In-House Counsel & Compliance in a Large Corporation

Stephen Maloy

May 9, 2006

Risk-Reward Analysis for a Compliance Violation in a Corporation

Add’l Sale

Add’l Sale

Small Company

Large Company

Reputation PenaltyReputation Penalties

Reputation impact Corp Penalties Business BusinessOn rest of Corp. Reputation Penalties

Gain from a Violation is Finite, Damage from a Violation is not.

Reputational Damage even when you do the right thing

If you believe that every employee is an equal Compliance Defect Opportunity, Large Companies are morelikely to experience Compliance Failures*

ECR X n = CCR, where

ECR = propensity of each employee to violatea compliance regulation

n = number of EmployeesCCR = Business Compliance Risk

*Unless large Corporations can reduce ECR below that in smallcorporations

The old approach to compliance:

“Its like pornography; You know it when you see it”

“Just be sure you’re right and then go ahead”

“Just say No”

“Try to get transferred to another posting before lightning strikes.”

Three Unfortunate Events:

1. Defective Charging System for Government Contractsleads to time spent on non-Government Contracts beingcharged to Government.

2. “Bad Apple” aircraft engine salesman colludes with “bad apple” head of procurement for middle eastern country to siphon off money for engine test equipment

3. A Japanese industry practice of sponsoring doctor’s trips to medical equipment shows is found to constitute bribery and four JV salesman are convicted.

Tools for Reducing the value of CCR

• Policies•Training•Metrics “If you can measure it, you can improve it”

•Computerized Training, Testing and Tracking•Scorecards & digital cockpits

•Controls•Process engineering – Removing defect opportunities

•Detection•Ombuds systems•Audits

•Root Cause Analysis of defects and process improvement•Communication

•Leadership and Organization Culture

Soft Side- "Walk the Talk"S & L Leadership Responsibilities EHS Responsibilities NBC Spirit & Letter Tape

Compliance Leadership Training

Ombudsperson Process Session D ProcessRole of Compliance Review BoardResourcing Compliance

Case Study - Break Out Debriefing session

Metrics for Employee Compliance- BreakoutOrganising a Compliance Calendar

What to do when things go wrongFeedback Survey

Kick-off TalkHeineman Boca TapeTitanic Tape

Mini CAP Process

Teamwork Skills

Soft Skills and Tools

More Tools/Process Overviews

Compliance Metrics & Performance Measurement

Handling problems

Targeted Compliance Training for GE Leaders

Compliance Leadership Training Course Outline

Four Continuing Concerns

• Inability to recognize potential for conflict between two laudable goals

• Creep

• Am I my brother’s keeper?

• Anticipating Compliance risk in a dynamic world

Creep

•Ambiguity in a Rule

•Multiple Possible Interpretations

•Lack of enforcement activity for long period

•Lack of understanding of the rationale for the rule

•Lack of “safe harbors”, “bright lines” or clear presumptions

Inability to recognize potential conflict between laudable goals

Example: “The Customer is always right”, The company’skey mission is to satisfy its customers.

Result: Unquestioning compliance with customer requests.

Am I my Brother’s Keeper?

•What is the Corporation’s responsibility for actions of:

•Customers, including OEM’s, Contractors, etc.

• Suppliers

•Other players in the industry, including competitors

An Asian Compliance Model

Business problems often stem from using a static experience model in a dynamic environment

Time

Standard of Conduct

Legal Standard

Today

Xinhua or SCMP Test

Yesterday Tomorrow