Today, the Kitchen reviews a DOJ prosecution of a Chinese national responsible for illegal military items exports to the PRC.
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David Simon Starts His Journey
Tune in every quarter to learn how David Simon, a 53-year-old lawyer from the US, navigates the ancient world of Oxford University in pursuit of an MBA. David is a Partner at the white shoe law firm Foley and Lardner, who has dedicated his career to white collar compliance with a heavy international focus. “My practice touches a lot on some of the sanctions and international trade issues that typically come up on international matters,” he says. In A Yank in Oxford, David and host Tom Fox will talk about what inspired his decision to pursue an Executive MBA, and his hopes for where the journey may lead.
The Concilium Network
Tom asks David to talk about his work as cofounder of the Concilium Network, in particular concerning his practice in India. David responds that Concilium is a tight network of law practitioners from around the world with similar expertise in white collar compliance. They collaborate to handle matters for their clients, and he believes that they are “the best lawyers in this space in the world.” He shares that an Indian colleague and friend co-founded Concilium with him. “We’ve worked together … where we’ve had US clients with matters that have come up in their India subsidiaries, and we’ve gone over to help investigate and remediate the problem and sometimes deal with regulators on their behalf.” Recently, they have started helping Indian companies do business in the US.
Why Oxford?
David has dreamed of studying in the UK since his Pegasus scholarship days at Cambridge. It’s a seed that took 27 years to sprout: he will be joining the Executive MBA program at the University of Oxford Saïd Business School this fall. Tom asks him why this particular program and why now. He responds that he was only interested in programs with a global focus, and Oxford offered the best. “I really wanted to be exposed to the global market, the global economy, global business leaders,” he remarks. “…One of the things I really liked about the Oxford program [was that] it was a really meaty substantial program.” He also appreciates that the program is centrally based rather than itinerant, and that Oxford makes an effort to make students feel part of the university.
Goals
Oxford’s Executive MBA program focuses on globalism, entrepreneurship and innovation, and public policy at its core, David tells Tom. These themes resonate with him and are relevant to his personal and professional goals. He shares that he defines success as more than just academic. Ultimately, it’s about the relationships you build. Meeting and bonding with the global community of accomplished persons who make up his cohort, is his number one priority. Tom comments on his decision to continue his law practice full time while he is studying. “How do you hope this academic experience will impact your legal services and perhaps even the firm’s?” Tom asks. It will take a lot of teamwork, but they’ll make it happen, David responds. He sees it as an opportunity to broaden his network, and help business and political leaders achieve their goals. He enjoys being a strategic advisor to his clients, but thinks he needs to expand his knowledge base to be able to speak their language to serve them better. Tom asks him what he is looking forward to the most. He replies, “I love the idea of meeting new people, having an opportunity to do something that’s fairly intense and fairly important and meaningful together and particularly at this stage of life…I’m also most excited about just pushing myself out of my comfort zone.”
Resources
David Simon on LinkedIn | Twitter
Jay returns from his travels to report on the 1st compliance conference since 2019. He and Tom unpack some of the stories that caught their collective eye on the Heading to October edition.
Stories
1. ESG and Compliance. Mike Volkov on the ‘G’ in ESG. Tom has a 5-part series on why compliance should lead the ESG effort in the FCPA Compliance and Ethics Blog.
2. Asking more of your auditors. Neil Hodge in Compliance Week (sub req’d)
3. ISO weighs in on good governance standards. Dylan Tokar in the WSJ Risk and Compliance Journal.
4. Regulating the wild west of crypto. Henry Kronk in CCI.
5. Which Mozambique countenance or prosecute its President’s corruption? Rick Messick in GAB.
6. Making the most from your risk assessment? Jeff Kaplan in the FCPA Blog.
7. What is a criminal COI? Sara Kropf in Grand Jury Target.
8. Revisiting whistleblower procedures. Wachtel Lipton lawyers in Harvard Law School Forum on Corporate Governance.
9. The SEC investigation into Activision. Professor Stephen Bainbridge in his blog.
10. Jay’s reflections on the first compliance conference since 2019.
Podcasts and Events
11. CCI surveying stress in compliance. Henry Kronk in CCI. Take the survey here
12. Check out the latest addition to the Compliance Podcast Network, A Yank at Oxford. It details the journey of Foley & Lardner partner David Simon as he heads back to university to matriculate for a MBA at Oxford.
13. Are you exasperated? Then check out the latest offering from the Compliance Podcast Network, F*ing Argentina. In this podcast series co-hosts Tom Fox and Gregg Greenberg, author of F* Argentina explore the current American psyche of being overworked, over leveraged, overtired and overwhelmed. Find out about modern America’s exasperation with well…exasperation. In Episode 1, the dreaded Parent Meeting night at your child’s elementary school. In Episode 2, why F*ing Argentina?
