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Right to Retire Or Termination: Remediation of Leadership To Foster Compliance

By July 10, 2015 No Comments

By: Tom Fox

retirement partyThis article was republished with permission from Tom Fox’s FCPA Compliance and Ethics Blog.

Many historians have long given 476 AD as the date of the fall of the Roman Empire. It was from this date forward that Europe began its long slide into what came to be known as the Dark Age. However, this view was challenged in 1971 by Peter Brown, with the publication of his seminal work “The World of Late Antiquity.” One of the precepts of Brown’s work was to reinterpret the 3rd to 8th centuries not as simply a decline of the greatness that had been achieved in the heydays of the Roman Empire, but more on their own terms. It was in the year of 476 AD that the last Roman Emperor, Romulus Augustulus, left the capital of Rome in disgrace. However, as Brown noted, he was not murdered or even thrown out, but allowed to retire to his country estates, sent there by the conquerors of the western half of the Roman Empire, the Goths. Not much conquering going on if a ruler is allowed to “retire;” it was certainly a replacement, but not quite the picture of marauding barbarians at the gate.

I thought about this anomaly of retirement by a leader in the context of a company or other entity going through investigations for corruption and non-compliance with such laws as the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act. I wrote recently about three articles and what they showed about a company’s oversight of its foreign subsidiaries. Today I want to use these same articles to explore what a company’s response and even responsibility should be to remediate leadership under which corruption occurs. The first article I referenced was in the New York Times (NYT), entitled “Another Scandal Hits Citigroup’s Moneymaking Mexican Division,” by Michael Corkery and Jessica Silver-Greenberg. Their article spoke about the continuing travails of Citigroup’s Mexican subsidiary Banamex. Back in February, the company reported “a $400 million fraud involving the politically connected, but financially troubled, oil services firm Oceanografía.”

This has led Citigroup to ever so delicately try to oust the leader of its Mexico operations, Mr. Medina-Mora, by encouraging him to retire. While Citigroup did terminate 12 individuals around the Oceanografía scandal earlier in the year, it has not changed the employment status of the head of the Mexico business unit. This may be changing, as the article said, “In a delicate dance, Citigroup is encouraging its Mexico chairman, Manuel Medina-Mora, 64, to retire, according to four people briefed on the matter. The bank has been quietly laying the groundwork for his departure, which could come by early next year, the people said. Still, Mr. Medina-Mora’s business acumen and connections to the country’s ruling elite have made him critical to the bank’s success in Mexico. Citigroup and its chairman, Michael E. O’Neill, cannot afford to alienate Mr. Medina-Mora and risk jeopardizing those relationships, these people said.”

Should Mr. Medina-Mora be allowed to retire? Should he even be required to retire? What about the “mints money” aspect of the Mexican operations for Citigroup? Was any of that money minted through violations of the FCPA or other laws? What will the Department of Justice (DOJ) think of Citigroup’s response or perhaps even its attitude towards this very profitable business unit and Citigroup’s oversight, lax or other?

Does a company have to terminate employees who engage in corruption? Or can it allow senior executives to gracefully retire into the night with full pension and other golden parachute benefits intact? What if a company official “purposely manipulated appointment data, covered up problems, retaliated against whistleblowers or … was involved in malfeasance that harmed veterans”? Or what if she “steered business toward her lover and to a favored contractor, then tried to ‘assassinate’ the character of a colleague who attempted to stop the practice”? Finally, what if yet another company official directed company employees to “delete hundreds of appointments from records” during the pendency of an investigation?

All of the above quotes came from a second NYT article about a very different subject. In the piece, entitled “After Hospital Scandal, V.A. Officials Jump Ship,” Dave Phillips reported that two of the four VA administration executives who engaged in the above conduct and were selected for termination had resigned before they could be formally terminated. The article reported that the VA “had no legal authority to stop” the employees from resigning. Current VA Secretary Robert McDonald was quoted in the article as saying, “It’s also very common in the private sector. When I was head of Procter & Gamble, it happened all the time, and it’s not a bad thing — it saves us time and rules out the possibility that these people could win an appeal and stick around.” Plus, he said, their records reflect that they were targeted for termination. “They can’t just go get a job at another agency,” Mr. McDonald said. “There will be nowhere to hide.”

