Month: January 2010

Are You Trying to be a Trust Agent?

Yes? Then you have probably already read at least part of Trust Agents: Using the Web to Build Influence, Improve Reputation, and Earn Trust, the new book from Chris Brogan and Julien Smith.

Most likely, you are wondering what a “Trust Agent” is supposed to be.

“Trust agents have established themselves as being non-sales-oriented, non-high pressure marketers. Instead, they are digital natives using the web to be genuine and to humanize their business.”

The main premise is that cultivating “trust” will enable you and your business to succeed. They talk about creating this trust using social networks and online media. Be a trust agent and people will gravitate towards you when they need something, and then trust you with their information and leads. The book combines some theory, with the author’s success stories, other relevant examples and actionable suggestions.

Unfortunately, I found big chunks of the book to miss the mark for my involvement on the web. My original jump into the web was to see how these tools would work as knowledge management tools inside an organization. I found these web 2.0 tools were well ahead of the enterprise tools. My approach in using the web is for personal knowledge management.

These tools (including this blog) are for me to find the information I need to succeed at my job and to organize that information for reuse. I use web tools for selfish reasons. They are really good at helping me collect information. That others can leverage my work is a by-product. That these tools allow me to stay connected with colleagues is a by-product.

Some of that stems from the nature of my job and my company. We don’t use the web to advance our corporate image. As the chief compliance officer I am not trying to sell anything, ever.

But I do like staying connected with my colleagues and peers. There are many more people outside your organization who do what you do or have the information you need to succeed, than there are inside your organization.

Trust Agents is about creating social capital. I think it could just as easily be called: “Don’t be a jerk online.” They go into a lot more detail than that and come up with six characteristics of Trust Agents.

1. Make your own game.

Try new ways of doing things. Stand out from the crowd. First movers have an advantage. They quote Warren Buffet on when to enter a market: “Be fearful when others are greedy, and be greedy when others are fearful.”

2. Be one of us.

Be part of the community. Don’t be the self-promotional jerk in the community who is continually handing out business cards and asking for business. Contribute to the community. You need to give first if you want to receive. The more you give, the better.

3. Use the Archimedes Effect

Archimedes propositioned that if he had a long enough lever and a fulcrum on which to place it, he could move the world. Leverage your message.

4. Try to be Agent Zero

Cultivate your personal networks and recognize their value. Connect with good people. Connect between different groups.

5. Become a human artist.

Learn how to work well with people and help empower people. You need to learn the etiquette and start off by listening to the community before you burst in with a full head of steam.

6. Build an army.

You can’t do it alone. You need to find people who are willing to collaborate with you.

If these concept resonate with you, then it is worth your time to read the book. If you are just starting out with web 2.0 tools you should heed the lessons in the book. Even if you are a wily veteran, you will find some useful information in this book.

Trust Agents is a bit uneven at times. In places it reads more like a collection of blog posts instead of a coherent narrative. Some of their ideas are better flushed out than others. Those six characteristics don’t have equal weight.

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This is the first book I’ve read in 2010. You can look back at the books I read in 2009.

Enterprise 2.0 Conference: Session Proposals

The Enterprise 2.0 Conference is coming back to Boston on June 14-17.  They are letting attendees vote on the sessions. This is a great way for the conference organizers to take advantage of 2.0 tools in organizing the conference.

I am part of two panels, if they get approved. If either of them interest you, go ahead and vote for them. You need to register on the voting site (not register for the conference) to vote.

Social Media Policies: Practical Advice From The Trenches

This will be similar to the panel I was on at the San Francisco Enterprise 2.0 event: Social Media: Policy Formation & Risk Management. Mike Gotta will repeat hie performance in moderating the panel.

What Enterprise 2.0 Can Learn from Knowledge Management

This panel will look to the lessons of knowledge management and how they can be applied to enterprise 2.0. The panel also features Jack Vinson, Carl Frappaolo and Patti Anklam.

With 466 submissions there are lots to choose from. Here are some others to think about.

Compliance Bits and Pieces for January 8

Here are some interesting stories from the past week:

BAE Bribe Suit Tossed On Appeal from The FCPA Blog

The decision is a big win for BAE (and all U.K. companies threatened with shareholder litigation in the U.S.). But it’s another setback for plaintiffs who bring claims based on allegations that, if true, would violate the Foreign Corrupt Practices Act.

Top Risks of 2010

If the 2009 top risks were first and foremost about developed states having their wits sufficiently about them to get through the financial crisis (with the US Congress leading the pack), as the world now emerges from recession the risks begin to shift to the challenges created by the emergence of a new global order–developed vs. developing states, the old unipolar system vs. the emerging non-polar one, and the old dominant globalized system of regulated free market capitalism vs. the growing strength of state capitalism.

Study debunks analyst recommendations myth

The study, conducted by Dr. Oya Altınkılıç of the University of Pittsburgh and Dr. Robert Hansen and Vadim Balashov of Tulane University, builds on a previous study by Altınkılıç and Hansen that had found analyst recommendations “tend to piggyback on the news” and are relatively “uninformative.”

