs the GC?  Claimed Distinction 3       Compliance requires     management know-how in             trainin...
Role of the CCO vs the GC?  Claimed Distinction 4             Lawyers      tell you what the law                says     a...
Role of the CCO vs the GC?  Claimed Distinction 5           The lawyers      tell you whether you               can       ...
Role of the CCO vs the GC?       Typical Quote“The General Counsel‟s job is . . . to advise[the company and senior manager...
But             these distinctions                   appear                    to be                    a bit             ...
If you have a broad view               of the role of the GC;                    If you believe                    (as man...
If you think                         The GC                      should play                 the role of counselor        ...
Then                these             distinctions                 are                   a                  bit           ...
Many GC interviewees saw these     distinctions in reverse11/14/2012     DeStefano          63
They claimed                    that the GC             (as opposed to the CCO)                    is in charge           ...
Traffic Cops11/14/2012       DeStefano   65
So                    Perhaps                     it is the             philosophy of the role                  that matte...
A Typology of Roles:             Not All CCOs are Alike11/14/2012            DeStefano       67
Automatan11/14/2012      DeStefano   68
Investigator11/14/2012       DeStefano   69
Mark Wahlberg: The Departed11/14/2012   DeStefano    70
Spy11/14/2012   DeStefano   71
Counselor11/14/2012      DeStefano   72
Counselor“I like to play the business card game with my CEO.Whenever there is a tough conversation aroundethics and compli...
Involved Parent11/14/2012        DeStefano    74
Business Bottom Liner11/14/2012            DeStefano      75
Scarecrow11/14/2012      DeStefano   76
Which Way Do We Go?11/14/2012           DeStefano     77
“Throughout the organization, we don‟t have  someone named as a compliance officer –  meaning that, if one person is in ch...
Given that              there are so             many different              archetypes,                perhaps           ...
What                are the                  risks                  and                benefits               of having   ...
Does               segregation,             in and of itself             create specific                 negative         ...
Risks if Combined:             Conflict of Interest11/14/2012           DeStefano      82
Risks if Combined:              Shield of Secrecy11/14/2012          DeStefano     83
Risks if Separate: Turf Wars11/14/2012     DeStefano          84
Risks if Separate: Inefficiencies11/14/2012       DeStefano             85
Risks if Separate: CommunicationIssues & Loss of Shared Learnings11/14/2012    DeStefano         86
Unidentified Risks if Separate:    Revival of the Legal Technician11/14/2012       DeStefano            87
Unidentified Risks if Separate:     Decrease in Gatekeeping &          Counselor Role11/14/2012       DeStefano           ...
Unidentified Risks if Separate:      Increase in Information  Protected by the Attorney-Client              Privilege11/14...
Unidentified Risks if Separate:         Terminator CCOs11/14/2012       DeStefano            90
Unidentified Risks if Separate:         Increase in the UPL11/14/2012       DeStefano            91
Unidentified Risks if Separate:         Increase in the UPL “There is no such thing as a non-practicing lawyer – purely pr...
Unidentified Risks if Separate:    Rise of the Law Consultant not         bound by the MRPC11/14/2012       DeStefano     ...
Unidentified Risks if Separate: Just Another Risk to be Managed11/14/2012     DeStefano        94
Unidentified Risks if Separate:     Increase in Strict Liability?11/14/2012       DeStefano            95
Unidentified Risks if Separate:        Just a Copy-Cat Move11/14/2012       DeStefano            96
But the only way                  to determine              who should oversee                   compliance               ...
Are the objectives                to increase             the corporation‟s               Compliance                  with...
Are the objectives                 to increase             the corporation‟s                 normative                comm...
Or are                    the objectives                     to enhance                  the expectations               so...
Arguably, the current   trend/mandate applaudsform over function and fails to           deliver11/14/2012   DeStefano     ...
Although                     it is true                that the SEC has                     claimed                       ...
Recent                  Mandates                     by              the government             including the SEC         ...
The Importance of Collaboration  to Effective Compliance & Culture11/14/2012      DeStefano         104
Instead                 they prize               Independence              and traditional                  notions       ...
