Compliance and Ethics in Review: March 14, 2019

The Latest and Greatest Industry News

An ethics complaint about ties to Boeing, the first all-female spacewalk, the continued drama surrounding SNC-Lavalin, FCPA violations, and more.

Join the Convercent team for a weekly review of the top stories and most newsworthy events in the ethics and compliance industry. The focus is global, but you might be surprised by how relevant these stories are, both across borders and businesses.

Watchdog files ethics complaint over acting Pentagon chief’s Boeing ties

Government watchdog Citizens for Responsibility and Ethics in Washington (CREW) has filed an ethics complaint against acting Defense Secretary Patrick Shanahan. Shanahan was Boeing’s senior vice president for supply chain and operations, and he also held additional executive positions within the company throughout his tenure.

CREW accuses the former Boeing executive of unfairly promoting his past employer, and now they want the inspector general of the Department of Defense to find out if Shanahan violated his own ethics pledge to recuse himself from matters associated with Boeing. In a statement from his office earlier this week, any and all ethics violations were denied.

Stanford students file class-action lawsuit over college admissions scandal

After news of the outrageous steps wealthy parents allegedly took to get their kids into elite universities broke earlier this week, two Stanford University students filed a federal lawsuit seeking class-action status against the universities named in the admissions scheme. The students allege in part negligence, unfair competition and violations of consumer law.

In addition, they claim their degrees have been tarnished — prospective employers may question whether they were admitted on their own merits, “versus having parents who were willing to bribe school officials.” In total, fifty people, including 33 parents and several college coaches are facing charges for using their wealth to game the college admissions system.

Second Circuit Rejects Securities Claims Based on Generic Statements About Ethics and Compliance

Traditionally, securities cases focused on accounting or financial matters. These days, securities actions touch on issues that C&E teams know intimately — alleged foreign bribery, sexual harassment, antitrust violations, money laundering, environmental disasters, and more. Organizations have been sued under securities laws, “based on the theory that they made broad statements about the importance of and their efforts to comply with legal and ethical standards – and that those statements must have been false or misleading because of what ultimately happened.”

Last week, the Court of Appeals for the Second Circuit confirmed the dismissal of a securities class action lawsuit against Cigna. In Singh v. Cigna Corporation, the Court of Appeals for the Second Circuit held that generic statements are not material, because a “reasonable investor could not have relied on them as representations of regulatory compliance.”

The First All-Female Spacewalk Is Set for This Month

NASA has planned a fitting end for Women’s History Month: The first all-female spacewalk in history.

Anne McClain and Christina Koch plan to walk into space on March 29 to work on exterior upgrades to the space station.

While this milestone wasn’t part of the original mission plan, Stephanie Schierholz, a spokesperson for NASA explained, “It really is the luck of the draw … We feel lucky that it [the all-female spacewalk] just sort of happened to be in Women’s History Month.”

Chris Selley: Canada’s rickety justice system may yet offer a twist in the SNC-Lavalin scandal

Canada’s government remains embroiled in controversy surrounding SNC-Lavalin. But, as the country debates continuing the company’s prosecution versus offering it a deferred prosecution agreement (DPA), an interesting question that has gone mostly unasked:

“Why are we going after SNC-Lavalin for its Libya-related transgressions at all, as opposed to the individuals who committed them?”

SNC more or less became a new company under CEO Neil Bruce. Top management and the board of directors were all replaced. Mr. Bruce’s predecessor, Robert Card, even implemented “a top-to-bottom ethics and compliance fix-it job.”

These are the exact actions companies are supposed to undertake to earn a DPA, so why is Canada still “punishing a (supposedly) squeaky-clean company for a bunch of stuff done by human beings who aren’t there anymore”? This article attempts to answer these timely questions and provides an interesting look into the concept of corporate personhood.

Mario Batali Exits His Restaurants

In December 2017, celebrity chef Mario Batali was accused of sexual harassment and assault by several women. Now, the 20-year partnership between Mr. Batali and the Bastianich family of restaurateurs has been formally dissolved. Mr. Batali also plans to sell his shares in Eataly, a growing global chain of luxury Italian supermarkets.

A number of prominent chefs and restaurant owners have been accused of sexual misconduct in the wake of #MeToo, but Mr. Batali is the first to “surrender” all of his restaurants.

Russian Telecom Agrees to Pay $850 Million to Resolve Bribery Charges

Mobile TeleSystems (MTS), a Russian telecommunications firm, has been charged with violating the Foreign Corrupt Practices Act (FCPA) and U.S. securities laws. According to the SEC, MTS bribed an Uzbek official who was a relative of the former president of Uzbekistan to win business in the country. MTS made at least $420 million in bribes and operated in Uzbekistan from 2004 – 2012, grossing $2.4 billion in revenue.

The company pleaded guilty and entered into a DPA with the Justice Department. MTS will pay an $850 million fine to resolve the charges and has also agreed to retain an independent compliance monitor for at least three years.

If maintaining compliance with the FCPA is a top priority for your company, we highly recommend reviewing these useful resources:

Elon Musk to SEC: You Can’t Make Me Never Tweet

MTS isn’t the only company that’s earned the SEC’s ire recently. Tesla CEO Elon Musk’s recent tweets about production numbers have also earned him a place in the hot seat.

As a result of the tweets, the SEC has requested a federal court hold Musk in contempt for violating a previously reached settlement agreement. Musk argues that the SEC’s restrictions on what he can share amount to an “unconstitutional power grab.” He also denies violating his settlement agreement in the first place.

If Musk refuses to filter his tweets in the future, the SEC might impose more fines or greater restrictions on his social media activity. He could also be banned from being an officer or director of a public company.

Auditors Worry Boards Aren’t Getting Good Information on Risks

According to a new study conducted by the Institute of Internal Auditors, corporate boards may be overlooking, “critical information about emerging risks—such as cybersecurity or workplace sexual harassment—by relying too heavily on information they receive from management.”

The survey asked chief audit executives how directors at their organization access information about potential risks. Three-quarters of respondents said directors are “very likely” to rely on management, with less than half saying directors rely on internal auditors or corporate risk executives. Reliance on executive leadership isn’t shocking. However, auditors worry that directors are failing to, “[corroborate] information with internal auditors to make sure companies have necessary controls in place.”

Fortunately, more and more board members are taking an active interest in the health of their organization’s compliance program. To make sure you’re prepared the next time you join in on a board meeting, download the 45 Questions Your Board Will Ask About Your Compliance Program.

Focus on Employee Work Passion, Not Employee Engagement

According to one report, “Employee engagement is a broad and complex problem that organizations spend $720 million a year trying to solve.” As a C&E leader, you’re acutely aware of how tough it can be to increase employee engagement with the compliance message. This article from Workforce takes a different approach to engaging staff, and it could be helpful in your organization: Create a high-trust culture that allows employees to grow, and engagement will follow.

For even more help pulling employees in (versus pushing training out), don’t miss this upcoming webinar with Compliance Week on Tuesday, March 26 from 2:00 pm – 3:00 pm EST: Best Practices, Tips, & Tools C&E Leaders Can Use to Better Engage Employees.