Compliance

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Matt Kelly of Radical Compliance has posted on the costs and benefits of regulation. His post is timely considering this week’s rollback of certain Dodd-Frank banking provisions by the Senate. Among other things, Kelly notes that according to a draft OMB report, “across 133 major rules, the average annualized cost (in 2015 dollars) was $92.8 billion, average annualized benefit $554.8 billion. Benefits were six times larger than costs.” He further writes, with some skepticism, that the OMB is seeking comment from “peer reviewers with expertise… in regulatory policy” on its cost-benefit analysis as it finalizes its report. 

He also cited GW public policy professors who looked at over two hundred major rules adopted between 2007-2010 and found that “The design of the rulemaking process can both increase the pace with which rules are promulgated and reduce the level of detail in which they are presented, but only when care is taken to ensure the individuals intimately involved have greater breadth – relative to depth – in the competencies they bring to the endeavor.” As Kelly, observed, ” Teams with more “breadth of competencies” (one subject matter expert, one lawyer, one economic analyst, one regulatory affairs specialist, and so forth) tended…

This may be obsolete by the time you read this post, but here are my thoughts on Corporate Governance, Compliance, Social Responsibility, and Enterprise Risk Management in the Trump/Pence Era. Thank you, Joan Heminway and the wonderful law review editors of Transactions: The Tennessee Journal of Business Law. The abstract is below:

With Republicans controlling Congress, a Republican CEO as President, a “czar” appointed to oversee deregulation, and billionaires leading key Cabinet posts, corporate America had reason for optimism following President Trump’s unexpected election in 2016. However, the first year of the Trump Administration has not yielded the kinds of results that many business people had originally anticipated. This Essay will thus outline how general counsel, boards, compliance officers, and institutional investors should think about risk during this increasingly volatile administration. 

Specifically, I will discuss key corporate governance, compliance, and social responsibility issues facing U.S. public companies, although some of the remarks will also apply to the smaller companies that serve as their vendors, suppliers, and customers. In Part I, I will discuss the importance of enterprise risk management and some of the prevailing standards that govern it. In Part II, I will focus on the changing role…

Perhaps I’m a cynic, but I have to admit that I was stunned when the news of hotelier  Steve Wynn’s harassment allegations at the end of January caused a double-digit drop in stock price.  What began as an unseemly story of a $7.5 million settlement to a manicurist at one his of his resorts later morphed into a story about his resignation as head of the finance chair of the Republican National Committee. Not only did he lose that job, he also lost at least $412 million (the company at one point lost over $3 billion in value). His actions have also led regulators in two states to scrutinize his business dealings and settlements to determine whether he has violated “suitability standards.”  Nonetheless, Wynn has asked his 25,000 employees to stand by him and think of him as their father. The question is, will the board stand by him as it faces potential liability for breach of fiduciary duty?

The Wynn board members should take a close look at what happened with the Humane Society yesterday. That board chose to retain the CEO after ending an investigation into harassment allegations. A swift backlash ensued. Major donors threatened…

At The University of Tennessee College of Law, we have a four-credit-hour, four-module course called Representing Enterprises that is one of three capstone course offerings in our Concentration in Business Transactions.  In Representing Enterprises, each course module focuses on a different aspect of transactional business law, often a specific transaction or task.  We try to both ask the enrolled students to apply law that they have learned in other courses (doctrinal and experiential) and also introduce the students to applied practice in areas of law to which they have not or may not yet have been exposed.

I have been teaching the first module over the past few weeks.  We finish up tomorrow.  My module focuses on disclosure regulation.  I have five class meetings, two hours for each meeting, to cover this topic.  Each class engages students with a hypothetical that raises disclosure questions.

The first class focused on general rule identification regarding the applicable laws governing disclosure in connection with the purchase of limited liability membership interests.  Specifically, our client had bought out his fellow members of a member-managed Tennessee limited liability company at a nominal price and without giving them full information about a reality television opportunity our…

On Wednesday, I spoke with Kimberly Adams, a reporter for NPR Marketplace regarding CSX’s decision to require its CEO to disclose health information to the board. I don’t have a link to post, sorry. As you may know, CSX suffered a significant stock drop in December when its former CEO died shortly after taking a medical leave of absence and after refusing to disclose information about his health issues. CSX has chosen the drastic step of requiring an annual CEO physical in response to a shareholder proposal filed on December 21st stating, “RESOLVED, that the CEO of the CSX Corporation will be required to have an annual comprehensive physical, performed by a medical provider chosen by the CSX Board, and that results of said physical(s) will be provided to the Board of Directors of the CSX Corporation by the medical provider.” Adams asked my thoughts about a Wall Street Journal article that outlined the company’s plans. 