They                     emphasize                          the                      outward                       formal ...
The Org Chart11/14/2012       DeStefano   107
A Code of Conduct11/14/2012         DeStefano     108
Training Manuals & Programs11/14/2012    DeStefano          109
In order                     to find               the critical gaps,             the focus should be                     ...
Informal Cultural             Communication Norms11/14/2012          DeStefano      111
It is the                  hidden norms               and social networks                   that impact                   ...
Researchers agree that               formal systems are                 the weakest link              in the organization‟...
In order                    to find               the critical gaps,             the focus should be                    on...
Carrots? Or Sticks?11/14/2012          DeStefano      115
While it is true                        that many                compliance functions are               “route” or “check-...
When the choice                  involves             non-routine tasks              and deliberation                 invo...
Indeed, monetary incentives                  can take the good                  out of doing good;                     and...
External or Internal11/14/2012           DeStefano      119
In order                     to find                the critical gaps,              the focus should be                   ...
How Does Ethics Intersect with       Compliance and the Law?11/14/2012        DeStefano           121
Compliance                   initiatives                do not account                 for the reality                that...
Many Ethical Dilemmas Result            from Blind Spots11/14/2012        DeStefano          123
...                 Think Pinto                     ...             Think The Challenger11/14/2012          DeStefano     ...
Desensitization and Ethical Fading11/14/2012      DeStefano         125
Preliminary                   Conclusions:             1) large, publicly traded                   Corporations           ...
Preliminary                     Conclusions:                   2) Instead of focusing                       on the outward...
Preliminary                     Conclusions:             3) Bonus points should be given                   to those corpor...
Questions?Questions?Questions?Are lawyers better         Is the culture of the    able to run           company determined...
MICHELE DESTEFANO    FOUNDER, LAWWITHOUTWALLS Associate Professor of Law, MiamiLaw          md@law.miami.edu11/14/2012    ...
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Beyond Benchmarking, How Should Law and Corporate Compliance Intersect

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In this post melt-down climate, the regulatory environment raises questions about the compliance function in large, publicly traded corporations. What is it? What purpose does and should it serve? How is the compliance function different or the same as the legal, ethics, or risk management functions? And who should oversee compliance? Although some exists, more empirical research should be done on what function a compliance department serves, where compliance is currently housed in large, publicly traded corporations and, more importantly, why corporations have located the compliance function within or outside the legal department. Further, no other study to date entails qualitative research with United States’ general counsels, chief compliance officers and other non-lawyer senior management on these issues. The purpose of this project is to explore the following questions: (i) What is compliance? What is the major purpose of a compliance department, what areas does it cover (ii) How is it managed and where is it currently housed in large, publicly traded corporations, and (iii) What are the risks and benefits of having the compliance function separated from the legal department and run by non-lawyers (or non-practicing lawyers) that report to the CEO and/or board of directors? To investigate these questions, I i) talked briefly with forty general counsels of S&P 500 corporations in banking, pharmaceutical, and petroleum industries about compliance within their organization; and ii) conducted thirty in-depth qualitative interviews with general counsels and chief compliance officers of large, publicly traded corporations across a variety of industries.
The research analysis will lead to a series of articles. The first article, Transitioning Corporate Governance to Compliance will take the position that a transition in corporate governance has occurred over the past 20 years. What might have been thought of 20 years ago as the basic corporate governance function is now being ceded to compliance departments in large publicly traded organizations. This article will overview of what role the compliance function at some large, publicly traded corporations serves. Through the voices of the Compliance Study interviewees, it will analyze and present a typology of roles that compliance officers may play and recommend which role is the ideal one.
The second article, The Government’s Unofficial Stance on Compliance Departments: To Comply or Not to Comply? will analyze the question of whether whether compliance should be separated from the legal department. To that end, it will explore the risks and benefits of such a structure and the limitations that exist when the compliance function is led by the general counsel.