14. Jay spreads his wings by hosting his first podcast. He interviews Lisa Beth Lentini Walker and Stef Tschida about their new book, Raise Your Game, Not Your Voice, on this episode of Integrity Through Compliance.
15. K2 Integrity is partnering with the DIFC Academy for a webinar, “Virtual Assets and FATF Guidelines—A Risk-Based Approach for Financial Institutions,” on September 28, 2021. Registration and Information here.
16. Join Jay, Tom and the top E&C professionals at Converge21, a virtual conference on October 12 & 13. Registration and information here. Here some of the panelists discuss their presentation on the Converge21 podcasts. Wendy Badger and Philip Winterburn.
17. Ethisphere’s World Most Ethical Company awards for 2022 are open for submission. For more information on the Application Process, click here.
18. Breaking News features The Compliance Handbook, 2nd edition. Check out the Breaking News feature here. Purchase The Compliance Handbook, 2nd edition here.
Tom Fox is the Voice of Compliance and can be reached at tfox@tfoxlaw.com. Jay Rosen is Mr. Monitor and can be reached at jrosen@affiliatedmonitors.com.
CONVERGE is in its 6th year of bringing together the world’s leading companies for 2 days of dynamic speakers, thought-provoking breakout sessions, and opportunities to connect with like-minded professionals. This year the conference has gone virtual. You will leave the conference with new resources and best practices allowing you to continue the hard work of driving ethics to the center of your business. In today’s episode I visit with Philip Winterburn. We visit about his presentation at Converge21 on Digital Ethics: AI, Privacy and More.
A successful whistleblowing program doesn’t start with installing a helpline–it starts with fostering an environment that protects whistleblowers, makes them feel supported, and makes clear the value they bring to the business. So how do you build that “speak-up culture?” Join this session to hear from a panel of practitioners who manage whistleblowing programs and whistleblower advocates who’ll share their insights, experiences, and challenges they’ve faced.
For more information and , go to Converge21.
We conclude our five-part series on ESG and Compliance by looking at the final prong in the StoneTurn ESG Framework, that of Response and Enhancement. Many compliance professionals would see this as similar to continuous improvement and you would not be far off. However, it is even more important in ESG because of the dynamic nature of ESG. As Harvard Business School Professor George Serafeim stated in his Harvard Business Review (HBR) article, entitled Social Impact Efforts That Create Real Value, “It seems clear that companies will be under growing pressure to improve their performance on ESG dimensions in the future.” This pressure will continue as a company achieves one set of goals and then moves towards the next set of goals.
This is because, as we have seen from the compliance realm, an ESG program is not simply a ‘check-the-box’ exercise that Serafeim terms “window dressing”. It can include such activities as “improving ESG disclosures, releasing a sustainability report, or holding a sustainability-focused investor relations event.” Just like compliance, and properly seen, ESG “must look to more-fundamental drivers—particularly strategy—to achieve real results and be rewarded for them.” The key way to achieve real results and move them forward is through ESG program responses and enhancements. Once again, similar to compliance, “most companies have been treating ESG efforts like a cell phone case—something added for protection (in this case, protection of the firm’s reputation). Corporate leaders need to replace this mentality with an ambitious and differentiated ESG strategy if they want to see real financial dividends.”
As far back as 2012, Jennifer Hermes, writing in an Environment + Energy Leader article entitled Perspectives on Continuous Improvement in Corporate Sustainability, noted, “It starts with a mindset of continuous improvement. You can’t manage what you don’t measure. Developing defined, realistic benchmarks and strategies – whether to reduce carbon emissions, conserve water, reduce waste to landfills or other eco-conscious pursuits – rallies the workforce and prevents agenda tinkering at the top. Organizations that take consistent steps over time to reach specific sustainability goals often experience long-term operational savings. When everyone is aware of common goals, it also helps to accelerate a deeper understanding of how the complete supply chain contributes to overall environmental sustainability performance.” Hermes concluded, “When you grow a business sustainably, you don’t see a finish line. With every achievement, you learn new ways to continuously improve your environmental performance.” Once again, even if business leaders see compliance as simply reactive and legally based, every compliance professional knows that the only way to maintain an effective compliance program is through continuous improvement. (As does the Department of Justice (DOJ).)
In their article The Seven Deadly Sins of ESG Management Kosmas Papadopoulos and Rodolfo Araujo said, “Companies should avoid a static approach that may focus on adhering to minimum regulatory requirements.” This is because it can become a source of innovation and industry collaboration, through continuous improvement. In Part 3 of this series, I discussed that effective implementation of an ESG program requires regular monitoring using KPIs. This systematic approach to ESG using a compliance perspective is one of the key reasons compliance is the most well-suited corporate function to lead an organization’s ESG efforts.