The third article was in the Wall Street Journal (WSJ) and entitled, “GM Says Top Lawyer to Step Down.” In this piece, reporters John D. Stroll and Joseph B. White, with contributions from Chris Matthews and Joann Lublin, reported that General Motors (GM) General Counsel (GC) Michael Millikin will retire early next year. Milliken is famously the GC who claimed not to know what was going on in his own legal department around the group’s settlements of product liability claims of faulty ignition switches. Milliken claimed he was kept “in the dark” by his own lieutenants about the safety issues involved with this group of litigation. Does Milliken have any responsibility for the failures of GM around this safety issue? What does his apparent graceful retirement say about the corporate culture of GM and its desire to actually change anything in the light of its ongoing travails? Of course one might cynically point to GM’s failure to even have a Chief Ethics and Compliance Officer as evidence of the company’s attitude towards compliance and ethics. (I wonder how that might look to the DOJ/Securities and Exchange Commission (SEC) if GM comes under any FCPA scrutiny?)

With Citigroup, the Department of Veterans Affairs and GM, we have three separate excuses for companies (and a Cabinet-level department) not disciplining top employees for ethical and/or compliance failures. At Citigroup, the excuse is apparently that it does not want to rock the boat from a top-producing foreign subsidiary by terminating the head of the subsidiary under investigation. At the Department of Veterans Affairs, the excuse seems to be they can go ahead and resign because we prefer to get rid of them that way. At GM, it is not clear why the GC who claimed not to know what was going on in even his own law department can ride off into the sunset with nary a contrary word in sight. Millikin’s conduct would seem to be the product of a larger cultural issue at GM.

I thought about how the DOJ might look at these situations for companies if an FCPA claim were involved. Even with McDonald’s observations about what happened when he was with Procter & Gamble, does a company show something less than commitment to having a culture of compliance if it allows an employee to retire? What does it say about Citigroup and its culture given the current dance it is having with its head of the Mexico unit? What about GM and its Sgt. Schultz of a GC and his “I was in the dark” posture? As stated by Mike Volkov in his post, “Goodbye Mr. Millikin: GM’s Continuing Culture Challenges,” GM does not appear to understand the situation it currently finds itself in over its failures. He wrote, “GM still does not understand the significance of its governance failure … GM should have taken dramatic and affirmative steps to create a new culture – resources and new initiatives should be launched to rid GM of its current culture and replace it with a new “speak up” culture. It is a daunting task in such a large company, but it has to be done. Until GM wakes up, missteps and failures will continue.” One might say the same for Citigroup and the Department of Veterans Affairs as well.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business advice, legal advice or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The author gives his permission to link, post, distribute or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

 

Tom Fox headshot updated - CopyThomas Fox has practiced law in Houston for 25 years. He is now assisting companies with FCPA compliance, risk management and international transactions.

He was most recently the General Counsel at Drilling Controls, Inc., a worldwide oilfield manufacturing and service company. He was previously Division Counsel with Halliburton Energy Services, Inc. where he supported Halliburton’s software division and its downhole division, which included the logging, directional drilling and drill bit business units.

Tom attended undergraduate school at the University of Texas, graduate school at Michigan State University and law school at the University of Michigan.

Tom writes and speaks nationally and internationally on a wide variety of topics, ranging from FCPA compliance, indemnities and other forms of risk management for a worldwide energy practice, tax issues faced by multi-national US companies, insurance coverage issues and protection of trade secrets.

Thomas Fox can be contacted via email at tfox@tfoxlaw.com or through his website www.tfoxlaw.com.

Follow this link to see all of his articles. Tom also writes a regular column on CCI called Compliance Nuts & Bolts.