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Beyond Benchmarking, How Should Law and Corporate Compliance Intersect

  1. 1. Beyond Benchmarking: How Should Law andCorporate Compliance Intersect? MICHELE DESTEFANO FOUNDER, LAWWITHOUTWALLSAssociate Professor of Law, MiamiLaw Program on the Legal Profession 13 November 2012
  2. 2. Corporations Around the Globe Are Facing a HUGE challenge11/14/2012 DeStefano 3
  3. 3. Despite the current freeze on legal expenditure corporations are having to invest HEAVILY in compliance ...11/14/2012 DeStefano 4
  4. 4. . . . in managing the legal risk of business11/14/2012 DeStefano 5
  5. 5. Questions?Questions?Questions? Where does legal How Is Compliance end and compliance Managed and by start? Whom? Who Should be Responsible for Compliance?And What about Ethics and Corporate Culture? 11/14/2012 DeStefano 6
  6. 6. In large publicly traded corporations, *historically* the compliance department was part of the legal department ... Overseen or even run by the chief legal officer ...11/14/2012 DeStefano 7
  7. 7. In many respects, this is still true today11/14/2012 DeStefano 8
  8. 8. Many corporate practices, and mandates put compliance in the hands of lawyers . . .11/14/2012 DeStefano 9
  9. 9. Practice/Mandates/Guidelines ABA Task Force on 46% of ACCA survey Corporate Responsibility respondents claim recommended that that Compliance was general counsels ultimately overseen oversee compliance(with direct oversight by the GC or the GC by the Board) serves as the CCO MR 1.13 and SOX §307 puts the GC in role of whistle blower/gatekeeper11/14/2012 DeStefano 10
  10. 10. Recently, this has begun to . . .11/14/2012 DeStefano 11
  11. 11. Although the government (e.g., OIG of the SEC and the DHHS) does not *require* that corporations separate the compliance and legal functions ...11/14/2012 DeStefano 12
  12. 12. ... their unofficial stance is that they *should*11/14/2012 DeStefano 13
  13. 13. Indeed, the SEC and the DHHS have forced corporations that have misbehaved to do just that ...11/14/2012 DeStefano 14
  14. 14. To develop distinct Compliance Departments And designate a Chief Compliance Officer *that does NOT report to the GC/CLO* and that has direct access to the Board11/14/2012 DeStefano 15
  15. 15. Consider the following Four examples11/14/2012 DeStefano 16
  16. 16. 2004 – Medicaid Pricing Fraud11/14/2012 DeStefano 17
  17. 17. In its Corporate Integrity Agreement (CIA), Schering-Plough had to pay $293M, establish a hotline, revise corporate conduct code/training and designate a CCO to report directly to the CEO or President *and NOT the GC* with direct access to the Board11/14/2012 DeStefano 18
  18. 18. 2004 – Fraudulent Revenue Projection 11/14/2012 DeStefano 19
  19. 19. In settlement, Quest agreed to pay $250M, and create a CCO position that would *report directly* to the CEO with direct access to the Board11/14/2012 DeStefano 20
  20. 20. 2009 – Illegal Promotion of Drug Uses 11/14/2012 DeStefano 21
  21. 21. Pfizer paid $2.3 BILLION, plead guilty to a felony criminal violation, and signed a 5-year CIA mandating that it create a hotline, heighten training, And designate a CCO that would not be subordinate to the GC/CLO and would have direct access to the Board11/14/2012 DeStefano 22
  22. 22. 2010 – Insider Trading Investigation11/14/2012 DeStefano 23
  23. 23. To appease, the SEC created a “real” and singular compliance department with oversight by one designated CCO11/14/2012 DeStefano 24
  24. 24. In Sum, the reaction by the DDHS and SEC has been to11/14/2012 DeStefano 25
  25. 25. To emphasize the structure, management, policies, and programs around compliance11/14/2012 DeStefano 26
  26. 26. To demand that malfeasant corporations separate compliance from the legal department,11/14/2012 DeStefano 27
  27. 27. Designate a CCO that is not also the GC and does not report to the GC11/14/2012 DeStefano 28
  28. 28. And that has direct access to the Board Of Directors11/14/2012 DeStefano 29
