Ethics

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Two weeks ago, I blogged about the potential unintended consequences of (1) Dodd-Frank whistleblower awards to compliance officers and in-house counsel and (2) the Department of Justice’s Yates Memo, which requires companies to turn over individuals (even before they have determined they are legally culpable) in order to get any cooperation credit from the government.

Today at the International Legal Ethics Conference, I spoke about the intersection of state ethics laws, common law fiduciary duties, SOX §307 and §806, and the potential erosion of the attorney-client relationship. I posed the following questions regarding lawyer/whistleblowers and the Yates Memo at the end of my talk:

  • How will this affect Upjohn warnings? (These are the corporate Miranda warnings and were hard enough for me to administer without me having to tell the employee that I might have to turn them over to the government after our conversation)
  • Will corporate employees ask for their own counsel during investigations or plead the 5th since they now run a real risk of being criminally and civilly prosecuted by DOJ?
  • Will companies have to pay for separate counsel for certain employees and must that payment be disclosed to DOJ?
  • Will companies turn people

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Today a number of athletes will compete in various track & field events in the Olympic Trials.

One of those events is the qualifying round of the 800m, and one of the 800m runners, Boris Berian, was recently caught in a legal dispute with his old shoe sponsor (Nike) because of his attempt to sign with a new shoe sponsor (New Balance). The story of the dispute even made The Wall Street Journal. 

You can read the details of the case here, here, and here, but I will attempt to summarize briefly.

As I understand the timeline from the reporting and legal filings:

  • After the 2012 season, Boris dropped out of his division II college (Adams State) to pursue pro-running.
  • For a couple of years, Boris struggled to find world class success, and he worked at McDonald’s.
  • Boris didn’t have a real breakthrough until mid-2015, when he ran the fastest time for an American that year.
  • On June 17, 2015, shortly after his breakthrough race, Boris signed a short-term exclusive sponsorship deal with Nike (chosen from among many suitors).
  • On December 31, 2015, the Nike-Boris contract expired, though the contract gave Nike the right to match any competitor’s bona fide offer within

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This post concerns the rights and responsibilities of whistleblowers. I sit on the Department of Labor Whistleblower Protection Advisory Committee. These views are solely my own.

Within a week of my last day as a Deputy General Counsel and Chief Compliance Officer for a Fortune 500 company and shortly before starting my VAP in academia, I testified before the House Financial Services Committee on the potential unintended consequences of the proposed Dodd-Frank whistleblower law on compliance programs. I blogged here about my testimony and the rule, which allows whistleblowers who provide original information to the SEC related to securities fraud or violations of the Foreign Corrupt Practices Act to receive 10 to 30 percent of the amount of the recovery in any action in which the Commission levies sanctions in excess of $1 million dollars. During my testimony in 2011, I explained to some skeptical members of Congress that:

…the legislation as written has a loophole that could allow legal, compliance, audit, and other fiduciaries to collect the bounty although they are already professionally obligated to address these issues. While the whistleblower community believes that these fiduciaries are in the best position to report to the SEC on wrongdoing…

By now, I am sure all readers are aware of the horrific, hateful mass shooting that occurred in Orlando earlier this week.

If your social media feeds are anything like mine, it did not take long for politicians, pundits, and friends to politicize this tragedy. The tragedy was quickly used, by people all along the political spectrum, as evidence supporting their views on guns, religion, sexuality, and immigration. There is certainly a time and need for solutions, but there needs to be space to mourn. Orin Kerr (George Washington Law) summarized my thoughts well when he tweeted:

What could and should be done immediately after a tragedy? I am not entirely sure, but those who took steps to donate blood and financial resources should be commended.

Some local businesses also attempted to help. For example, it was reported that Chick-fil-A, which is famously closed on Sundays, cooked and gave away food to those waiting in line to donate blood. This is an admittedly small gesture, but at a time when our nation often seems hopelessly divided, I am thankful for…

Thought Josephine Sandler Nelson’s recent Oxford Business Law Blog post on Volkswagen might be of interest to our readers. It is reposted here with permission.

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Fumigating the Criminal Bug: The Insulation of Volkswagen’s Middle Management

New headlines each day reveal wide-spread misconduct and large-scale cheating at top international companies: Volkswagen’s emissions-defeat devices installed on over eleven million cars trace back to a manager’s PowerPoint from as early as 2006. Mitsubishi admits that it has been cheating on emissions standards for the eK and Dayz model cars for the past 25 years—even after a similar scandal almost wiped out the company 15 years ago. Takata’s $70 million fine for covering up its exploding air bags in Honda, Ford, and other car brands could soon jump to $200 million if a current Department of Justice probe discovers additional infractions. The government has ordered Takata’s recall of the air bags to more than double: one out of every five cars on American roads may be affected. Now Daimler is conducting an internal investigation into potential irregularities in its exhaust compliance.

