INSIDE THE CORPORATE LEGAL DEPARTMENT: RESOLVING THE COMPETING ROLES OF LEGAL GUARDIAN, CORPORATE LEADERSHIP AND COMPANY CONSCIENCE

Transcription

1 INSIDE THE CORPORATE LEGAL DEPARTMENT: RESOLVING THE COMPETING ROLES OF LEGAL GUARDIAN, CORPORATE LEADERSHIP AND COMPANY CONSCIENCE B. Scott Burton, Partner, Eversheds Sutherland (US) LLP Sharon A. Cheever, SVP and General Counsel, Pacific Life Insurance Company Patrick C. Fraizer, EVP and General Counsel, Pan-American Life Insurance Group July 12, 2018 The Greenbrier White Sulphur Springs, VA AMERICAN COUNCIL OF LIFE INSURERS acli.com

2 Today s Discussion Issues Confronting Today s Legal Department A review of recent investigations and their commentary on the corporate legal function The evolution of the roles of the legal department and more specifically the General Counsel Hot-button issues for today s in-house function How to manage it all in the client s best interest AMERICAN COUNCIL OF LIFE INSURERS acli.com 2

3 Wells Fargo and Sales Practices The Wells Fargo Matter April 2017: Committee of Independent Directors release Sherman & Sterling Report detailing root causes of alleged improper sales practices at Wells Fargo Community Bank. The underlying allegations involved the opening of significant numbers of deposit accounts and credit card accounts without customer knowledge or consent. This investigation followed regulatory settlements announced in Fall of 2016 with CFPB, OCC and the City and County of Los Angeles. AMERICAN COUNCIL OF LIFE INSURERS acli.com 3

4 Wells Fargo and Sales Practices (cont.) The Wells Fargo Matter The Report concluded that the sales culture and performance management system, when combined with aggressive sales management created extreme pressure on employees to engage in improper sales practices. In particular, the Report concluded that the bank s internal legal department failed to prevent the scandal even though they d warned of risks before AMERICAN COUNCIL OF LIFE INSURERS acli.com 4

5 Wells Fargo and Sales Practices (cont.) The Wells Fargo Matter Wells Fargo lawyers were not unaware of the risks posed by the bank s aggressive sales goals. For example, as early as 2011, members of the bank s in-house legal team warned that sales pressure was a root cause of the frequent employment terminations for sales integrity issues. Attorneys in the Employment Section began to recognize the potential for significant reputational risk to Wells Fargo arising out of the sales integrity issue, particularly mass gaming cases. AMERICAN COUNCIL OF LIFE INSURERS acli.com 5

6 Wells Fargo and Sales Practices (cont.) The Wells Fargo Matter Despite this recognition, the perception persisted in the Law Department that the sales integrity issues involved gaming incentive programs and was not conduct that affected customers a serious underestimation of the issue. Despite attempts at warning management, that the practice carried high risks the risks were simply not put in the correct context it was viewed as an employment issue, not a consumer issue. AMERICAN COUNCIL OF LIFE INSURERS acli.com 6

7 Wells Fargo and Sales Practices (cont.) The Wells Fargo Matter Ultimately, the internal procedures failed to prevent the growth of the problem because of the transactional case-by-case approach to the issue. They simply could not see the forest for the trees. The Law Department, particularly at the senior levels did not discuss and did not fully consider the patterns of behavior and their ultimate consequences. Its practice of advising on discreet legal problems as they arose and managing specific litigation risks blinded the bank to the greater problems it faced. AMERICAN COUNCIL OF LIFE INSURERS acli.com 7

8 Wells Fargo and Sales Practices (cont.) The Wells Fargo Matter The focus was on specific employee complaints and/or individual lawsuits the Law Department s focus was principally on quantifiable monetary costs damages, fines, penalties, restitution. And, [c]onfident that those costs would be relatively modest, the Law Department did not appreciate [the resulting] systematic breakdown of Wells Fargo s culture and value and the ongoing failure to correct the widespread breaches of trust in the misuse of customers personal data and financial information. AMERICAN COUNCIL OF LIFE INSURERS acli.com 8

9 Wells Fargo and Sales Practices (cont.) The Wells Fargo Matter Recommendations included Centralizing Corporate Structure Centralizing an Independent Control Function Mandated Board/Senior Management Responsibility to Investigate Red Flags and Require More Detailed Reports Bolstering Ethics and Compliance Culture Greater Consideration of Systemic Causes Take a Broader Approach to Risk and Consumer Harm AMERICAN COUNCIL OF LIFE INSURERS acli.com 9

10 Wells Fargo and Sales Practices (cont.) The Wells Fargo Matter Legal Department Issues although not addressed in the Report, the matter raises the following ethical issues for in-house counsel: Duty of Competency (MRPC Rule 1.1) Keeping the Client Reasonably Informed (MRPC Rule 1.4) Organization as the Client (MRPC Rule 1.13) Duty of Supervision (MRPC Rule 5.1) AMERICAN COUNCIL OF LIFE INSURERS acli.com 10