  29. 29. This Reaction is Consistent with Recent Laws and Recommendations SECs Compliance Federal Sentencing Rule 2004 requiring Guidelines defining each SEC registered what is an effective investment compliance program company/advisor to and providing extra designate a CCO to credit for corporations oversee compliance that designate separate and report directly to CCOs with direct the Board reporting to the boardGuidelines by Professional Associations (OIG/ILA) recommending the same 11/14/2012 DeStefano 30
  30. 30. And more and more corporations seem to be following suit11/14/2012 DeStefano 31
  31. 31. Over the past few years, in the wake of corporate scandals that span industries e.g., pharma, insurance, financial services, health care, consumer products,11/14/2012 DeStefano 32
  32. 32. There appears to be an emerging trend11/14/2012 DeStefano 33
  33. 33. to separate the compliance function from the legal department and create new distinct compliance departments11/14/2012 DeStefano 34
  34. 34. compliance departments largely led and comprised of non-lawyers and non-practicing lawyers that report directly to the CEO and have direct access to the board11/14/2012 DeStefano 35
  35. 35. Why and Should This Be So? Why Have Organizations Adopted this new stance on the organizational structure of compliance? AND Is this Best Practice?11/14/2012 DeStefano 36
  36. 36. Questions?Questions?Questions? Do Inhouse Lawyers - when they work in the legal department - somehow impair ethics and compliance?11/14/2012 DeStefano 37
  37. 37. Questions?Questions?Questions? Are lawyers – acting as lawyers – less able to prevent, uncover, and stop malfeasance?11/14/2012 DeStefano 38
  38. 38. Questions?Questions?Questions? Does taking compliance out of the hands of practicing lawyers create the type of change that is needed to ensure a culture of compliance? Or are these new compliance departments just a formal solution to appease? 11/14/2012 DeStefano 39
  39. 39. “ A number of the early mover companies that created compliance departments did so as part of resolving a major mishap or high profile problem -- so it was not necessarily a best practice. But after a number of major companies have done it over the years, it starts to look like a best practice. Once in that position, it becomes hard for a major corporation to explain why they dont need a compliance department.” (FGC-2)11/14/2012 DeStefano 40
  40. 40. Purpose: Explore 3 Questions (i) What is “compliance”? (ii) How is it managed, where is it currently housed in large, publicly traded corporations and why (iii) Who Should Oversee Compliance: What are the risks and benefits of having a distinct compliance function run by non- lawyers (or non-practicing lawyers) that report to the CEO/Board?11/14/2012 DeStefano 41
  41. 41. Research MethodologyStage 1• 2007 - completed before meltdown• 40 brief interviews (avg. 8 min) with General Counsels of S&P 500 corps in banking, pharmaceutical, & petroleum11/14/2012 DeStefano 42
  42. 42. Research MethodologyStage 2• 2010-present• 30-40 in-depth interviews (avg 60 min) with General Counsels and Chief Compliance Officers of large, publicly traded corporations• 6 industries: Pharmaceutical, Energy, Healthcare, Consumer Products, Financial Services, and Misc11/14/2012 DeStefano 43
  43. 43. Research MethodologyStage 2 Goals:1. 30-40 interviews comprising of 2 to 3 companies per industry2. 1 ex-GC in each industry3. 1 lower level compliance manager in each industry4. 1 to 2 nonpublic companies (GC and CCO)5. 1 senior manager that works or used to work in compliance at the SEC, OIG6. 1 to 2 compliance consultants/activists11/14/2012 DeStefano 44
  44. 44. Caveats1. Sample size is very very low2. Still in the process of coding some interviews3. This study is not comprised of a random sample and is based on self-reports by senior executives which arguably have certain stories to tell11/14/2012 DeStefano 45