I’m not aware of any other company that asks a CEO to provide the results of an annual physical to the board. As I informed Adams, I hope the board has good counsel to avoid running afoul of the Americans with Disabilities Act, HIPAA, the Genetic Information…

At a time when many boards may be thinking of tax planning and possible M & A deals, they may have to start focusing more on the unseemly topic of their executives’ sex lives because the flood of terminations and resignations due to sexual misconduct shows no signs of slowing down. One of the most shocking but underreported terminations in 2017 related to VISA. The CEO, one year into the role, chose to terminate one of his most valuable executives after an anonymous tip about sexual misconduct.  He wanted his employees to know that the corporate culture and values mattered. Board members should look closely at the VISA example.

We will continue to see the rise of the #MeToo movement spurred on in part by the messaging from a star-studded task force  formed to address Hollywood issues and the establishment of a multimillion-dollar legal defense fund to help blue-collar workers. Even Supreme Court Chief Justice Roberts addressed sexual harassment in the court system in his Year-End Report on the Federal Judiciary.  More people than ever may now choose to come forward with claims of harassment or assault. Whether companies choose to terminate wrongdoers or the accused choose to…

Two weeks ago, I asked whether companies were wasting time on harassment training given the flood of accusations, resignations, and terminations over the past few weeks. Having served as a defense lawyer on these kinds of claims and conducted hundreds of trainings, I know that most men generally know right from wrong before the training (and some still do wrong). I also know that in many cases, people look the other way when they see or hear about the complaints, particularly if the accused is a superstar or highly ranked employee. Although most men do not have the power and connections to develop an alleged Harvey Weinstein-type “complicity machine” to manage payoffs and silence accusers, some members of management play a similar role when they ignore complaints or rumors of inappropriate or illegal behavior. 

The head in the sand attitude that executives and board members have displayed in the Weinstein matter has led to a lawsuit arguing that Disney knew or should have known of Weinstein’s behavior. We may see more of these lawsuits now that women have less fear of speaking out and Time honored the “Silence Breakers” as the Person of the Year. As I…

On Monday, the Supreme Court heard argument on three cases[1] that could have a significant impact on an estimated 55% of employers and 25 million employees. The Court will opine on the controversial use of class action waivers and mandatory arbitration in the employment context. Specifically, the Court will decide whether mandatory arbitration violates the National Labor Relations Act or is permissible under the Federal Arbitration Act. Notably, the NLRA applies in the non-union context as well.

Monday’s argument was noteworthy for another reason—the Trump Administration reversed its position and thus supported the employers instead of the employees as the Obama Administration had done when the cases were first filed. The current administration also argued against its own NLRB’s position that these agreements are invalid.

In a decision handed down by the NLRB before the Trump Administration switched sides on the issue, the agency ruled that Dish Network’s mandatory arbitration provision violates §8(a)(1) of the NLRA because it “specifies in broad terms that it applies to ‘any claim, controversy and/or dispute between them, arising out of and/or in any way related to Employee’s application for employment, employment and/or termination of employment, whenever and wherever brought.’” The Board believed…

I recently finished Elizabeth Pollman and Jordan Barry’s article entitled Regulatory Entrepreneurship. The article is thoughtfully written and timely. I highly recommend it. 

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This Article examines what we term “regulatory entrepreneurship” — pursuing a line of business in which changing the law is a significant part of the business plan. Regulatory entrepreneurship is not new, but it has become increasingly salient in recent years as companies from Airbnb to Tesla, and from DraftKings to Uber, have become agents of legal change. We document the tactics that companies have employed, including operating in legal gray areas, growing “too big to ban,” and mobilizing users for political support. Further, we theorize the business and law-related factors that foster regulatory entrepreneurship. Well-funded, scalable, and highly connected startup businesses with mass appeal have advantages, especially when they target state and local laws and litigate them in the political sphere instead of in court.

Finally, we predict that regulatory entrepreneurship will increase, driven by significant state and local policy issues, strong institutional support for startup companies, and continued technological progress that facilitates political mobilization. We explore how this could catalyze new coalitions, lower the cost of political participation, and improve policymaking. However, it…

No one had a National Compliance Officer Day when I was in the job, but now it’s an official thing courtesy of SAI Global, a compliance consulting company. The mission of this one-year old holiday is to:

  • Raise awareness about the importance of ethics and compliance in business and shine a spotlight on the people responsible for making it a reality.
  • Provide resources to promote the wellness and well-being of ethics and compliance professionals so they can learn how to overcome stress and burnout.
  • Grow the existing ethics and compliance community and help identify and guide the next generation of E&C advocates.

Although some may look at this skeptically as a marketing ploy, I’m all for this made-up holiday given what compliance officers have to deal with today.

Last Saturday, I spoke at the Business Law Professor Blog Conference at the University of Tennessee about corporate governance, compliance, and social responsibility in the Trump/Pence era. During my presentation, I described the ideal audit committee meeting for a company that takes enterprise risk management seriously. My board agenda included: the impact of climate change and how voluntary and mandatory disclosures could change under the current EPA and SEC leadership; compliance…