Reputational risk or the risk of damage to a company’s brand is of course very important these days. It is of primary importance to executives and risk managers in many multinational companies and is seen as one of the top risks a company may face. In fact, in Aon’s Global Risk Management Survey 2015, of the top ten risks that are of concern to companies, damage to reputation/brand is listed as number one. (more…)
Law firms and other service oriented organizations are just beginning to realize that risk management concepts apply to them as well as manufacturing based organizations. Lately, consultants are advising law firms to implement project control methods, look at legal processes from a six sigma point of view and even apply the basics of marketing 101 or sales 101 to increase business from potential clients. (more…)
Recent events in the news reminds everyone that most companies will eventually be subect to government investigations and intervews. As more and more countries tighten up anti-trust enforcement and regulations as well as other laws concerning data privacy, taxaion,etc, it is only a matter of time before your company faces a government investigation of some sort. Therefore, to help prepare for such a day, I've created a checklist of a few items that should be considered or implemented when preparing for a government investigation. A properly laid out government investigation policy will help any company prepare for such an event. A few of the items are listed below:
Government Investigations and Interviews
Checklist for Responding to law enforcement requests, government contacts or attempted interviews, and criminal and administrative searches.
1. Preparation Before A Visit
2.. During a Visit
If the court order is in the form of a search warrant, (i) The designated Senior Manager or Manager may request that the agents secure the premises but delay the search and seizure until the General Counsel or outside legal counsel can arrive, review the search warrant, witness the execution of the search warrant and assist in the protection of legally privileged materials.
The Impact of Korea’s New Anti –Corrution Laws On Internal Investigations
Korean companies are now faced with issues that they have not had to deal with before- namely anti-corruption domestic laws ( the Kim Young-Ran Act or the “Act”) that provides criminal penalties for bribery, vicarious liability extending criminal penalties not only to the employee but the employer as well and expanding bribes to also include the exchange of monetary interest without a duty relation component. This puts Korean companies in a difficult position domestically as not only do Korean companies have to worry about prosecution under the new Act, but they also should worry about how this relates to the FCPA and UK Anti-Bribery Act. (more…)
Do not follow the crowd...Though more and more companies are showing an interest in risk management, it is intereting to note that most still manage risk on an ad hoc basis. Yes, some companies look at risk management from an ERM approach- or Enterprise Risk Managment approach. Or, as I have in the past discussed, a coordinated Legal Risk Management approach. (more…)
Compliance- A Shining City by the Sea
Recently, Yonhap News of Korean announced that South Korea will conduct fuel efficiency tests on Volkswagen models that have been imported into Korea after the news that Volkswagen admitted to falsifying fuel emission tests results. It did this by using software that activates emission controls only when the car is being tested. How serious is this? It’s a PR nightmare!
In fact, the fuel emission scandal is so serious that the CEO of Volkswagen stepped down though he claims he was not aware of any wrongdoing. The US EPA has announced that pollution level of the diesel engine used in Volkswagen models could be 40 times higher than previously thought. Shortly after the scandal broke, Volkswagen’s shares tumbled by more than 30 percent. South Korea will now initiate an investigation into the fuel emission issue on Volkswagen and Audi models as is other countries such as the US, China and the UK. There are reports of class action lawsuits as well as criminal investigations by the DOJ and other regulators including those from Germany. All told, Volkswagen could face legal fines in the US of up to $18 Billion US besides fines in Germany and elsehwere.
What happened? How could this of happened if strong compliance controls and risk management processes and procedures were in place to prevent such a catastrophe? The answer is that in Volkswagen there was a lack of strong compliance controls and risk management processes. Though in this age and time, it is incredible that a company the size of Volkswagen could let a scandal like this happen is amazing. The fact that the software was put in place meant more than one engineer was involved. Volkswagen now admits that at least 11 million cars were equipped with the software devices that cheated on fuel emissions. Something this massive can only result when there is a complete breakdown of ethics and corporate social responsibility in all levels of management. It is most likely that Volkswagen Upper Management knew about the software devices and probably someone at the Board level was aware of it too. Therefore, the compliance culture at VW broke down over the years.
When President Ronald Regan ran for the US Presidency, he often talked on how the US was “the shining city upon the hill.” This was when the cold war was still rampant and that the West viewed the US as the last bastion of hope. Today, with the cold war allegedly behind us, much of the world is engaged in blaming companies for all of the evils that have befallen the world. In response, most Western companies as well as companies in Asia and elsewhere have enacted compliance processes, corporate social responsibility programs and corporate ethical codes of conduct in an attempt to show how responsible they are as good corporate citizens. Most agree they must foster a culture of compliance within the organization if anything meaningful is to happen.
Today’s compliance tools and risk management processes are quite sophisticated. Regulators are aggressively punishing those that violate laws and of course corporate compliance mandates. The FCPA and other anti-bribery laws are being enforced around the world. The US Department of Justice has aggressively expanded its reach around the world. Why? Companies are held to a much high standard of conduct by society than before. In a sense, the rules of business has changed. It’s no longer just about profit and satisfying shareholders but it is also about responsibility to society. In essence it is about becoming that “shining city on the hill” or as I would like to put it, as reflected by the picture to the right of Gwangali Beach, Busan, becoming “that shining city by the sea”!
What does the latest corporate scandal from Germany (remember Siemens?) remind us of? It reminds us that compliance is not a minor issue to be handled at the lower levels of management. It reminds us that risk management processes and tools such as compliance, ethics training and management buy in are necessary and should be implemented on a daily basis. Though the vast majority of companies follow the law and abide by the corporate codes of conduct they have implemented, some companies clearly have not. It also teaches us that one can never be too diligent when dealing with an ethical culture- that compliance and ethics must be taught and reinforced everyday.
This is a wake up call on the part of companies throughout the world. Disregard compliance at your peril. Treat compliance as the shining city by the sea. Something to strive and hope for.