  45. 45. Key Findings to Date: Stage 2 Who Oversees Compliance? • GCs had ultimate responsibility for the compliance function for the majority of corporations interviewed – But the Compliance Department is considered distinct from the Legal Department – And the CCO has a dotted line to Board11/14/2012 DeStefano 46
  46. 46. Key Findings to Date: Stage 2 Who Oversees Compliance? • Where GC/CLO did not have ultimate oversight, generally compliance was overseen by a former in-house lawyer, often the deputy general counsel, that reports to the CEO with access to the board11/14/2012 DeStefano 47
  47. 47. Key Findings to Date: Stage 2 Who Oversees Compliance? • Compliance Departments are made up of a lot of lawyers11/14/2012 DeStefano 48
  48. 48. Key Findings To Date: Role of the CCO vs the GC?11/14/2012 DeStefano 49
  49. 49. Problem often faced by the CCO is the giving of legal advice ... Hard not to do given the nature and scope of the job and that often the CCO was trained as a lawyer11/14/2012 DeStefano 50
  50. 50. Role of the CCO vs the GC? Consensus Similarity Legal and Compliance Departments rely on legal expertise and have a shared goal to increase compliance with the law11/14/2012 DeStefano 51
  51. 51. Role of the CCO vs the GC? Consensus Distinction The CCO focuses on 1) building policies and procedures; 2) monitoring adherence; 3) training and educating employees on specific regulatory obligations; and, 4) testing employees on adherence.11/14/2012 DeStefano 52
  52. 52. Role of the CCO vs the GC? Claimed Distinction 1 Compliance Officers (vs. GC) care about preventing misconduct, neutral fact finding,acting in the interest of stakeholders, uncovering misconduct, ethics, and culture 53
  53. 53. Role of the CCO vs the GC? Claimed Distinction 2 Compliance Officershave different reporting obligations, aren‟t acting as lawyers, and can‟t garnerattorney-client privilege protection 54
  54. 54. Role of the CCO vs the GC? Claimed Distinction 3 Compliance requires management know-how in training, HR matters, communications, auditing, and internal controls , While legal work Requires training in the law 55
  55. 55. Role of the CCO vs the GC? Claimed Distinction 4 Lawyers tell you what the law says and are concerned with legal liability and vigorously defending the corporation at all costs 56
  56. 56. Role of the CCO vs the GC? Claimed Distinction 5 The lawyers tell you whether you can do something, and compliance tells you whether you should 57
  57. 57. Role of the CCO vs the GC? Typical Quote“The General Counsel‟s job is . . . to advise[the company and senior managers] of thelegal risks but not initiate the conversation over what is the right thing to do – the General Counsel‟s job is more black and white.” 58
  58. 58. But these distinctions appear to be a bit artificial11/14/2012 DeStefano 59
  59. 59. If you have a broad view of the role of the GC; If you believe (as many do) that the GC has or should have some gatekeeping responsibilities11/14/2012 DeStefano 60
  60. 60. If you think The GC should play the role of counselor in charge of corporate culture and ethics and the corporate conscience ...11/14/2012 DeStefano 61
  61. 61. Then these distinctions are a bit artificial11/14/2012 DeStefano 62
  62. 62. Many GC interviewees saw these distinctions in reverse11/14/2012 DeStefano 63
  63. 63. They claimed that the GC (as opposed to the CCO) is in charge of the ethics and corporate culture and that the CCOs can sometimes be seen as just . . .11/14/2012 DeStefano 64
  64. 64. Traffic Cops11/14/2012 DeStefano 65
  65. 65. So Perhaps it is the philosophy of the role that matters more than the titles and segmentations11/14/2012 DeStefano 66
  66. 66. A Typology of Roles: Not All CCOs are Alike11/14/2012 DeStefano 67
  67. 67. Automatan11/14/2012 DeStefano 68
  68. 68. Investigator11/14/2012 DeStefano 69
  69. 69. Mark Wahlberg: The Departed11/14/2012 DeStefano 70
  70. 70. Spy11/14/2012 DeStefano 71
  71. 71. Counselor11/14/2012 DeStefano 72
