ISO 37001 – The Potential Impact of the New International Anti-Bribery Management System Standard

The International Organization for Standardization (“ISO”) recently published ISO 37001, the first international anti-bribery management system standard.  ISO, a Swiss-based international organization, is well known for issuing widely-used business process standards such as the ISO 9000 “family” of quality management system standards, one of the most widely used management tools in the world today.  ISO received input from working groups representing over 20 countries in devising the new standard, which does not focus on the legal requirements of any single nation’s anti-corruption laws but rather allows a flexible approach to implementation that can fit the specific laws to which an organization is subject.  As set forth in the standard’s introduction, ISO 37001 “reflects international good practice and can be used in all jurisdictions.  It is applicable to small, medium and large organizations in all sectors, including public, private and not-for-profit sectors.”  Despite its purported applicability to organizations of all types and sizes, ISO 37001 is not a one-size-fits-all compliance plan and requires organizations – consistent with accepted anti-corruption compliance practices – to perform an assessment of bribery risks and then to design and implement a compliance system that is “reasonable and appropriate” to the risks identified by the assessment. Because ISO 37001 purports to draw upon existing anti-corruption guidance, much of what is contained in it will be familiar to those experienced in anti-bribery compliance.  Among other things, ISO 37001 contains the following familiar requirements: Written anti-bribery compliance policy and procedures; Commitment and support from top management; Risk-based due diligence and assessment of bribery risk relating to business associates; An independent compliance manager; Anti-corruption training; and Reporting, monitoring, and...

Using Electronic Signatures

Over the last decade, electronic signatures have become ubiquitous.  As a society, we have become accustomed to the ease and convenience of clicking the “I Accept” button when a cell phone company updates its terms and conditions, typing our name into the signature block of an insurance contract or using a software program like DocuSign or Adobe Sign (formerly EchoSign) to sign an apartment lease. The proliferation of electronic signature practices has also impacted corporate law, and many companies now use software programs to execute corporate documents.  Every once in a while, the question is posed as to whether an electronic signature affects the enforceability of a document.  This article helps answer that question and offers issues for parties to consider before using electronic signatures. What is an Electronic Signature? The terms “digital signature” and “electronic signature” are often used interchangeably. Although a digital signature contains an electronic signature, they are not the same thing. An electronic signature can be accomplished with a click of the mouse or using a finger to trace a handwritten signature onto a document. A digital signature, on the other hand, contains encryption/decryption technology that contains a secure code linking the document with the identity of the signatory and helps to verify the authenticity of the signed record. The link is then permanently embedded into the document, allowing the user to see if someone has attempted to tamper with the signature. Electronic signatures, which do not have this secure coding, are essentially an image placed on a document of a signature. Therefore, it is important to clarify the type of security (or lack thereof)...

Focus on Incentive Pay Practices: A Message from the Regulators

Incentive pay is an important part of compensation packages.  It allows employers to reward those employees who perform well (and show those employees who do not that under-performing will have negative consequences).  It is a well known fact that incentive pay drives behavior.  But what the 2008 financial meltdown may have shown is that poorly calibrated incentives may generate counter-productive, if not dangerous, behaviors.  Therefore, all employers should carefully design and document their incentive pay programs to make sure their interests are well protected, and incentive pay is awarded only when appropriate. This is very clearly the opinion of six agencies that oversee financial institutions, and that have come to the conclusion that the 2008 crisis was caused, at least in part, by dangerous pay practices.  The Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency (FHFA), the National Credit Union Association (NCUA), the Board of Directors of the Federal Reserve System (the Federal Reserve) and the Securities and Exchange Commission (SEC) recently released proposed regulations that set forth detailed requirements applicable to incentive compensation programs adopted and maintained by financial institutions. While these requirements would only apply to covered financial institutions, we believe that they should at least be taken into account by all employers (particularly, publicly held companies), as this new set of rules and principles may very well become “best practices” beyond the financial services industry.  Here are some key aspects of the proposed regulations that may give employers some guidance in the design and implementation on their incentive pay programs. Identifying Risk-Takers While the proposed...