Jim Deloach, writing in a Forbes.com piece entitled 12 Ways To Drive Better ESG Reporting, added additional reasons for continuous monitoring, all designed to improve your overall ESG program. If you focus solely on past performance and accomplishments, it will present a limited perspective and indeed may well hinder your overall ESG efforts. Deloach recommends “A balanced view that considers future goals and commitments aligned with the strategy presents a fuller picture for investors.” You should strive to align ESG reporting with the company’s financial reporting calendar so that all stakeholders can focus on both financial and ESG performance. “Aligning the two may become more important to facilitate a complete and timely evaluation of the company’s prospects by investors.” This is because the “underlying ESG-related activities drive investments, generate returns, create new sources of revenue, reduce operating costs and enable strategies.”
All of these authors make clear that responses and enhancement of an ESG program are directly aligned to the compliance requirement of continuous improvement. In the 2020 Update to the Evaluation of Corporate Compliance Programs, it stated, “One hallmark of an effective compliance program is its capacity to improve and evolve.” Substitute ESG for compliance and the connection becomes clear.
What should you do with this information generated by your ESG program? Have a strategic plan in place ready to implement your findings of continuous improvement, by using the following:
Review the goals of your ESG strategic plan. This requires that you arrange a time for to review the goals of the Strategic Plan, to determine how this goal in the Plan measures up to ESG implementation in your company.
Design an execution plan. The “Keep it Simple Sir” or KISS method is the best to move forward. This would suggest that for each ESG goal, there should be a simple and straight forward plan to ensure that the goal in question is being addressed.
Put accountabilities in place. In any plan of execution, there must be accountabilities attached to them. This requires mandating a reporting requirement on how the task assigned is being achieved.
Schedule the next review of the plan. There should be a regular review of the process. It allows any problems which may arise to be detected and corrected more quickly than if meetings are held at a less frequent basis.
I hope over this series you have seen not only how but why a Chief Compliance Officer (CCO) or corporate compliance function is the most well-suited in an organization to lead an ESG effort. Quite simply, the process for design, creation, implementation and running of an ESG program is virtually similar to that of a compliance program. The goals of ESG are very similar to the requirement of a CCO and compliance function to be the champions of institutional justice and institutional fairness in an organization. Good government is embedded into compliance as well. There is no conflict of interest in compliance leading this effort as there are multiple levels of oversight, monitoring and verification. Of course, both internal and external audit are there as well with their additional set of eyes.
If you have not done so please check out my podcast, The ESG Report on the Compliance Podcast Network where I explore an ESG issue from the compliance perspective each Monday.
In this episode, the Kitchen looks at a recent SEC charge of 8 firms in 3 actions with deficient cybersecurity procedures.
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ESG and Compliance – Reporting
We next consider ESG reporting. This may, at first blush appear to be something outside the orbit of the compliance profession, however, upon closer examination, it is precisely what compliance professionals engage in. This is because of my well-known mantra Document, Document, and Document. One of the key reasons to document your compliance regime is that if a regulator ever comes knocking you can show the results to them, in other words, reporting.
One of the current problems around reporting is there is no one worldwide or even US standard. Cueto and Lewis note there are or will be standards from the EU, initiatived by the five widely adopted standard setters, namely SASB, IIRC, GRI, CDP, and CDSB, here referred to as the G-five, World Economic Forum and IFRS. Nasdaq, while not setting mandatory standards said, “Our thinking in this area has been driven by a foundational document, The Model Guidance on Reporting ESG Information to Investors, originally published in 2015 by the UN Sustainable Stock Exchanges Initiative.”
Based on all of these variation, Schneider Electric said, in The Future of ESG Reporting, “As a consequence, different frameworks, standards, ratings and indexes with international recognition have started to guide ESG reporting, and ever since, they have not stopped evolving. These four instruments are complementary and can work in and alongside each other.
- Standards are metrics based on processes that provide specific rules for ESG measurement and disclosure. ESG Standards will dictate what companies must report.
- Frameworks are high-level guidelines that provide principles and guidance for how information should be disclosed.
- Rating agencies develop surveys and methodologies to gather ESG data from different companies.
- Indexes compile data into a single and they represent a particular market or strategy. Indexes allow investors to track the performance of a company concerning their ESG reports.”
Clearly compliance needs to be abreast of many factors when it comes to ESG reporting. Oliver Rowe, writing in Financial Management, cited to Robert Hirth, co-vice-chair of the Sustainability Accounting Standards Board (SASB), who when speaking at the annual AICPA & CIMA CFO Conference, said, “demands from investors, communities, employees, customers, and in some cases suppliers has meant corporate reporting had now permanently expanded to include environmental, social, and governance information.” Hirth added, “ESG matters because companies with good ESG practices have a lower cost of capital, better operational performance, and better share price performance. ESG performance is part of that competition for capital. Companies that take ESG seriously benefit from greater attraction and retention of employees. At some point, every publicly listed organization will more than likely report some form of ESG information.”