  72. 72. Counselor“I like to play the business card game with my CEO.Whenever there is a tough conversation aroundethics and compliance and the law, I ask my CEO totake out his business card. I point out, as we lookat the cards, that his card says „president, CEO, andchairman.” My card says „VP, GC, and counsel.” Iexplain that want to concentrate on the counselpart. My card gives me the right to counsel you andyou can disregard it. But I get to say I told you so . ..” 11/14/2012 DeStefano 73
  73. 73. Involved Parent11/14/2012 DeStefano 74
  74. 74. Business Bottom Liner11/14/2012 DeStefano 75
  75. 75. Scarecrow11/14/2012 DeStefano 76
  76. 76. Which Way Do We Go?11/14/2012 DeStefano 77
  77. 77. “Throughout the organization, we don‟t have someone named as a compliance officer – meaning that, if one person is in charge of compliance, nobody else has to worry about it.” (GC large petroleum company)11/14/2012 DeStefano 78
  78. 78. Given that there are so many different archetypes, perhaps the right Question is:11/14/2012 DeStefano 79
  79. 79. What are the risks and benefits of having the two Segregated departments?11/14/2012 DeStefano 80
  80. 80. Does segregation, in and of itself create specific negative repercussions or positive consequences?11/14/2012 DeStefano 81
  81. 81. Risks if Combined: Conflict of Interest11/14/2012 DeStefano 82
  82. 82. Risks if Combined: Shield of Secrecy11/14/2012 DeStefano 83
  83. 83. Risks if Separate: Turf Wars11/14/2012 DeStefano 84
  84. 84. Risks if Separate: Inefficiencies11/14/2012 DeStefano 85
  85. 85. Risks if Separate: CommunicationIssues & Loss of Shared Learnings11/14/2012 DeStefano 86
  86. 86. Unidentified Risks if Separate: Revival of the Legal Technician11/14/2012 DeStefano 87
  87. 87. Unidentified Risks if Separate: Decrease in Gatekeeping & Counselor Role11/14/2012 DeStefano 88
  88. 88. Unidentified Risks if Separate: Increase in Information Protected by the Attorney-Client Privilege11/14/2012 DeStefano 89
  89. 89. Unidentified Risks if Separate: Terminator CCOs11/14/2012 DeStefano 90
  90. 90. Unidentified Risks if Separate: Increase in the UPL11/14/2012 DeStefano 91
  91. 91. Unidentified Risks if Separate: Increase in the UPL “There is no such thing as a non-practicing lawyer – purely practical – if you are a lawyer you are a lawyer doesn‟t matter if licensed to practice law or not – people look at you as a lawyer and rely on you as it to dispense legal advice despite of title . . and therefore in my view I‟m a GC of company if one my lawyers screws up – I‟m responsible - - I can‟t say that‟s lawyer in compliance and I get by . . I think its functionally wrong . . but reasonable people can differ”11/14/2012 DeStefano 92
  92. 92. Unidentified Risks if Separate: Rise of the Law Consultant not bound by the MRPC11/14/2012 DeStefano 93
  93. 93. Unidentified Risks if Separate: Just Another Risk to be Managed11/14/2012 DeStefano 94
  94. 94. Unidentified Risks if Separate: Increase in Strict Liability?11/14/2012 DeStefano 95
  95. 95. Unidentified Risks if Separate: Just a Copy-Cat Move11/14/2012 DeStefano 96
  96. 96. But the only way to determine who should oversee compliance and whether the departments should be segregated, is to agree on what are the objectives ...11/14/2012 DeStefano 97
  97. 97. Are the objectives to increase the corporation‟s Compliance with the rule of law?11/14/2012 DeStefano 98
  98. 98. Are the objectives to increase the corporation‟s normative commitment to compliance? i.e., to establish a culture of compliance?11/14/2012 DeStefano 99
  99. 99. Or are the objectives to enhance the expectations society has of lawyers and their role as gatekeepers, counselors, keepers of the corporate conscience?11/14/2012 DeStefano 100
  100. 100. Arguably, the current trend/mandate applaudsform over function and fails to deliver11/14/2012 DeStefano 101
  101. 101. Although it is true that the SEC has claimed it will assess whether a company has a “culture of compliance”11/14/2012 DeStefano 102
  102. 102. Recent Mandates by the government including the SEC do not appear to to be doing so. They do NOT even consider11/14/2012 DeStefano 103
