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Does Yahoo!’s New CEO Need a Degree in Computer Science to Lead the Company?

By on May 4, 2012

Selecting a new CEO or new Board Director is one of the most significant roles of the board of directors.  It was with great pride on January 4, 2012 that the Yahoo! Board of Directors announced the appointment of Scott Thompson as the new Chief Executive Officer, effective January 9.

Thompson presented an impressive work history, serving most recently as President of PayPal, a division of eBay.  The press release noted his track record was strong for “growing businesses by driving customer engagement built on strong technology platforms.”  Under his leadership, investors were informed, PayPal’s user base increased from 50 million to more than 104 million active users, growing revenues from $1.8 billion to $4+ billion in 2011.  Yahoo!’s chairman of the board, Roy Boystock, is quoted:

“Scott brings to Yahoo! a proven record of building on a solid foundation of existing assets and resources to reignite innovation and drive growth, precisely the formula we need at Yahoo! His deep understanding of online businesses combined with his team building and operational capabilities will restore the energy, focus, and momentum necessary to grow the core business and deliver increased value for our shareholders. The search committee and the entire Board concluded that he is the right leader to return the core business to a path of robust growth and industry-leading innovation.”

Is there much more an investor can ask for in a new CEO?  Yes, according to hedge fund Third Point LLC, owners of 5.8 percent of Yahoo! shares.  In a letter to the Yahoo! Board of Directors (May 3, 2012), Daniel S. Loeb, Third Point’s CEO, claims that Yahoo! may have filed an erroneous Form 10-K/A with the Securities and Exchange Commission on April 27, 2012 by asserting that Thompson holds a Bachelor’s degree in accounting and computer science from Stonehill College. According to Loeb, he checked with Stonehill College and confirmed that the school did not award its first computer science degrees until 1983, four years after Thompson graduated. Loeb tells us that by the time Thompson graduated, Stonehill only offered one course in this computer science — “Intro to Computer Science.”

Loeb doesn’t seem to care whether Thompson has the “proven record” presented in Yahoo!’s new release.  It doesn’t matter if Thompson has the ability to tackle the strategic review process.  Based on his letter, the number one qualification for the CEO job is “trustworthiness” and compliance with Yahoo!’s own governance rules.  He values honesty, credibility, and character more than accomplishment.  In his own words:

“If Mr. Thompson embellished his academic credentials we think that it 1) undermines his credibility as a technology expert and 2) reflects poorly on the character of the CEO who has been tasked with leading Yahoo! at this critical juncture. Now more than ever Yahoo! investors need a trustworthy CEO.”

If that isn’t enough for Yahoo! to grapple with, Loeb also implies that Patti Hart, Chief Executive Officer of International Game Technology, and the Yahoo! board director who served as chairperson the CEO Search Committee also shares a bad case of embellishment-itis.  Seems she represents that she holds a Bachelor’s degree in marketing and economics from Illinois State University when Loeb’s research says her degree was in Business Administration.

The Yahoo! Code of Ethics requires “”Disclosure in reports and documents filed with or submitted to the U.S. Securities and Exchange Commission and in other public communications made by Yahoo! must be full, fair, accurate, timely and understandable… Make sure information we disclose about our company is clear, truthful and accurate.”  On this basis, Loeb calls upon the Board to undertake an immediate independent investigation to determine whether misrepresentations have been made to the Board, investors and the SEC, or whether there has been any other violation of Yahoo!’s Code of Ethics.

We’re not used to reading about trustworthiness as a job requirement in CEOs and directors.  Not so long ago, after Hewlett-Packard Co. ousted its CEO Mark Hurd for allegedly falsifying documents, such as his expense reports, to conceal a relationship with a former contractor, the news of Hurd’s departure caused HP’s stock to head south. Not only were investors upset about losing this CEO, Hurd was defended by no less than Oracle’s CEO Larry Ellison who said in an e-mail to The New York Times that HP’s firing of Hurd was the “worst corporate decision since Apple fired Steve Jobs.” Ellison and Oracle’s Board was so impressed with Hurd’s leadership abilities that they quickly hired him as president and board member.  Upon the announcement, Oracle shares jumped.  Didn’t look like trustworthiness was on investor radar.

