The idea that investors might choose to consider certain environmental, social, and governance factors when deciding whether to buy shares of a company—a concept commonly known as ESG—continues to gain popularity with trillions of dollars currently held in investment funds that take into account ESG principles. Yet recently, the use of ESG investment measures has been the target of intense scrutiny and political pushback that threatens to produce inconsistent regulation and enforcement approaches at the federal, state, and local levels. The United States Securities and Exchange Commission (“SEC”), for example, has focused on ESG by investigating and taking action against companies that tout business practices such as consideration of environmental sustainability, but fail, in practice, to live up to their claims. In contrast, a number of state governors, legislatures, and attorneys general have passed laws or issued cease-and-desist-type letters to stop or discourage companies from considering ESG factors, in whole or in part, when making investment decisions. These varied and seemingly conflicting approaches to ESG can easily create a conundrum for companies that have incorporated or are seeking to incorporate ESG initiatives into their operations. When dealing with ESG, businesses today face the difficult task of determining how best to implement ESG-based policies, procedures, and practices, while mitigating the risk that such actions may draw the ire of officials and regulators who view the consideration of ESG factors in investment decisions to be a breach of the fiduciary duty to prioritize return on investment over non-financial considerations.Continue Reading An Evolving High-Wire Act: Navigating Conflicting Laws, Regulations, and Guidance in the ESG Space
The United States Department of Justice (DOJ) released updated guidance regarding its Evaluation of Corporate Compliance Programs on June 1, 2020. The release comes just over a year since the guidance was last updated in April 2019. While these latest changes are less extensive than the most recent ones, there are some key differences that suggest the DOJ may be shifting some areas of focus when it comes to assessing the effectiveness of corporate compliance programs.
Continue Reading DOJ Updates Corporate Compliance Guidance
In 1657, mathematician Blaise Pascal commented in a letter to his church leaders “I have made this longer than usual because I did not have time to make it shorter.” More than 100 years later, another Frenchman, Napoleon Bonaparte, offered a similar remark to his valet as he prepared to head out for battle. “Dress me slowly,” he said, “I’m in a hurry.” The irony of the quotations makes people smile, but few quibble with their underlying truthfulness. Often, the more in a hurry you are, the more you need to slow down.
Continue Reading Using “Prospective Hindsight” To Identify And Mitigate Risks During A Crisis
Earlier this month, the U.S. Department of Justice (“DOJ”) and the U.S. Department of the Treasury’s Office of Foreign Asset Controls (“OFAC”) both issued guidance regarding their expectations for corporate compliance programs. Both documents are geared towards establishing more rigid frameworks for assessing compliance programs. A common theme among both pieces of guidance appears to be the identification and allocation of responsibility to individuals, especially management. Additionally, the fact that the agencies released their guidance within days of each other could be read as a clear signal from federal authorities that they are serious about increasing their focus on individual accountability for corporate wrongdoing.
Continue Reading Feds Focus on Individuals in Evaluating Corporate Compliance Programs
The C-Suite rarely wants to consider, much less worry about, the impacts of criminal conduct on their business. The reality is, however, companies can and do get pulled into criminal and quasi-criminal enforcement actions as both victims and (albeit unintentional) perpetrators. Two areas of criminal conduct that perhaps do not receive the amount of C-Suite attention they deserve are internal trade secret theft and human trafficking.
Continue Reading How to Prevent or Defend Against Business Crimes, including Trade Secrets and Human Trafficking
In 2012, the Penn State Lions went 8-4 on the field, passing 3,283 yards, rushing 740 yards, and scoring 349 points. This credible performance earned it a respectable 38th ranking out of the 124 schools in the NCAA’s Division I Football Bowl Subdivision. But few will remember Penn State’s athletic performance in 2012. What people will remember instead is that 2012 was the year the University’s Special Investigative Counsel issued its report into the actions of Penn State Coach Gerald Sandusky.
Continue Reading From the Big Easy to the Big Ten, And Beyond: What the Process of Reforming the New Orleans Police Department Can Teach Colleges and Universities
In an issue of first impression, the Ninth Circuit Court of Appeals recently held that a rogue corporate officer’s fraudulent intent can be imputed to a corporation even where the defrauding officer acted against the corporation’s interest, known as the “adverse interest exception.” In re ChinaCast Educ. Corp. Sec. Litig., — F.3d –, 2015 WL 6405680, at *5 (9th Cir. Oct. 23, 2015). In so holding, the Ninth Circuit created “an exception to the exception” – when an innocent third party relies on a defrauding officer’s apparent authority, the officer’s fraud can be imputed to the corporation even if that fraud was adverse to the corporation’s interest.
Continue Reading Ninth Circuit Severely Limits “Rogue Employee” Exception for Corporations in Securities Fraud Cases
A CEO receives an anonymous call claiming that someone is stealing company trade secrets or that an employee is taking kickbacks from a vendor. A GC gets a call from the HR director who has an employee accusing the company of submitting false bills to a government agency. You are served by a government agency with a subpoena seeking records indicating a criminal investigation is underway for violations of environmental laws, insider trading, tax laws or fraud. Your company receives a credible threat of litigation. These are all real scenarios that occur daily in companies of all sizes all over the world. They trigger critical internal investigations that require substantial time and resources. Regardless of the nature of the investigation, it is vital that it be conducted efficiently, with clear direction and attention to preservation of the attorney-client privilege. This article sets out best practices for doing so.
Continue Reading Corporate Internal Investigations: Best Practices
Last month we wrote about a provision in the proposed 2013 National Defense Authorization Act (“NDAA”) that would have given the Defense Contract Audit Agency (“DCAA”) statutory authority to demand a company’s internal audit reports in order to audit the efficacy of a company’s internal business systems. Surprisingly, the authorization, as originally proposed, was modified in the final legislation. While Congress directed DCAA to issue new guidance regarding auditor access to internal audit reports, Congress stopped short of giving DCAA actual authority to demand such reports. As such, contractors will remain at loggerheads with DCAA auditors who try to exceed their statutory authority.Continue Reading Smash & Grab Redux – Congress Seems to Give DCAA Permission But Forgets to Give It Authority
The Defense Contract Audit Agency (“DCAA”) has long sought access to contractors’ internal audit reports in connection with the routine audit of contractors’ business systems. Contractors have, in most cases, successfully resisted requests for such access on the grounds that DCAA has no statutory authority to request such documents. But that may soon change. Section 843 of the Senate version of the 2013 National Defense Authorization Act (S. 3254) would grant DCAA broad access to contractor internal audit information.Continue Reading Smash & Grab – DCAA Poised to Gain Access to Contractor Internal Audit Reports
By Peter Menard
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) became law on July 21, 2010. A primary purpose of the Act is to further incentivize whistleblowers…