Two tales from the front lines…
First, as you can see from our lead story this week, I recently co-hosted another Compliance Week editorial roundtable—this time in Houston, with Deloitte, to explore how the Dodd-Frank Act is affecting the oil and gas industry.
As usual, we opened our conversation by going around the room and asking attendees what worries them most about Dodd-Frank. And as usual, the single greatest fear most people had was—wait for it—the new whistleblower bounty program coming from the Securities and Exchange Commission later this spring. Nothing new there, I thought to myself; compliance officers in every industry have been complaining to me about the Dodd-Frank Act's expanded whistleblower program for months.
But one roundtable participant identified why the whistleblower program is such a threat to the oil and gas industry specifically. The sector has a long history of bribing foreign officials, he said, and subsequent enforcement under the Foreign Corrupt Practices Act. Those FCPA enforcement actions lead to settlements with monetary fines that are gigantic. Therefore, oil and gas workers have an enormous temptation to run directly to the SEC with reports of foreign bribery, rather than alerting the corporate compliance officer.
On its face that observation seems rather self-evident, but ponder the logic behind it. By creating a new avenue for employees to raise the alarm on corruption, the Dodd-Frank Act has increased your exposure to FCPA enforcement—not because more bribes are happening, but rather because regulators can more easily discover corruption at your company that you don't know about. In other words, your corruption risk is higher, without any actual increase in corruption itself.
Second short story: I recently was talking with a friend of mine, a promising young assistant counsel at a publicly traded company in Chicago. His company (like many others) has engaged in a restructuring frenzy over the last several years, essentially removing all middle management even while expanding to 1,500 people. The result? A tiny senior staff managing legions of rank-and-file employees.
One day a consultant visited the company. The general counsel gathered my friend and a few other employees to meet with the consultant, who started by asking the obvious question: What are the key risks facing your company right now? Our assistant general counsel gave the very reasonable response, “I worry that we might lose our key employees now that the economy is recovering. They have nowhere to advance here any more.”
Well the general counsel, who had helped implement the restructuring, didn't like that answer at all. She glared at my friend for a moment and then the conversation moved on to a system for managing vendor contracts and similar concerns.
Last week my friend the assistant counsel interviewed for a job in the legal department of another local company. He's likely to get it—and then the general counsel can dwell on a system for managing vendors all she wants, since nobody else in the legal department will know how to do it. In other words, a plan to shed employees the company didn't want actually increased its risk that it wouldn't be able to keep the employees it did want.
Unintended consequences, folks. They're out there.