There are numerous instances of allegations against executives for making false claims on their resumes. (“Infamous Resume Lies”). False claims covers a wide spectrum ranging from lying about getting a degree, inflating titles, playing with dates, and, as we see, “embellishment” that transforms your bachelor’s degree major into something a bit more exciting and marketable.

Human resources professionals will tell you resume lying is rampant, and even more common in a challenging economy. In addition to helping corporations attract and maintain talent, HR departments know that one of their primary responsibilities is to weed out untrustworthy applicants as indicated by resume prevarication.

Ironically, even though HR has the most experience at screening candidates, the HR system can break down or be eliminated when searching for new CEOs or directors.  Sometimes they are excluded for what is seen as wise at the time, such as privacy concerns or not wanting the HR person to select his or her next boss.

Enter the recruitment firms who report directly to the Board’s search committee.  Boards entrust the recruitment firms to do a thorough background check and, for the most part, they do.  Indeed, most highly valued recruiters know their CEO candidates personally and may have followed them throughout their careers.  Levels of trust are developed between candidates and recruiters.  Yet, this trust may have developed later down the road in the candidate’s successful career, and the recruiter may not have ever gone back to confirm the most basic claims, such as, degrees school. They may also not have done a routine or recent background check for other savory behavioral issues, such as brushes with the law.  In promoting a candidate, a recruiter may not present the search committee with the full picture. Certain negative information available online that describes a past failure long forgotten in the market may stay that way.  Fortunately, recruiters are getting smarter about all this and, indeed, some firms have now started to require candidates to sign releases to access various records, particularly educational and legal.

Knowing that resume padding, embellishment and outright lies are commonplace, even at the c-suite, Boards need to be vigilant and may be able to limit their exposure to controversy and liabilities by utilizing several simple steps:

  • work with professional recruitment firms (the “good old boys’ club may be even riskier)
  • include the HR officer in your search process with the recruitment firm
  • ensure that recruitment firms are contractually responsible for providing a very full and in-depth background report with regard to all candidate representations, as well as legal and financial status (a good time to ensure that your corporation’s general counsel is involved in the process)
  • require the recruitment firm to conduct a full Internet search for the candidate for news articles, blogs, Facebook, etc. (recognizing that not everything on the web is accurate).

Some recruitment firms will charge an additional fee for a more complete background check.  Special service packages have been developed for this (which only confirms how limited the background searches at this level have been in the past).  Hold their feet to the fire.  And, don’t forget, the Internet is accessible to all of us.  Do your own basic search to see how the candidate presents on the web.

Loeb isn’t claiming Thompson lacks a Bachelor’s degree in accounting – he just asserts that Thompson took credit for an extra discipline – added an embellishment to his resume. No one expects  the CEO of Yahoo! to write code.   His lack of a computer science degree from the early 80’s would appear irrelevant to the knowledge base he needs to lead the company. Similarly, the trust placed in Director Hart is there because she is the CEO of a tech business, not because she claimed to have had a Bachelor’s degree in marketing and economics, when it was only in Business Administration.  Thompson and Hart are there because the Board valued their accomplishments.

Loeb’s most significant claim is that if his investigation is correct, neither Thompson nor Hart have the character necessary for sound leadership. He points to the fact that Yahoo!’s own governance code requires clarity, accuracy and truthfulness in reporting to investors and the government, and he believes this is lacking, pointing the documents filed with the SEC.  Will Yahoo!’s board care? Will the investors care? Will the SEC?  And, if they do not, what impact will this have on corporate governance expectations and enforcement?  Does the tone at the top matter?

 

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Apple, the Publishing Titans and the DOJ: Keeping Pace with Technology but Not Compliance?