11 Uber Technologies: Corporate Culture The Uber Technologies Matter In 2017, Uber Technologies was the subject of an alarming blog post by a former engineer, Susan Fowler, detailing allegations of harassment, discrimination and retaliation during her employment at Uber and the ineffectiveness of Uber s policies and procedures. Immediately, Uber hired the law firm of Covington & Burling to conduct a comprehensive review regarding the workplace environment at Uber. AMERICAN COUNCIL OF LIFE INSURERS acli.com 11

12 Uber Technologies: Corporate Culture (cont.) The Uber Technologies Matter The subsequent report, issued in June of 2017, made a number of recommendations for substantial restructuring to encourage fundamental changes in Uber s corporate culture. Although mentioned only a few times in the report (and such references were not particularly critical of the law department s performance), it is clear that the law department will play an integral part in addressing the report s recommendations. AMERICAN COUNCIL OF LIFE INSURERS acli.com 12

13 Uber Technologies: Corporate Culture (cont.) The Uber Technologies Matter The C & B Report had a substantial number of recommendations, most requiring significant legal resources for designing, drafting, implementing and monitoring of such programs, including: Use Performance Reviews to Hold Senior Leaders Accountable Increase Profile of Diversity and Inclusion Efforts Enhance Independence of the Board/Install an Independent Chairperson Create Oversight Committee Enhance Audit Committee/Internal Controls Compliance, Diversity and Leadership Training Establish Effective Complaint Process AMERICAN COUNCIL OF LIFE INSURERS acli.com 13

14 Uber Technologies: Corporate Culture (cont.) The Uber Technologies Matter The C & B Report had a substantial number of recommendations, most requiring significant legal resources for designing, drafting, implementing and monitoring of such programs, including: Although mentioned only a few times in the report (and such references were not particularly critical of the law department s performance), it is clear that the law department will play an integral part in addressing the report s recommendations. AMERICAN COUNCIL OF LIFE INSURERS acli.com 14

15 Uber Technologies: Corporate Culture (cont.) The Uber Technologies Matter Legal Department Impact The implementation of all of these recommendations will require the Uber Legal Department to step up their efforts and effectively become the epicenter of the new Uber (quoting Richard Levick of PR firm Levick). They will have to: Codify rules and procedures for working with HR (and other areas) and should be really clear about the hierarchy and who is in charge. Increase resources (particularly in employment law). The legal department and the new GC working under the chief legal officer can play an important role in the organizational challenge of focusing and coordinating the efforts of all of these new personnel, processes and committees... AMERICAN COUNCIL OF LIFE INSURERS acli.com 15

16 Uber Technologies: Corporate Culture (cont.) The Uber Technologies Matter Legal Department Impact The legal department and the new GC working under the chief legal officer can play an important role in the organizational challenge of focusing and coordinating the efforts of all of these new personnel, processes and committees that are going to come about as a result of the [C & B ] report AMERICAN COUNCIL OF LIFE INSURERS acli.com 16

17 Life Insurance Industry Corollaries Are there parallel issues in our industry Life Insurance and Annuity Sales Practices (and compensation systems) Enterprise Risk Management Diversity and Inclusion The Challenges of New Technologies Emphasizing In-House Ethics and Leadership AMERICAN COUNCIL OF LIFE INSURERS acli.com 17

18 In-House Lawyers Ethics Under Pressure?? 2016 Report from The Centre for Ethics and Law: 10% of in-house lawyers will avoid saying no to management even when there is no legally acceptable alternative to suggest 36% said that legal loopholes should be identified when they benefit the business 30% said that a focus on commercial awareness can inhibit them from performing their role as an in-house lawyer 7% had never discussed professional ethical issues with their colleagues AMERICAN COUNCIL OF LIFE INSURERS acli.com 18

19 In-House Lawyers Ethics Under Pressure?? (cont.) 2016 Report from The Centre for Ethics and Law: 7% had never discussed professional ethical issues with their colleagues or superiors, either formally or informally 10-15% of respondents told researchers that they were regularly or very frequently asked by their employers to provide legal advice on issues that made them uncomfortable. Survey suggests that respondents prioritize client interest more often than principles of integrity and effectiveness... independence and legality. AMERICAN COUNCIL OF LIFE INSURERS acli.com 19

20 The Roles of the Legal Department and the General Counsel What is our role? Legal Guardian/Gatekeeper? Close Friend to the Client? Conscience of the Company? Key Executive Leader? Some or All of the Above? AMERICAN COUNCIL OF LIFE INSURERS acli.com 20

21 The Roles of the Legal Department and the General Counsel (cont.) What Tools Do We Need What Should We Implement? Centralized versus Decentralized? Potential Competing Needs of the Business Units and the Client Lines of Communication Up the Ladder Process Who is the Ultimate Master (CEO, Board, other?) Degree of Independence Again, Who s in Charge? Compensation Systems Staying Relevant and Up to Date Legal and Human Ethical Core AMERICAN COUNCIL OF LIFE INSURERS acli.com 21

22 The Roles of the Legal Department and the General Counsel (cont.) What Tools Do We Need What Should We Implement? Staying Relevant and Up to Date CLE Plus (that pesky Rule 1.1 again) Legal and Human Ethical Core Legal Ethics Business Ethics Setting the Tone at the Top AMERICAN COUNCIL OF LIFE INSURERS acli.com 22