A recent case study of the 2015-16 Volkswagen (‘VW’) scandal pioneers a new way to look at these scandals…

Earlier this month, B Lab, the 501(c)(3) nonprofit organization that oversees the certification of B corps, announced that it will move its October 2016 retreat from North Carolina because of North Carolina’s controversial House Bill 2 (“HB2”).

In an April 12 e-mail to “Friends of the B Corp Community,” the B Lab team wrote:

Standing for inclusion, the global B Corp community has decided to relocate the 2016 B Corp Champions Retreat and related events from North Carolina in light of the newly-enacted State law HB2 which limits anti-discrimination protections, particularly for members of the LGBT community.

Immediately, B Lab will work with the North Carolina B Corp community and others to get HB2 off the books and make North Carolina more inclusive and business-friendly.

B Lab also linked to this longer statement in that e-mail.

The Model Benefit Corporation Legislation and the laws following the Model require that a third-party standard be used by benefit corporations to measure their social and environmental impact. B Lab’s standard is currently the most popular standard, but it is not required or even mentioned by the benefit corporation statutes. Allowing for various third-party standards helps prevent the benefit corporation law from being…

Today in my Business and Human Rights class I thought about Ann’s recent post where she noted that socially responsible investor Calpers was rethinking its decision to divest from tobacco stocks. My class has recently been discussing the human rights impacts of mega sporting events and whether companies such as Rio Tinto (the medal makers), Omega (the time keepers), Coca Cola (sponsor), McDonalds (sponsor), FIFA (a nonprofit that runs worldwide soccer) and the International Olympic Committee (another corporation) are in any way complicit with state actions including the displacement of indigenous peoples in Brazil, the use of slavery in Qatar, human trafficking, and environmental degradation. I asked my students the tough question of whether they would stop eating McDonalds food or wearing Nike shoes because they were sponsors of these events. I required them to consider a number of factors to decide whether corporate sponsors should continue their relationships with FIFA and the IOC. I also asked whether the US should refuse to send athletes to compete in countries with significant human rights violations. 

Because we are in Miami, we also discussed the topic du jour, Carnival Cruise line’s controversial decision to follow Cuban law, which prohibits certain Cuban-born citizens…

Five years ago I blogged about Massey Energy, one of most tragic mining disasters in US history. Just a few minutes ago its CEO Donald Blankenship was sentenced to the maximum one year in prison. The prison term is unusual for a corporate executive, but should it be?

The Department of Justice under Eric Holder came under fire for prosecuting thousands of low level mortgage brokers and analysts but no C-Suite individuals after the financial crisis. Perhaps in response to that, the DOJ released the Yates Memo, which I blogged about in September. There are already some interesting takeaways on the Memo, which you can read about here or you can hear about when I present if you attend the International Legal Ethics Conference in New York in July.  

I’m not sure whether the Yates memo will prevent corporate crime or get the “right” people to go to jail. Actually, I am pretty sure that it won’t. According to news reports, the Massey CEO was unusually involved in daily operations, which made convicting him easier (that along with hours of taped conversations). I do believe that the Yates Memo (if it’s even constitutional) will fundamentally change the relationship between…

The BLPB editors have been nice enough to let me pen a quick post concerning an idea I floated way back in May. In my role as that month’s guest blogger, I offered my thoughts on how rationalizing—that very powerful, and very human, psychological process that allows us to view ourselves positively (say, as an upstanding citizen, family man, etc.), while taking actions inconsistent with that view according to society’s standards (say, by passing a stock tip to a friend, misrepresenting a company’s financials, etc.)—helps explain corporate wrongdoing. I also offered a thesis for how overcriminalization, particularly in the white collar area, might be fostering rationalizations, and thus undermining crime control efforts. In a bit of a cliffhanger (not quite Game of Thrones quality, but a cliffhanger nonetheless), I promised a final post discussing how these ideas impact corporate compliance. Well, almost a year later, I’ve finally finished an article on the topic. Let me know what you think (and also if John Snow is really dead.)

Todd Haugh, The Criminalization of Compliance, 92 Notre Dame L. Rev. (forthcoming 2016).

Corporate compliance is becoming increasingly “criminalized.” What began as a means of industry self-regulation has morphed into a multi-billion dollar effort …