Rowe also cited to Martin Farrar, associate technical director–Management Accounting at the Association of International Certified Professional Accountants, for the following, “It’s complicated. All reporting frameworks use different terminology. [They are] not integrated at the moment, [and] measures vary.” Rowe then provided a framework from Hirth and Farrar that a compliance professional could use to think through ESG reporting. It included the following features:
- Understand what your company is already doing on sustainability. This includes monitoring, KPIs and reporting of ESG at your organization.
- Evaluate how the different sustainability standards would apply to your company. Under this point, you should consider what ESG areas you are currently practicing but not calling it ESG. Diversity in hiring, fuel and energy efficiencies, Board diversity and rotation. Institutional justice and institutional fairness. Good corporate governance. These can all be a part of your ESG reporting.
- Look at reporting done by peer companies. Benchmark, Benchmark, and Benchmark.
- Carry out an assessment of stakeholder ESG behaviors. Understand who is driving your ESG journey. There are a wide variety of stakeholders in the ESG journey. It could be shareholders and investors, employees, customers, localities where you do business or even third-party suppliers.
- Build your ESG literacy. Here Rowe pointed to Farrar, who said, “This can also be done by having interdisciplinary conversations outside your organization, including with climate change and biodiversity experts. What are your supply chain companies doing? What’s your sector or industry doing?”
- Don’t regard sustainability as a cost. Much as compliance is not and should not be seen simply as a cost, here Rowe cited to Hirth, who said, “companies should not look at ESG factors as a cost but as a way to focus on some factors that make you a better company, that reduce risk, that [make] you more attractive to customers, to employees, a better supply chain.”
Another approach to begin thinking through your reporting was suggested in a yahoo! article, entitled 6 ESG Questions, which stated, “ESG reports disclose non-financial data that hold companies accountable for issues of ethical concern. Specifically, these reports demonstrate the efforts that organisations make to reduce energy emissions, combat climate change, increase efficiency of waste management, improve employee health and well-being, support diversity, equality and inclusion (DEI), impact the wider community, ensure fair executive pay, on top of other concerns.”
The bottom line is that much of the work done by compliance can be used as a basis from your ESG reporting. From third party risk management reporting to supply chain to gift, travel and entertainment (GTE) these ratings are similar to other risk or performance benchmarking. With all the different standards, there is a wide range of choice as to exact scoring methodologies and frameworks governing ESG reporting, some best practices have emerged:
- Verifiable ESG reporting should follow a specified set of mandatory and voluntary requirements. This allows stakeholders to compare performance and make meaningful decisions.
- Transparency is critical to the process in which some companies emerge as sustainability leaders, others as laggards. As well as this, transparent reporting enables stakeholders to gain a clear picture of a company’s direction and progression.
- For example, a company might not be carbon neutral today but maybe making significant efforts towards this goal. Stakeholders need visibility on the progress, as well as the goals.
Ethixbase has noted that ESG “reporting begins with engrained sustainable business practice. If a company has adopted a resolute attitude towards ESG, this should shine through in performance. As ever, action rings louder than words.” They suggest some ways to improve your ESG reporting.
- Choose the right disclosure framework for your organization and stick to it. This will ensure that your company is taking steps that are recognized as being key to your company’s performance.
- Report on the processes involved, as well as any remediation action, is taken to improve your operations. Methodologies are important to making sound and accurate ESG judgements and careful consideration of these factors lead to better results.
- Integrate ESG data and mindset into everyday business operations. Small actions add up to big changes and can yield demonstrable improvements in performance. As well as this, an ESG mindset enables your organization to create a platform for further activity both internally and in your supply chain.
- Visualize the process of determining your ESG outlook. Analytics and data visualization can help your organisation identify which areas of your business need improvements on ESG topics.
A cornerstone of your ESG program is reporting. But it must be done so with accuracy and with all data verified. The SEC has made clear that unverified claims will not be taken lightly. Moreover, in the court of public opinion severe reputational damage will only be amplified by social media. All of these concerns will be very familiar to the compliance professional. Join me tomorrow where I end this short series on an ESG framework with a discussion of response and enhancement.
Welcome to newest edition to the Compliance Podcast Network: Greetings and Felicitations, a podcast where Tom Fox visits with a wide variety of guests on a wide variety of topics. In today’s inaugural episode I visit with Compliance Podcast Network fan favorite Dr. Ben Locwin. We take a deep dive into where we are into where we are with the Delta Variant, immunization, health care economics and delivery of health care services.