By on April 21, 2012

What is an electronic book worth?   You may have thought your $9.99 best seller was a good deal, but according to the US Department of Justice (DOJ), you’re paying too much.  U.S. Attorney General Eric Holder, speaking at an E-book Press Conference on April 11, 2012, alleged that the price for e-books published by several of the largest publishers has likely been fixed and unduly inflated due to a blatant conspiracy at the highest executive levels between Apple and several publishing titans. While e-books are born of new technology and their pricing paradigm may be dramatically different than their printed cousins from pre-Kindle print publishing world, this DOJ litigation alleges that Apple and the publishing titans were really doing business in a very old fashioned way.

Holder announced that the DOJ will continue to pursue litigation against Apple, Macmillan, and Penguin. Hatchette, HarperCollins and Simon & Schuster agreed to a proposed settlement that would allow retailers the freedom to reduce the consumer price to any value that suits the retailer.  Pennies above the price they paid publishers to acquire a book, or even below wholesale as a loss leader?  Contrast this with the pricing scheme these publishers enjoyed with Apple.  Holder alleges the publishers agreed to fix the price and Apple would guarantee a 30% “commission” on the sale of each book. The “agency model” replaced the standard “wholesale model” where booksellers could set their own price and discounts from list pricing.

The settlement requires the three publishers to grant retailers the freedom to reduce e-book prices; to terminate the “anticompetitive most-favored-nation agreements” with Apple and other e-books retailers; and, to prohibit the publishers from placing constraints on discounts for two years (so, get them while you can now).  Also, the publishers will be prohibited from conspiring or sharing “competitively sensitive information with their competitors for 5 years.”  They must each implement a strong antitrust compliance program.

The DOJ referred to the “egregiousness” of the alleged antitrust behavior at the executive level.  Publishers were concerned about the “wretched $9.99 price point.” The alleged conspiracy was to “force [Amazon] to accept a price level higher than $9.99.”  Even Steve Jobs is alleged to have been directly involved in this conspiracy and to have said “the customer pays a little more, but that’s what you [referring to the publishers here] want anyway.”

All of this taking place in the summer of 2009, in the established era of Sarbanes-Oxley corporate governance and compliance legislation, as well as the Federal Sentencing Guidelines introduced in 1987 and recently updated in 2010.  How was this possible?  Where is the minimum corporate governance we expect of corporate America?  Consider that Apple posts its corporate governance and business conduct policy online for investors and consumers to consider in their relationship with the company.  As the case evolves, we will have the opportunity to judge whether its CEO complied.

So why did the DOJ settle – wouldn’t this case have been more appropriate to try with all defendants? Perhaps it is simply because the defendants were willing to settle.  Perhaps they agreed to provide valuable testimony. Perhaps because it is truly difficult to determine how an e-book should be priced.

Indeed, e-book pricing is mysterious – perhaps more so for publishers than consumers.  The digital era has turned book pricing upside down.  A digital book basically saves publishers the underlying expense of manufacturing anything tangible. No need to determine the initial print run. Doesn’t matter if the book is leather bound or with gold leaf pages.  No shipping costs.  Even returns, the bane of publishers, are essentially eliminated. Similar to the era of albums and CDs moving to iTunes, the e-book is written and duplicated with simple keystrokes online.  The wholesale or retail price is definitely not based on the actual cost of digitizing the book.  Kobo Books offers millions of free e-books, as do many others, including the DOJ’s adversary – Apple.

Pricing is really based on what the market will bear.  Smaller presses frequently have far less volume in sales and can’t afford to set a low price. Any publisher wants to ensure reasonable royalties for authors and for pricing to help cover the real risk of investment in any new work or author with, at least, a modest expectation for profit.  Here is some comparison pricing on three print books and their e-book versions.

  • Girl with the Dragon Tattoo, by Stieg Larsson, published by Knopf Doubleday Publishing Group.   The Kindle version price is the “wretched $9.99.”  The same price for the paperback.  New hardcover versions are on sale for $30+. Not sold by iBookstore.  Barnes & Noble: $10.98 hardcover, and $9.99 for Nook version.
  • In Spite of the Dark Silence, by Jorge Volpi, published by independent Swan Isle Press sells in hardcover for $21.28 (discounted off the list price of $28) at Amazon and $20.28 at Barnes and Noble.  The Kindle version sells for $9.60 (with a digital list price of $12.00).  Not sold by iBookstore or through Barnes and Noble Nook.
  • Going Solo: The Extraordinary Rise and Surprising Appeal of Living Alone, by Eric Klinenberg, published by The Penguin Press.  $14.99 Kindle.  $14.99 Apple iBookstore.  Hardcover is now discounted from $27.95 to $17.17 at Amazon.

