With the number of regulations stemming from the Dodd-Frank Act still expanding, audit committee members must be aware of risks inherent in their company’s structure now more than ever. A discussion amongst directors and governance experts gathered at today’s NACD Board Leadership Conference 2011 to discuss best practices in risk mitigation, particularly in regards to Dodd-Frank’s whistleblower provisions, and how to handle investigations when the company hits a stumbling block.
“It’s critical that companies have robust case management systems to track problems,” said Martin Biegelman, founder of the Microsoft Financial Integrity Unit. “The board must be briefed on major issues, which should be an ongoing process. It’s very important the board be kept up to date on investigations.”
When it comes to handling company investigations, whether they be internal or independent, “the difficulty is the decision will be judged in hindsight, but there are important principles to keep in mind,” explained Bradley J. Bondi, partner at Cadwalader Wickersham & Taft LLP. Those principles include keeping in mind what will keep the regulators happy while fostering communication and relations between the board and management.
Senior Deputy for Litigation of the U.S. Department of Justice, Criminal Division, Fraud Section Kathleen McGovern, who noted that her employer prefers external investigations when dealing with fraud allegations. She also noted that “as companies become more global, it’s more common for employees to be held responsible for the action of NGOs and third party agent” in overseas transactions.
As whistleblower provisions are better publicized, companies must expect that the complaints and possible payouts will become more common. McGovern advised educating employees on their options for reporting, both internal and via the SEC. Biegelman agreed, noting that the internal whistleblower reports give the company a chance to look at their programs more closely.
The panelists cited a number of characteristics that would benefit a board should the company encounter a lawsuit, investigation or whistleblower threat. McGovern emphasized transparency and communication, Biegelman called for access to subject matter experts in problem areas, either as fellow board members or consultants and Bondi stressed the importance of asking the right questions and providing adequate follow-up. “In my experience dealing with boards, there are a couple problems,” said H. Ronald Weissman, chairman of the Federal Home Loan Bank System Office of Finance. “There needs to be conflict but respect. A board that can use conflict to fuel discussion and reach a unified decision is the healthiest board.”