Whistleblower Programs: Challenges for Multinational Companies

skadden

Katherine D. Ashley, Gary DiBianco, Dana H. Freyer, Matthias Horbach, Pierre Servan-Schreiber of Skadden, Arps, Slate, Meagher & Flom LLP put together a nice article addressing the challenges of exporting the whistleblower requirements under Section 301 of Sarbanes-Oxley to operations in the European Union: Whistleblower Programs: Challenges for Multinational Companies. 

Section 301 of the Sarbanes-Oxley Act of 2002 created a requirement that public company audit committees establish procedures for the “confidential, anonymous submission by employees of the company of concerns regarding questionable accounting or auditing matters.” Most companies have expanded the use of this hotline to include any violation of law or violation of company policy.

On the other side of the Atlantic, European labor and data protection laws offer more protection and rights to the whistleblower’s target. It is struggle to get a whistleblower hotline that works around the world. The folks at Skadden offer some suggestions in their article.

See also:

IRS Issues New Guidance on COBRA Subsidy

recovery_gov1

The Internal Revenue Service has issued Notice 2009-27 (.pdf), providing new guidance relating to the COBRA subsidy made available under the American Recovery and Reinvestment Act of 2009. Notice 2009-27 provides guidance on the definition of involuntary termination and assistance eligible individual. It also provides more detail on calculating the subsidy and determining the election periods.

Notice 2009-27 defines “involuntary termination” as

…  a severance from employment due to the independent exercise of the unilateral authority of the employer to terminate the employment, other than due to the employee’s implicit or explicit request, where the employee was willing and able to continue performing services. An involuntary termination may include the employer’s failure to renew a contract at the time the contract expires, if the employee was willing and able to execute a new contract providing terms and conditions similar to those in the expiring contract and to continue providing the services. In addition, an employee-initiated termination from employment constitutes an involuntary termination from employment for purposes of the premium reduction if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee. … The determination of whether a termination is involuntary is based on all the facts and circumstances….

The notice goes into much greater detail about “involuntary termination” if you are still unsure.

Notice 2009-27 defines “assistance eligible individual.”

An individual must be an assistance eligible individual to be eligible for the premium reduction. Under ARRA, an assistance eligible individual is a qualified beneficiary as the result of an involuntary termination that occurred during the period from September 1, 2008, through December 31, 2009, is eligible for COBRA continuation coverage at any time during that period, and elects the COBRA continuation coverage. In order to be a qualified beneficiary, the individual must be covered under the group health plan on the day before the involuntary termination (except in the case of a child born to or adopted by a covered employee during a period of COBRA continuation coverage or in certain circumstances where coverage was wrongfully denied the individual (see section 54.4980B-3, Q&A-1)). For purposes of Federal COBRA, an individual who loses group health coverage in connection with the termination of a covered employee’s employment by reason of the employee’s gross misconduct is not a qualified beneficiary and thus cannot be an assistance eligible individual.

Notice 2009-27 provides some more information on calculating premium reduction (questions 20 to 26), the coverage eligible for premium reduction (questions 27 to 29), the beginning of the premium reduction period (questions 30 to 32), the end of the premium reduction period (questions 33 to 44), the recapture of premium assistance (questions 45 to 46), and the extended election period (questions 47 to 55)

Although Notice 2009-27 answers many of the open questions, there are still some unanswered questions:

  • What mechanism should Multiemployer Plans use for collection of the premium reimbursement?
  • If an assistance eligible individual has paid for individual coverage through March and April of 2009, may he re-instate his COBRA as of May 1, 2009? If so, is he entitled to nine months of premium assistance starting May 1, 2009?
  • What penalties apply to employers who provide the subsidy, intentionally or unintentionally, to qualified beneficiaries who are not Assistance Eligible Individuals?

See also:

Developing a Culture of Honesty and Integrity…its Not Easy!

RW Associates

EthicsPoint sponsored and presented a webinar from Bob Phillips of RW & Associates, Inc. on Developing a Culture of Honesty and Integrity…its Not Easy! These are my notes.

Bob started with a quote from Stephen Covey: “The leader of the future, of the next millennium, will be one who creates a culture or value system centered upon principles.”