The “wretched $9.99” can just be a good cash cow.  Consumers don’t complain about the price.  The Girl with the Dragon Tattoo sold more than 1 million e-books by 2010. The word “margin” does not enter this equation in any meaningful way.

With this litigation, the DOJ is telling us that “the antitrust laws are flexible and can keep pace with technology and a rapidly changing industry.”  The DOJ’s focus is on “ensuring an open and competitive marketplace [that] allows for innovation, which is good for businesses participating in that marketplace and is good for consumers.”  However, this antitrust case really isn’t about whether the publishers are charging too much.  The issue is whether the prices were fixed in total disregard of antitrust laws.

U.S. and global antitrust laws are not new.  Virtually every global business has been dealing with corporate compliance, conducting training of its board, officers and staff for more the past couple of decades, with increased efforts further since Sarbanes-Oxley and Dodd-Frank.  The irony of this litigation is that it would appear that all the involved defendants were able to keep pace with technology, but not the simple evolution of corporate governance and compliance expectations.

 

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Compliance and Ethics Programs – Not Just for Lawyers

By on March 13, 2012

It’s always a pleasure to be included as faculty for the PLI’s Corporate Compliance & Ethics Institute.  This one and a half day program will be held this year (2012) on May 10-11 in Chicago.  It’s intended for anyone involved in any aspect of corporate compliance and ethics — not just lawyers (but if you’re a lawyer, you’ll be happy to know there are CLE credits, check the website for how many credits your state recognizes).

This year I’ll be on a panel with Alice Peterson and Robert Slaughter and we’ll be addressing the general topic of “Board Oversight & Program Structure: The Authority & Independence of a Program.”  We’ll be discussing key issues such:

  • Chief Compliance Officer Positioning
  • The Compliance and Ethics Network: Compliance Liaisons and Leveraging Other Functions
  • Program Staffing
  • How Can Boards Really Add Value?
  • How to Create the Right Level of Independence and Authority for Your Program

As you know, no matter how large or small your company or client is, paying careful attention to corporate compliance and ethics is no longer optional. The full schedule for the two days is included in the hyperlink to the program, and it likely addresses many of the questions you have about corporate compliance and ethics.

By the way, one of the reasons this Chicago program is usually so outstanding is because it is chaired by Ted Banks, formerly Chief Counsel & Senior Director, Global Compliance Policy, at Kraft Foods.  Ted is an engaging speaker and brings with him his wealth of experience as the overall moderator of the program.  With Ted and so many other fine speakers, I always try to stay for the whole program!

Hope to see you there on May 10 and 11!

 

 

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Beware the Whistleblower Scam!

By on February 28, 2012

 

Has Dodd-Frank spawned a cottage industry of fraudsters?  The Securities and Exchange Commission (SEC) reports its staff is receiving numerous complaints about whistleblowers.  Well, not real whistleblowers.  Fictional whistleblowers and fraudsters.  And they will call you or e-mail you at the office or at home.

Seems SEC staff is rather inundated with complaints about SEC staff.  Of course, the complaints don’t really involve SEC staff, the complaints are about fraudsters who claim to be with the SEC.  Here’s the scheme:

The investor receives a bogus e-mail purporting to be from the SEC’s Office of the Whistleblower. The e-mail is not from the SEC, and contains a link to malicious software.

Dear customer, Securities and Exchange Commission Whistleblower office has received an anonymous tip on alleged misconduct at your company, including Material misstatement or omission in a company’s public filings or financial statements, or a failure to file Municipal securities transactions or public pension plans, involving such financial products as private equity funds.  Failure to provide a response to this complaint within 14 day period will result in Securities and Exchange Commission investigation against your company. You can access the complaint details in U.S. Securities and Exchange Commission Tips, Complaints, and Referrals portal under the following link:

Yes, there really is an Office of the Whistleblower.  The e-mail, however, is entirely a hoax.

