The Ethical Director
Welcome to The Ethical Director, a monthly newsletter with Internet links to the information you need to remain informed regarding developments in the law of ethical responsibilities of directors of registered companies. Sponsored by BB&T Bank and compiled in partnership with The Charleston School of Law, this first issue is but a beginning of what with time, we intend to become the go to spot for information on the latest developments in the expanding field of law on the ethical responsibilities of directors.
In addition to our editorial board of students at the law school, we are assisted by experienced national counsel in corporate representation and shareholders’ rights to be sure we are up on the latest developments.
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Here's the Latest -The Ethical Director!
Recent developments Include:
---New Interagency Financial Fraud Enforcement Task Force---
President Barack Obama has established a new task force via executive order. The new task force will focus on investigating, prosecuting and punishing financial crimes. It replaces the Corporate Fraud Task Force. The task force will be made up of officials from several departments and agencies including the Department of Treasury, the Securities and Exchange Commission, and the Internal Revenue Service. Its ultimate goal is to not only prosecute perpetrators of financial crimes, but to discover and eliminate the threat of financial crimes before they become a large scale problem. This may mean that directors will need to be more proactive in monitoring the activities of their corporations. The corporations will be under a stricter amount of scrutiny than before the creation of the task force. Additionally, the vast make up of the membership of the task force (which along with the previous mentioned departments also includes members of seemingly unrelated groups such as the Department of Education and the United States Postal Service) may put corporations under the watchful eyes of individuals who may not have otherwise been monitoring the company.
---Concerns Over Pay Czar Kenneth Feinberg---
Many Wall Street executives are upset about potential actions by Kenneth Feinberg. Feinberg is the special master for executive compensation appointed by the Obama administration. Feinberg has ordered a pay cut of around 50% for top executives at the corporations who received funding under the bailout last year. In response to this, Robert Benmosche, the CEO of AIG has threatened to resign his position. This has sparked fears that many of the top performing executives in these companies will leave due to the new policies. The companies involved are claiming that if they are unable to offer competitive pay packages, they will be unable to attract the top performing executives, thus not allowing them to repay the bailout money they have accepted. Feinberg has stated that if such a mass exit does occur, he may have to restructure the restrictions. However, he was clear that he is not currently altering the guidelines and does not anticipate such a happening to occur. What this means to the corporate director is that he or she may need to become innovative in their approach to attracting the most qualified executives.
---When Operating Overseas, it may be Advisable to Create a “Red Flag” List---
A recent posting written by Ms. Sharie Brown, the Chair of the FCPA and Corporate Compliance, advocated writing down potential red flags to ensure that companies are not in violations of applicable laws. This is especially important when dealing with overseas operations due to the many different regulations changing and being created in the different jurisdictions. US regulations to consider include the Foreign Corrupt Practices Act, the US Trade Sanctions/Exports Controls, the USA Patriot Act and the US Anti-boycott Regulations. By creating such a list and referring to it frequently, a director can ensure that the company is in compliance with the regulations. The red flag lists should include information such as familiar relationships between employees and government officials, and unrecorded accounts and transactions.
---SEC Actions Against J.P. Morgan in Jefferson County, AL---
A recent settlement between J.P. Morgan Securities and the SEC includes a penalty of $25 million, a payment of $50 million to Jefferson County, AL, and a forfeiture of $647 million in fees owed to J.P. Morgan. The claims against J.P. Morgan allege that two former managing directors made payments to friends of Jefferson County commissioners totaling to over $8 million. Subsequently, J.P. Morgan was selected to underwrite bond offerings and perform other services for the county, thus acquiring fees. The two managing directors involved, Charles LeCroy and Douglas MacFaddin have been charged for their involvement in the manner.
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