Bob moved on to “organizational culture” and focused first on culture. “Culture is the social and political environment in which people get their work done.”  He considers the elements of the culture as

  • Common behavior patters, consistency in behavior that builds trust
  • Understood and practices consistent behaviors that supports organizational goals and objectives
  • Integrated personal and organizational beliefs and behaviors

A starting point is whether you and your leaders openly model and support honest and open interpersonal interactions that is designed to build trust. He finds the receptionist is a great barometer of an organization. Can they pass the test of what the organization is like? Another barometer is to build trust by giving employees the information they need to do their jobs.

  • Can employees be honest and direct with their opinions and ideas?
  • Can they speak up and disagree without fear of retributions?
  • Are organizational messages that may be critical to employee’s jobs communicated quickly and directly to all employees?

Inconsistent leadership creates an environment of fear and the “foxhole” mentality.

On the other side, open cultures have a direct connection between organizational vision, values, and behavior. The leader should be able to translate the values hanging on the wall or the code of conduct on their bookshelf into action. Show your employees that you are committed to them and they will be committed to you.

He attached monetary gain to have a great place to work.  If you invested in the Fortune’s Best 100 Places to Work, you would have a better return than the broader stock market. From 1998 to 2006, the average annual return achieved by the S & P 500 was 5.97%, while the Russell 3000 achieved an average of 6.34% per year. By comparison, if you had bought shares in the 1998 ‘100 Best’ and simply held on to them until end 2006, you would have achieved average annual growth of 10.65%. If you had reset your portfolio each year on publication of that year’s ‘100 Best’ list, you would have achieved 14.16% annual growth. There is a dollar value to building a great place to work.

Leaders need to show consistent behavior to build trust, show a passion for the values, demonstrate ethics, and model the honest and open behavior. That also means accountability and consequences for meeting or failing to meet the values.

The keys to success start with an open and listening leadership. The culture needs to accept multiple points of view, but be committed to one course of action. You need to engage your workforce to let them know that they are being heard.

There is also a need to reconcile personal beliefs with your organization’s belief structure. You may get an employee who works in less ethical culture. There are multiple elements to a platform of integrity. Employees need to understand how they are expected to perform their work. They need to know that the organization’s principles are in place to ensure the organization meets their business and financial goals.

Honesty starts with individuals, but it is leadership and the organization that provide the environment to make it work. But in the end, it is the individuals within the organization that must be accountable. An organization cannot have a culture of honesty and integrity if leadership does not create an environment that accepts and models open and honest communication.

See also:

NBA and OFAC

nba

It is unusual to see a story where the National Basketball Association intersect with the U.S. Treasury’s Office of Foreign Assets Control. But that is the lot in life for the 7-foot-2 Hamed Haddadi, a back up center for the Memphis Grizzlies.

Since Mr. Haddadi is from Iran, he is apparently subject to the decades old trade embargo. As a result of Iran’s support for international terrorism and its aggressive actions against non-belligerent shipping in the Persian Gulf, President Reagan, on October 29, 1987, issued Executive Order 12613 imposing a new import embargo on Iranian-origin goods and services. Section 505 of the International Security and Development Cooperation Act of 1985 was utilized as the statutory authority for the embargo which gave rise to the Iranian Transactions Regulations, Title 31, Part 560 of the U.S. Code of Federal Regulations.

International trade is not my area of expertise, but I assume that Mr. Haddadi fell into the category of “goods or services.”

See:

Ten Principles for a Black Swan-Proof World

Nassim Nicholas Taleb penned an opinion piece in the Financial Times: Ten principles for a Black Swan-proof world .

Check out the piece for details behind each item:

1. What is fragile should break early while it is still small.
2. No socialisation of losses and privatisation of gains.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
5. Counter-balance complexity with simplicity
6. Do not give children sticks of dynamite, even if they come with a warning.
7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
8. Do not give an addict more drugs if he has withdrawal pains.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
10. Make an omelette with the broken eggs.

If you have not read The Black Swan yet, you should. it was one of those few books that changed the way I view the world.
The Black Swan

Martindale-Hubbell’s Counsel to Counsel Forum

lexisnexis

The folks over at Martindale-Hubbell were nice enough to invite me to their latest Counsel to Counsel Forum in Washington D.C. The forum operates under the rule that “what is said in the room stays in the room” so I will not share any details, but there were a few themes that I think I can share.