Deducting Disgorgements from The FCPA Blog

The lesson is that FCPA-related disgorgements — which have reached hundreds of millions of dollars — may be deductible. It depends chiefly on what the SEC intends and how the agreement describing the disgorgement is written to reflect that intent.

Public Companies Fail to Disclose Ethics Waivers

usha rodrigues

According to Usha Rodrigues from University of Georgia Law School and Mike Stegemoller from Texas Tech University – Rawls College of Business, in their paper Placebo Ethics, public companies are failing to disclose ethics waivers.

They focused on Section 406 of Sarbanes-Oxley which requires public companies to disclose when they have granted an ethics waiver to top executives. Section 406(b) states:

“The Commission shall revise its regulations concerning matters requiring prompt disclosure on Form 8-K (or any successor thereto) to require the immediate disclosure, by means of the filing of such form, dissemination by the Internet or by other electronic means, by any issuer of any change in or waiver of the code of ethics for senior financial officers.”

The regulations for Section 406 provide:

§229.406 (Item 406) Code of ethics:
(a) Disclose whether the registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. If the registrant has not adopted such a code of ethics, explain why it has not done so.

(b) For purposes of this Item 406, the term code of ethics means written standards that are reasonably designed to deter wrongdoing and to promote:

(1) Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; …

Rodrigues and Stegemoller were able to take advantage of the overlap between the 406 disclosure requirements and the disclosures required by Item 404 of Regulation S-K for related party transactions with an amount in excess of $120,000. One of the challenges of determining compliance with disclosure requirements is you can’t tell if there was a need for a disclosure unless the information is disclosed. This overlap allowed them to find items in the 10-k proxy statement that should have been reported immediately under Section 406.

Their sample set was 200 public companies. From January 1, 2003 through December 31, 2007 they found only one waiver filed under Section 406 for these 200 companies. They also looked beyond their sample set and found that of the 5,000± public companies there have only been 36 waivers filed using Form 8-K.

They took the next step and looked at the 10-K filings for their sample set of companies for related party transactions. Fifteen companies failed to disclose related party transactions that should have been reported immediately under Section 406. They found lots of other disclosures that were in a gray area. (This should be no surprise to Michelle Leder at Foototed.org who loves finding these things.)

One theory is that the public companies prefer to dump these related party transactions into the 10-K proxy statement where there is already a flood of information rather than specifically calling out the transaction in a separate Form 8-K. (Again, Michelle Leder loves digging up this stuff.) There is a difference between immediate disclosure and eventual disclosure.

Another surprise in the paper was that most of the companies in the sample set did not prohibit related party transactions in their code of ethics. Only 30 prohibited these transactions. These omissions also would appear to be a violation of Section 406 since the regulation requires a code to deal with conflicts of interest. Personally, I don’t see how you can call something a code of ethics if it does not prohibit related party transactions.

References:

2009 Year-End FCPA Update

gibsondunn

In case you missed it, 2009 was full of FCPA enforcement actions and trials. The Department of Justice and Securities and Exchange Commission worked hand in hand over the past year bringing actions for FCPA violations. They set a record by bringing more FCPA prosecutions during 2009 than in any prior year in the FCPA’s history.

From Gibson, Dunn & Crutcher LLP
From Gibson, Dunn & Crutcher LLP

To pull it all together, the law firm of Gibson, Dunn & Crutcher LLP put together a 2009 Year-End FCPA Update.

This update provides an overview of the FCPA and a survey of FCPA enforcement activities during 2009.  It also analyzes recent enforcement trends and offers practical guidance to help companies and their executives avoid or minimize liability under the FCPA.

They also claim that there are over 100 FCPA investigations pending at the Justice Department, and “a robust stock of FCPA matters” under investigation at the SEC.

Mike Koehler takes issue with some of the numbers. But you can’t argue with the success of FCPA actions over the past year. Success breed success. In response the DOJ and SEC have organized special groups to focus on FCPA violations. I expect that we will continue to see more activity in this area.

References:

New Massachusetts Lobbying Law is now in Effect

massachusetts-quarter

In mid-2009, the Massachusetts Legislature was rocked by the highly public federal indictments of a state senator and speaker of the Massachusetts House. In response, the legislature passed a sweeping overhaul of its campaign finance, lobbying and government ethics laws.

There are new rules in the Commonwealth that went effective on January 1. (Massachusetts is a commonwealth, not a state, which of course is longer but has no legal meaning.)

Last week, “lobbying” was limited to direct contact with elected officials or other government employees. With the new law in place, “executive lobbying” and “legislative lobbying” have much broader definitions.

