The American Bar Association is mulling new standards for corporate monitors that could make the monitorship process a lot easier, cheaper, and transparent for compliance officers.
The draft standards, which are still in the discussion phase and have not been publicly released, would offer clarity on several issues about monitorships that have long perplexed companies, monitors, and government agencies alike. Among the standards discussed: how to ensure integrity in the monitor selection process, responsibilities of a monitor, how to estimate monitor compensation and fees accurately, and ways to resolve disputes.
The push to create the standards started to take shape in 2012, when the ABA’s Criminal Justice Standards Committee created a task force to start the dialogue. “We tried to conceive every possible issue that could arise,” says John Hanson, founder of consulting firm Artifice Forensic Financial Services and a task force member.
The task force had roughly 15 members, including government prosecutors, corporate counsel, judges, and monitors. “All of them were very familiar with either hiring monitors, being a monitor, or overseeing monitors,” says Ronald Goldstock, task force chair and a private-sector inspector general. “Virtually every single standard was the result of consensus.”
The task force already has submitted to the ABA’s Criminal Justice Section the so-called “black letter” standards, and they now go through two separate readings for further review and refinement. With the first reading complete, the second reading will take place on April 25 before being submitted to the ABA House of Delegates in July. If passed, then they become policy.
“That’s the first step,” Goldstock says. The standards then will be supplemented with written commentary sometime early next year, he says.
“The standards go a long way toward facilitating a better relationship between the monitor and the company.”
John Hanson, Founder, Artifice Forensic Financial Services
For companies that have never worked with a monitor before, “the standards go a long way toward facilitating a better relationship between the monitor and the company,” Hanson says. When a monitor first comes onto the scene, the company has no sense of “how much disruption you’re going to cause and how much money you’re going to cost them,” he says. By addressing these concerns, the standards will help establish a framework for what role a monitor should play.
For the monitors themselves, the standards in their final form will be a welcome blueprint for the profession at large. Hanson, who has served four different monitorships, recalls numerous times encountering issues that he had no idea how to resolve. “There was nowhere to go to find out,” he says.
In many cases, compliance monitors simply have to wing it. “Even after doing four of them, I’m still learning,” Hanson says. “Every time I get a new one, I bring experience from the last that will guide me to do a better job, but new issues always arise.”
“Although these standards were promulgated by the ABA, we believe they should have broad application beyond just monitors who are also attorneys,” says Preston Pugh, a partner with law firm Pugh, Jones & Johnson, who also sits on the task force. “It’s a way to normalize the activities of monitors regardless of their professional background.”
Not all settlement agreements allow companies to choose their compliance monitor—but if you can, then hiring the right person is essential. “You need to look for an expert in corporate compliance and ethics first and foremost, because that is the foundation of all settlement agreements across the board,” Hanson says.
For companies that are assigned a court-appointed monitor, the standards will lay out certain qualifications to consider, for example, when reviewing monitor candidates. Such qualifications to consider may include the integrity, credibility, and professionalism of the monitor; the level of experience in the particular industry or subject area at hand; and the relevant skills and experience necessary to carry out the monitor’s duties, just to name a few.
Goldstock says the ABA also is considering whose responsibility it should be to choose a monitor: “Should a monitor be appointed by a court, an agency, or a prosecutor, or should there be a pre-qualified pool of monitors from which the host organization has a choice? Should the host organization have a role in determining who the monitor should be?”
The standards also will explore the monitor’s obligations for creating a work plan at the outset of a monitorship and further suggest that the work plan be developed in consultation with the host company and government agency. “There needs to be more transparency from the beginning through the end stages,” Hanson says.
About Criminal Justice Standards
Below the ABA gives a brief summary of the Criminal Justice Standards.
For forty years, the ABA Criminal Justice Standards have guided policymakers and practitioners working in the criminal justice arena. When the initial volumes were issued in 1968, Chief Justice Warren Burger described the Standards project as “the single most comprehensive and probably the most monumental undertaking in the field of criminal justice ever attempted by the American legal profession in our national history.” In the years since, several new volumes have been added to the original seventeen-volume First Edition, a Second Edition has been completed, and a Third Edition is well underway.
Initial responsibility for ensuring the Standards continue to be relevant, timely, and of the highest quality resides in the nine-member Standards Committee appointed by the ABA President upon recommendations submitted by the Chair of the Criminal Justice Section. The Standards Committee determines the priorities for updating or revising existing volumes and for developing or expanding volumes to address issues not already covered. It commissions and provides oversight to Task Forces in developing specific recommendations, and ensures thorough review by both ABA and non-ABA entities. It reviews, revises, and approves draft standards to be forwarded to the Criminal Justice Section Council and, ultimately, to the policymaking ABA House of Delegates. Following approval by the House, it oversees the preparation of and approves commentary to accompany the “black letter” standards and, finally, it ensures publication of the new volumes.
Source: The American Bar Association.
“From a work plan, you can establish a budget,” Hanson adds. That then allows both the company and the monitor to assess more clearly the time and resource needed to carry out the requirements spelled out in the agreement. It also gives the company a better sense of whether the monitor is doing enough, or too much, based upon the framework of the work plan.
“Companies have a right to tell the monitor, ‘I want to see exactly what you’re doing, how you’re doing it. Here are your objectives. Show me how you’re going to meet them. We’re going to do it not just effectively, but as efficiently as possible,’” he says.
Compensation & Fees
Companies also have a right to transparent practices concerning monitor compensation and fees. The discussion draft suggests that, during the monitor selection and approval process, the monitor should provide a reasonable estimation of fees and expenses that are expected to be incurred to achieve the objectives of the agreement.
From a consulting perspective, a lot of people may view companies that are in hot water with the government as a rich source of fees, Hanson says. “They have no control over what you do. They have to pay you, and you don’t even report to them. You can do whatever you want.”
Sub-contracting fees are another “big problem area,” Hanson says. Some monitors, for example, will charge a flat annual fee—say, $100,000 a year—but fail to mention that the sub-contractors they intend to use come at a cost of another $2 million a year.
Aside from the monitor’s work plan, a host company should get a good sense of how much a third-party sub-contractor will be used; what its work plans look like; and what their fees and costs will be.
In addition to establishing standards for corporate monitors, the task force went one step further by recommending that the government evaluate the monitor’s effectiveness at the end of a monitorship, Hanson says. The idea is to use the results of the analysis to determine whether to consider that monitor again for future assignments and to help government agencies improve the process when designing future monitorships, he says.
“That’s easier said than done,” Hanson adds. A lot of government agencies, particularly the smaller ones, wash their hands of a settlement agreement once it has concluded, he says.
That is not how most people believe corporate monitorships should be done. “You’re not just there to do something, go away, and it all goes back to crap,” Hanson concludes. “You’re there to help the company make a big change, so that they can stay out of trouble in the future and be a better organization.”