The intent of Martindale-Hubbell Counsel to Counsel Forums is to bring together senior corporate counsel and a few law firm partners to share best practices in the management of corporate legal departments, provide an opportunity to engage in meaningful dialogue about key issues, and to network in a relaxed atmosphere. I think it accomplished those goals.

The two day forum kicked off with panel discussing challenges to building legal teams and ways to better manage in-house/law firm teams. That lead to a break out session that continued some of the discussions. It became clear that big law firms may not understand the pressures that many in-house legal departments are experiencing. Several attendees noted that their budgets had been dramatically slashed. Any law firm sending out a rate increase notice is going to risk getting fired on the spot.

The second day kicked off on a (high?) note with my panel on Technology, Tools & Knowledge Management for High-Performance Legal Teams 2.0. I was joined by Jeff Brandt and Eugene Weitz. I implored the audience to think beyond email. I think one of the ways to build a better legal team is to build better ways to communicate. My earlier post on Extranets for Law Firm and Client Collaboration – Moving Beyond Email embodied most of my points. As Jessica Lipnack taught me, I tried to get around the room and have everyone introduce themselves and bring up an example. We didn’t get very far in the introductions because the discussion really kicked off. One attendee shared a success story with SharePoint. I shared my love/hate relationship with SharePoint.

We moved on to another session about teams, the characteristics of good teams, the characteristics of bad teams, and some ways to covert your team from bad to good.

Of course there were many interjections about Martindale-Hubbell Connected. Thankfully, they were more like product placements than sales pitches. Of course the Forum was on their dime so Martindale had every right to pitch their product. I skipped one session to speak with some of the folks behind Connected. They seem committed to developing the community and continuing to improve it. My take is that they are struggling with how to deal with Web 2.0 and online communities, just like most companies are struggling with it. But they do see the challenges and the opportunities. They are listening to the criticism, learning, and incorporating suggestions into the development of the platform.

I ended the day by chairing the breakout session on compliance, risk, and governance. The attendees in the session were very diverse with very different needs and different concerns. There were several common themes and concerns. Susan Slisz of LexisNexis did a great job helping the organize the discussion. I think everyone in the session had something they could bring back to their company.

If you have the opportunity to attend a Martindale-Hubbell Counsel to Counsel Forum you should go. It will be well worth your time.

Limiting Access to the Courts in a Collective Bargaining Agreement

seiu

The United States Supreme Court handed a clear win for employers in 14 Penn Plaza LLC v. Pyett. Members of the Service Employees International Union, were employed to provide security services to a New York City office building owned and managed by 14 Penn Plaza. A provision in the collective bargaining agreement prohibited discrimination, but  stated “all such claims shall be subject to the [applicable] grievance and arbitration procedures… as the sole and exclusive remedy for violations.”

After some of the Union employees were reassigned to different responsibilities the Union alleged that these reassignments were based on unlawful age discrimination and violated provisions of the collective bargaining agreement. The Union filed complaints of age discrimination with the Equal Employment Opportunity Commission and ended up in federal court. The building owner wanted the court to compel arbitration.

The Supreme Court concluded that a union may bargain for a mandatory arbitration provision related to individual employment rights. As a result, the Court gutted the precedent set in its 1974 decision, Alexander v. Gardner-Denver. That case concluded that a collective bargaining agreement could not waive covered workers’ rights to a judicial forum. This new Penn Plaza Court decision distinguished Gardner-Denver by stating that the collective bargaining agreement provision at issue in Penn Plaza expressly covered both statutory and contractual discrimination claims.

The use of collective bargaining agreements is outside my area of expertise, but this case caught my eye because it involved a commercial property owner and its union employees.

In addition, this decisions could be a silver lining to the Employee Free Choice Act for those employers who are opposed to it. The EFCA, in its current form, would allow unions to more easily organize because it eliminates the secret ballot requirement. In light of this Penn Plaza decision, employers that are successful in negotiating comprehensive mandatory arbitration provisions into a collective bargaining agreement may at least reap the benefit of avoiding jury trials in favor of arbitrations of discrimination and other employment-related claims. Of course the unions are aware of this decision and may resist sweeping mandatory arbitration provisions.

But don’t take my word on it. Consult your labor and employment lawyer.

See also:

The New COBRA Subsidy: An Update for Employers

bingham_logo

The Employee Benefits and Executive Compensation group at Bingham McCutchen LLP put together a nice summary of the steps employers need to take in light of the changes to COBRA under the the American Recovery and Reinvestment Act of 2009. They dive into many of the details of who is eligible for the subsidy and how the reimbursement process works.