“Executive lobbying,” any act to promote, oppose, influence, or attempt to influence the decision of any officer or employee of the executive branch or an authority, including but not limited to, statewide constitutional officers and employees thereof, where such decision concerns legislation or the adoption, defeat or postponement of a standard, rate, rule or regulation promulgated pursuant to any general or special law, or any act to communicate directly with a covered executive official to influence a decision concerning policy or procurement; provided further, that executive lobbying shall include acts to influence or attempt to influence the decision of any officer or employee of a city or town when those acts are intended to carry out a common purpose with executive lobbying at the state level; and provided further, that executive lobbying shall include strategizing, planning, and research if performed in connection with, or for use in, an actual communication with a government employee; and provided, further, that “executive lobbying” shall not include providing information in writing in response to a written request from an officer or employee of the executive branch or an authority for technical advice or factual information regarding a standard, rate, rule or regulation, policy or procurement for the purposes of this chapter.

You have to register if you are an “executive agent” or “legislative agent.” There are four parts of those definition:

  • engage in executive or legislative lobbying (defined by the statute)
  • receive compensation for lobbying in excess of $2,500 in a six-month reporting period as regular salary or payments for lobbying
  • spend 25 hours or more engaged in lobbying activities in the 6 month reporting period
  • personally make at least one direct lobbying communication with a government employee.

Having trouble following along? The Secretary of Commonwealth put together this flow chartpdf-2.

References:

Custody of Funds or Securities of Clients by Investment Advisers

sec-seal

The SEC released the final version of its new custody rule (.pdf). The Commissioners had announced their approval of the rule on December 17 and then released the final text on December 30. The rule goes into effect 60 days after publication in the Federal Register.

The amendments are designed to provide additional safeguards under the Advisers Act when a registered adviser has custody of client funds or securities by requiring such an adviser, among other things: to undergo an annual surprise examination by an independent public accountant to verify client assets; to have the qualified custodian maintaining client funds and securities send account statements directly to the advisory clients; and unless client assets are maintained by an independent custodian (i.e., a custodian that is not the adviser itself or a related person), to obtain, or receive from a related person, a report of the internal controls relating to the custody of those assets from an independent public accountant that is registered with and subject to regular inspection by the Public Company Accounting Oversight Board. Finally, the amended custody rule and forms will provide the Commission and the public with better information about the custodial practices of registered investment advisers.

This new custody rule is designed to catch a Madoff fraud.

The rule is limited in scope. Only SEC-registered investment advisories that control custody of their client’s assets – as Madoff did — are subject to the rule. Independent RIAs with client assets in custody with unaffiliated third parties are exempt from the final version of the rule.

The difference is that the SEC exempted investment advisers who were deemed to have custody merely because they had the authority to deduct their advisory fees from client accounts from the surprise audit requirement. The SEC also exempted pooled investment vehicles from the requirement if they have an annual GAAP audit by an independent public accountant.

Between 1,500 and 1,900 SEC-registered investment advisories provide in-house custody of securities and most of these are either broker-dealer affiliates or alternative-investment managers. This leaves well over 9,000 SEC-regulated RIAs and at least that many state-registered investment adviser firms free from the burdens of the rule. The SEC estimates the annual cost of compliance at about $8,000 a year, but TD Ameritrade estimates the cost is closer to $25,000 per year.

References:

Whales and Compliance

watching giants

I was surprised to be thinking about compliance while I was reading about whales. Sure, I eat, drink and sleep compliance. But there are some lessons that compliance professionals can learn from the study of whales.

This came up while I was reading Watching Giants: The Secret Lives of Whales by Elin Kelsey.

My original interest in the book was its intersection between parenthood and whales. During college I took a class at the New England Aquarium on marine mammals taught by world-renown experts. The class was fascinating on many levels. As a parent, well, I find parenting itself interesting.

Whales are incredible species, reliant on breathing air, but needing to dive the depths of the ocean for food. For example, as the book points out, a blue whale opening its mouth to take in a school of krill is the biggest biomechanical event to happen on the planet. The scale of a whale’s life is well beyond the scale of humans. If you read about the parenting life of whales, I think you will be hard-pressed to believe that we have hunted many of these species to the brink of extinction.

Getting back to the compliance side of things, whales are hard to study. Fraud, corruption and misdeeds are hard to study. Whales spend over 95% of their time outside the boundary of human observation. The deeds that compliance professionals are looking for are also, for the most part, outside of our perception.

The compliance lesson that resonated with me was that we should not assume that we can see is truly representative of what is actually happening beneath the surface. We need to understand our perspective. What we can see and what we cannot see. When you look beneath the surface, something unexpected may be happening.

If you are looking for a good book to read, try Watching Giants: The Secret Lives of Whales.

Darth Vader and the New York Stock Exchange

Is this going to improve the image of the stock market? Darth Vader ringing the opening bell at the NYSE?!

Lucasfilm Ltd. Brings the Force to the New York Stock Exchange This Holiday Season – press release

After more than 30 years, Star Wars maintains its position as the #1 selling licensed toy property in the US, with sales over 60% ahead of any other toy license, and 25% ahead of the nearest boys toy property. To mark the occasion, Lucas Licensing’s Howard Roffman rang The Opening Bell.