  103. 103. The Importance of Collaboration to Effective Compliance & Culture11/14/2012 DeStefano 104
  104. 104. Instead they prize Independence and traditional notions of control OVER interdependency, embeddedness And collaboration11/14/2012 DeStefano 105
  105. 105. They emphasize the outward formal organizational structures and programs ... as if they are proxies for effective compliance11/14/2012 DeStefano 106
  106. 106. The Org Chart11/14/2012 DeStefano 107
  107. 107. A Code of Conduct11/14/2012 DeStefano 108
  108. 108. Training Manuals & Programs11/14/2012 DeStefano 109
  109. 109. In order to find the critical gaps, the focus should be on the Internal: 1) How people interact11/14/2012 DeStefano 110
  110. 110. Informal Cultural Communication Norms11/14/2012 DeStefano 111
  111. 111. It is the hidden norms and social networks that impact the choices employees make NOT the public, formal, ethics programs, codes of conduct, and missions statements11/14/2012 DeStefano 112
  112. 112. Researchers agree that formal systems are the weakest link in the organization‟s ethical infrastructure and are typically far eclipsed by their informal counterparts11/14/2012 DeStefano 113
  113. 113. In order to find the critical gaps, the focus should be on the internal: 2) How people are motivated11/14/2012 DeStefano 114
  114. 114. Carrots? Or Sticks?11/14/2012 DeStefano 115
  115. 115. While it is true that many compliance functions are “route” or “check-the-box,” and malfeasance with these task is easy to uncover and compliance is easy to motivate11/14/2012 DeStefano 116
  116. 116. When the choice involves non-routine tasks and deliberation involving morals, ethics, personal preferences, malfeasance is much harder to control with carrots or sticks11/14/2012 DeStefano 117
  117. 117. Indeed, monetary incentives can take the good out of doing good; and If-then carrots or sticks neglect the ingredients of Genuine motivation11/14/2012 DeStefano 118
  118. 118. External or Internal11/14/2012 DeStefano 119
  119. 119. In order to find the critical gaps, the focus should be on the internal: 2) How people make ethical decisions11/14/2012 DeStefano 120
  120. 120. How Does Ethics Intersect with Compliance and the Law?11/14/2012 DeStefano 121
  121. 121. Compliance initiatives do not account for the reality that employees do not necessarily recognize a dilemma as an ethical one11/14/2012 DeStefano 122
  122. 122. Many Ethical Dilemmas Result from Blind Spots11/14/2012 DeStefano 123
  123. 123. ... Think Pinto ... Think The Challenger11/14/2012 DeStefano 124
  124. 124. Desensitization and Ethical Fading11/14/2012 DeStefano 125
  125. 125. Preliminary Conclusions: 1) large, publicly traded Corporations should not preemptively comply with the government‟s unofficial preference towards stand alone compliance departments11/14/2012 DeStefano 126
  126. 126. Preliminary Conclusions: 2) Instead of focusing on the outward form and structure of an organization or formal exemplifications of compliance, assessment should look inward, at the informal communication, value chains, and culture of the company11/14/2012 DeStefano 127
  127. 127. Preliminary Conclusions: 3) Bonus points should be given to those corporations that take an inward look at how work is actually being done and the networks and ethical culture that exists beneath and beyond the Org chart, the mission statement, and the code of conduct11/14/2012 DeStefano 128
  128. 128. Questions?Questions?Questions?Are lawyers better Is the culture of the able to run company determined compliance than by the tone at the nonlawyers? top? Or the tone at Should them middle? Compliance be separate from Legal? Is having a compliance department more important today than 5 years ago?11/14/2012 DeStefano 129
  129. 129. MICHELE DESTEFANO FOUNDER, LAWWITHOUTWALLS Associate Professor of Law, MiamiLaw md@law.miami.edu11/14/2012 DeStefano 130

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