See my previous posts:

In the interest of full disclosure, I am related to one of the authors of the Bingham legal alert.

Proclamation 7750, Diplomatic Immunity and Corruption

The Foreign Corrupt Practices Act only applies to those making bribes. It does not apply to the recipients of bribes. Since the recipient must be a “foreign official” you run into the issue of “diplomatic immunity.”

The concept is that officials should only be held accountable to the laws in their home state. We would not want our officials being courted off to a foreign country for prosecution. Other countries should not expect their officials to be courted off to the U.S. for prosecution. I am sure you have seen an episode of Law & Order or Lethal Weapon2 where a criminal runs free under diplomatic immunity.

It should not surprise you that there is a correlation between parking violations scofflaws under diplomatic immunity and the corruption in their home country.  Ray Fishman and Edward Miguel published a paper researching parking violations and diplomatic immunity in New York City. (The Clinton-Schumer Amendment, which gave the New York City permission to tow diplomatic vehicles, revoke their official parking permits, and have 110 percent of the total amount due paid from U.S. government aid to the offending diplomats’ countries of origin, resulted in a substanital decrease in diplomatic parking scofflaws. )

Congress wrote the FCPA that way because it believed “the efforts expended in resolving the diplomatic, jurisdictional, and enforcement difficulties that would arise upon the prosecution of foreign officials was not worth the minimal deterrent value of such prosecutions.” U.S. v. Castle, 925 F.2d 831 (5th Cir. 1991) (per curiam).

I [George W. Bush] have determined that it is in the interests of the United States to take action to restrict the international travel and to suspend the entry into the United States, as immigrants or nonimmigrants, of certain persons who have committed, participated in, or are beneficiaries of corruption in the performance of public functions where that corruption has serious adverse effects on international activity of U.S. businesses, U.S. foreign assistance goals, the security of the United States against transnational crime and terrorism, or the stability of democratic institutions and nations.

See:

Extranets for Law Firm and Client Collaboration – Moving Beyond Email

project_extranet

One of the problems with collaboration between law firms and their clients is that too much of it happens through email. Email is fast, allows you to send the same message to lots of people, and is inexpensive.

But it is still a set of messages sent back and forth, much like the Pony Express. To figure out what is going on you need to comb through the messages and hope that you end up looking at the latest message. Since email is so fast and so inexpensive, you often end up with a barrage of short ineffective messages.

With email, the message ends up in a different place for the sender and recipient. If I send the email, it is in my sent items and it ends up in the inbox for the recipient. Each recipient may do something different with that email once it’s in their email in-box. Some may pile it on top of the thousands of other emails in their inbox, some may file it in another email folder, some may print and delete, and some may just delete.

There has been talk for years of using extranets to change the way law firms and their clients communicate. Unfortunately, it seems there has been more talking than there have been successful extranets.

The trouble with deploying a successful extranet is finding both an attorney team and a client team that want to share information by using an extranet.

The most common extranet for a legal team is the document war room seen in larger acquisition transactions. There is a great benefit to having the documents in one place, typically with some great security. But they lack the communications tools needed to move it beyond being merely an online fileroom.

An extranet can be poorly organized and messy, making the relevant information hard to find. But organizing the information in a meaningful way can save lots of time and money for both the law firm and the client.

One of challenges for using an extranet platform is deciding which one to use. Should it be sponsored by the law firm or the client? If it is sponsored by the law firm, a few issues arise. One, the law firm will have to allow access to the client’s other law firms working on similar matters or the client will have to work with a different extranet for each of its different law firms. If the client sponsors the extranet, then the client bears the expense and maintenance burden of the extranet platform. There also will be the expense and resources spent on showing the law firm how to use the extranet platform.

One barrier to overcome is that there are a broad variety of possible extranet platforms that operate very differently and provide information in very different ways. Some of the newer 2.0 tools show how the web can be better used as a collaboration space. They also break down some of the barriers to using an extranet. Perhaps the next generation of extranets will be more effective. The answer may be SharePoint. Microsoft is pushing its SharePoint platform causing it to become more pervasive and bringing some of the concepts of Enterprise 2.0 into many business environments. By having a common platform, you could break down some of the barriers to extranet adoption.