Conducting Regulatory Investigations September 28, 2012 Ottawa, Canada Richard Leblanc, PhD.

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Presentation transcript:

Conducting Regulatory Investigations September 28, 2012 Ottawa, Canada Richard Leblanc, PhD

Agenda 1.When to investigate / opine 2.Tone at the top 3.Board investigations 4.Independence of directors 5.Independence of advisors 6.Whistle-blowing defects 7.Rights / concerns of investigatee 8.Conducting the investigation 9.Document collection, interviews 10.Findings and recommendations Copyright © Boardexpert.com. All rights reserved.

When to Investigate / Opine Reputation Risk-taking puts organization at risk Contagion, not materiality Fraud / impropriety Senior management involvement Related party transaction Self interest, conflict at board level Foreign jurisdiction and supplier Red flag / smoke Tweet test Copyright © Boardexpert.com. All rights reserved.

Tone at the Top Zero tolerance Integrity checks Code enforced on key suppliers Executive whistle-blowing Management override and undue influence Directors understand judgment invoking fraud Moving the meeting and foreign directors Private sessions in all committees Compensation of risk takers Internal audit with teeth Copyright © Boardexpert.com. All rights reserved.

Independence of Directors Direct or indirect relation to matter Benefit not shared by other shareholders Personal considerations and perks Prolonged tenure red flag Relation to control person Third party view of independence Excessive or inadequate compensation Robust, disclosed conflict policy Integrity mining of directors as influence flag Look for interconnectedness to conflict out Copyright © Boardexpert.com. All rights reserved.

Independence of Advisors Management pre-selecting Independence from management Applies to whole firm Assessing one’s own work or colleague Adverse interests – second opinion Third party view of independence Advance retainer and to chairs Foreign advisor red flags Boutique firms doing solely governance Internal quality assurance & regulatory reports Copyright © Boardexpert.com. All rights reserved.

Whistle-blowing defects Not anonymous Doesn’t work for executives Doesn’t work for suppliers No reward or incentive Toxic internal environment, no protection Not independently administered; mgt influence No forensic skills Weak audit committee Lack of knowledge of its existence No exit data anonymously Copyright © Boardexpert.com. All rights reserved.

Rights / Concerns of Investigatee Right to counsel and Upjohn warnings Indemnification of legal fees Privacy and country rights Personality irrelevant Location of interviews & adverse inferences Non-retaliation Investigator not paid by management Non-biased, fair process Internal counsel may chill Leaks to media, stakeholders Working relationships, industry reputation Copyright © Boardexpert.com. All rights reserved.

Conducting the Investigation Freeze and preservation of evidence signoff Avoid lawyering up and defensiveness Pre-planning and media strategy Government cooperation, curing, self-report Assemble team and reporting Creation of special committee if board-led Terms of reference and authority Any information or personnel Compensation of members and advisors Travel if foreign Copyright © Boardexpert.com. All rights reserved.

Documentation, Interviews Documentation / technology storage, tracking Personal and home computers, devices Forensic support Working paper files in foreign jurisdictions Language translation and barriers Advance topics, documents for interviews Record keeping and minuting diligence Litigation and solicitor-client privilege Watch for undue influence by management Watch for capture of team / advisors Copyright © Boardexpert.com. All rights reserved.

Findings and Recommendations Governance enhancements Recommendations to Board Cooperation and reporting to government Disclosure to media and stakeholders Oral vs written reporting Solicitor-client implications Communication to auditor Watch for adverse inferences Communication to employees and morale Conclusion of investigation Copyright © Boardexpert.com. All rights reserved.

Contact Information Richard Leblanc, PhD RPO Bloor West, 2336 Bloor St. West, PO Box Toronto, Ontario, Canada M6S 4Z web: Copyright © Boardexpert.com. All rights reserved. E