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The Role of the GC: Q&A with Ira H. Raphaelson
January 24, 2022
As a General Counsel, what promotes successful risk management?
Five concepts guided me when I was a general counsel. One, business judgments are for business people. Good lawyers try to help sharpen those judgments through risk management. Two, the medieval map of the “known” flat earth had dragons at the ends of the world. Good lawyers help business people avoid the dragons. Three, you need a seat at the table. If you don’t develop clients within your business — finding out what they do, asking questions about why they do it that way, and inviting them to ask you questions — then you can’t understand where the dragons are. Four, speak truth to power, but without a big audience. Advising the boss is different than challenging the boss. You have to want to do the job more than you want to keep it, even more so post-Sarbanes-Oxley. Five, risk management is art, not science. It is definitely more than some stoplight-colored flow chart.
If a seat at the table is key, what else is a “must”?
You need clear direction from the chief executive officer, chief operations officer or chief administrative officer that only the general counsel, or someone on the general counsel’s team, hires external lawyers. A marketing person hiring the cousin of the purchasing agent doesn’t meet the SEC’s view of appropriate compliance controls. You also need clear direction from the chief executive officer or chief administrative officer that the legal department must sign off on all contracts, and that the compliance department must sign off on third-party relationships — customers, suppliers, agents. Corporations that weaken those functions undermine their controls.
Multinational businesses are required to navigate risks associated with laws banning bribery and corruption, money laundering, trade and anti-competitive behavior. Any tips?
I advocated a unified theory of risk management concerning the Foreign Corrupt Practices Act, anti-money laundering statutes, sanctions and competition, that was focused on documented, risk-based due diligence. Who are you doing business with? Where is your counterpart’s or customer’s money coming from? Where is your money going and why? The answers to those questions are critical.
Corruption risks often arise from third-party relationships. What do you suggest companies do to manage those risks?
Monitor before starting a relationship and while it is ongoing. Knowing who is on the other side of every transaction and documenting the diligence that went into selecting each counter-party is important. Businesses position themselves better by developing thoughtful policies to promote payment to vendors in the country where the work is done — from accounts in that country, in the currency of that country, in the name of the contracting vendor, and strictly according to the terms of the vendor’s contract. Discipline in consistently applying those policies can substantially reduce the risk of facilitating bribery, money laundering and tax evasion.
The effort to minimize risk often drives corporate transactions and the creation of distinct corporate entities. But many FCPA cases are not really about bribery at all. They are often “controls” cases. Law enforcement is going to try to ascribe knowledge no matter what steps you take to insulate. The entire corporate family is better off asking diligence questions, knowing the answers and acting on them.
Competition compliance often focuses on, for example, information exchanges, which can increase the risk of unlawful collusion. What fundamentals would you emphasize in the competition context?
Competition enforcement is expanding worldwide. The Biden administration seems to be embracing a paradigm shift in the direction of the EU’s focus on market dominance. Many countries now make extra-territorial subpoena demands, and try to enforce their legal regimes on companies based outside their countries. The weaponization of privacy, tax and competition law are all part of the same trend — using enforcement as a mechanism for blocking foreign businesses from entering domestic markets. These concepts are being imported from one country to another. Understanding historical precedents and national variations on this theme will help address issues before they become enforcement inquiries. The United States and many other countries have adopted regimes to require government approval of investment in “key” industries. The exclusionary intent is clear.
Finally, what is your take on the new focus on environmental, social and governance principles?
ESG is becoming a financing and competition precondition. Major private equity firms and pension funds are promoting various standards, and governments are implementing disclosure mandates. General counsel are well-advised to discuss the trends and company direction with their management and boards.
Ira Raphaelson is a Senior Counsel at White & Case LLP and a two-time public company General Counsel. He also currently serves as lead director of a public company and an adjunct professor of law.
Kevin Bolan is a partner in White & Case LLP’s Global White Collar Practice. He focuses his practice on criminal and civil litigation and arbitration, corporate compliance and governance matters.
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