Regulation S-K Overhaul Moves One Step Closer

As mandated by the JOBS Act, the SEC has been reassessing its disclosure rules in an attempt to modernize and overhaul Regulation S-K.   In April, the SEC took the major step of publishing a concept release seeking the public’s view on potential changes it is considering. The concept release focuses on areas that are generally consistent with the SEC’s prior comments and reports (see this Doug’s Note), and validates that this initiative remains underway. Ultimately, the SEC aims to eliminate or amend any Reg. S-K disclosure requirements that are duplicative, overlapping, outdated or superseded. The concept release seeks comments from both investors and companies on: how certain disclosures are used in making investment and voting decisions and whether more, less or different information is needed; how it could revise its current requirements to enhance the information provided to investors; whether its current requirements appropriately balance costs and benefits of disclosure; how it could facilitate investors’ access to disclosure through the modernization of presentation, aggregation and dissemination methods; and the challenges of current SEC disclosure requirements and potential challenges that may result from possible changes to Reg. S-K requirements. The breadth of this undertaking is reminiscent of the SEC’s famous Aircraft Carrier Release from 1998, so named due to its massive size (nearly 600 pages) and the sweeping nature of its proposed amendments to Securities Act and Exchange Act rules and regulations. While that effort was substantially different from this current effort due to its focus on modernizing and clarifying an antiquated regulatory structure while improving investor protection, it is worth remembering that it ultimately collapsed under its own weight....

FASB Improves Employee Share-Based Payment Accounting

As part of an ongoing Simplification Initiative, the Financial Accounting Standards Board (the “Board”) recently issued an Update to Accounting Standards Codification (ASC) Topic 718, which deals with stock-based compensation.  The update is meant to reduce cost and complexity while maintaining or improving the usefulness of the information provided in financial statements.  The areas for simplification include the income tax consequences of stock compensation, the classification of stock-based awards as either equity or liability, and the classification on the statement of cash flow.  The changes are summarized below. 1.    Accounting for Income Taxes Generally, for any stock-based award, a positive or negative difference between a tax deduction and the compensation cost that is recognized for financial reporting purposes results in an excess tax benefit or a tax deficiency, respectively.  Currently, excess tax benefits are recognized as paid-in capital when the tax deduction reduces the taxes that are payable, while tax deficiencies either are used as an offset to accumulated excess tax benefits or are recognized in the income statement.  The Board decided that all excess tax benefits and tax deficiencies should be recognized as income tax benefit or expense in the income statement, and should be treated as discrete items in the reporting period in which they occur.  The recognition of a tax benefit is no longer delayed until the benefit is actually realized through a reduction to taxes payable. This change certainly simplifies the accounting rules as it effectively eliminates the need to account for additional paid-in capital (APIC) pools, but some expressed concern that this may increase volatility in reported income tax expenses and effective tax rates. ...

Avoiding the “Al Capone” version of an FCPA enforcement action—Are your internal controls in order?

Notorious gangster Al Capone likely was guilty of numerous crimes, including bootlegging, maintaining a house of prostitution, bribery, racketeering and multiple counts of murder.  Yet he was never convicted of those crimes.  He ultimately was convicted of tax evasion and contempt of court in 1930.  Although federal prosecutors were unable to obtain the evidence necessary to convict him for his more well-known crimes, by addressing his failure to maintain accurate books and records (in this case, his tax filings) they were able to send him to jail for 11 years, including a lengthy stint at the notorious Alcatraz Federal Penitentiary. The United States Government, through the Securities Exchange Commission (“SEC”) or the Department of Justice (“DOJ”), sometimes employs a similar tactic when prosecuting persons engaged in foreign bribery as well as in other violations of federal law.  The most well-known section of the Foreign Corrupt Practices Act (“FCPA”) is the bribery provisions, the primary U.S. law used to prosecute the bribery of foreign government officials.  15 U.S.C. § 78dd-1 et seq.  The bribery provisions prohibit offering to give anything of value to a foreign official with the corrupt intent of gaining an improper business advantage.  Lesser known is the FCPA’s requirement that issuers keep accurate books and records and maintain and devise a system of internal accounting controls.  15 U.S.C. § 78m(b)(2).  These requirements are known as the “accounting provisions” and never mention the word “bribery.”  The accounting provisions only apply to “issuers,” which are generally thought of as those companies listed on U.S. stock exchanges (including their non-U.S. operations and majority-owned subsidiaries).  Because foreign entities sometimes issue their...