Another scam scenario: the fraudster calls you and pretends to be an SEC employee and informs you that you are potential victim of corporate abuse.  The offer you a large sum of money (in some cases, the amount of $450K is used) in return for you depositing a smaller amount (for example, $1500) into a specified account.  Sometimes they refer to the name of a legitimate company and refer prospective investors to an operating website.

Not surprisingly, the SEC wants to alert you to this fraud, whether the solicitation is made by phone, email or any other method. They also remind us that the SEC does not endorse investment offers, assist in the purchase or sale of securities, or participate in money transfers.  Nor is the SEC affiliated with any sweepstakes, drawings, lotteries, or other types of events that feature prizes or winnings or cash windfalls.
SEC staff will not, for example, contact individuals by telephone or email for purposes of:

• seeking assistance with a fund transfer;
• forwarding investment offers to them;
• advising individuals that they own certain securities;
• telling investors that they are eligible to receive disbursements from an investor claims fund or class action settlement; or
• offering grants or other financial assistance (especially for an upfront fee).

Just when you’ve finally explained to your dear aunt that really, nobody in Nigeria needs her help in Oshkosh…now it’s time to explain to your staff that the SEC is really not investigating your company — and, by the way, you need to explain this to your aunt, too.

For more information.

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A Not for Profit Christmas Story

By on December 24, 2011

It’s a “real life” Christmas story for members of the Board of Chicagoland Toys for Tots.   According to a Chicago Sun Times report  (12/20/11), the story began in April 2011 when the Board learned that at least $25,000 had been embezzled.  Ordinarily, the charity buys about 20,000 toys each Christmas and distributes them to Chicagoland’s poor and disadvantaged children.  Toys for Tots receives hundreds of letters from families and institutions asking for toys.  Sadly, this year it appeared so many requests would have to go unanswered, so many children would be disappointed.

Toys for Tots VP Tom Dertz was reported as saying “It’s tough, these are people that often don’t have anything.”  As in a Dr. Suess book, it appeared the Grinch had prevailed and definitely stolen Christmas.

Those of us who work with not-for-profits (NFPs) and in governance and compliance for all corporations know that NFPs have the same, if not often greater, risks of embezzlement as any for profit corporation.  Why greater for a NFP?

Good NFPs focus on their mission of receiving contributions and spending as much of them as possible in fulfilling their mission (and not growing their organization’s size).  So, they often don’t invest in appropriate safeguards for their funds, such as up to date financial reporting systems and information technology.   In smaller NFPs, there may only be one person in the organization that has access to the financial records which is not bad, in and of itself, but the system may be lacking the appropriate checks and balances.  Sometimes the chairman of the board is also the chief executive officer/president/executive director and this can make it even more uncomfortable and difficult for other board members (particularly those recruited by the CEO) to request or demand access to financial records.

NFP boards frequently are large, which can sometimes lead to a lack of direct accountability or, at least, understanding by board members of their specific responsibilities.  NFP board members may think their primary purpose is to contribute financially to the organization or to help bring in new members rather than bring their business acumen to the organization.   Even very successful business people who are well qualified to serve as financial experts on publicly traded boards sometimes put down their guard when serving on a NFP board.  After all, if everyone working for a NFP with a great mission focuses on the mission, they must all be good people, right?  Wrong…

Here’s the account from the Chicago Sun Times (and let’s not jump to any conclusions but let’s just say that this is an example of something that might go wrong in any NFP environment).  It’s reported that when Board members were alerted to the alleged theft in April, they started asking questions about one of the charity’s accounts.  At that time:

“...a board member resigned, saying that his wife was sick and needed to be cared for, they say. The former board member’s wife — who also volunteered with Toys for Tots — took an overdose of pills at the organization’s warehouse, they said.

Contacted Monday, the former board member strongly denied that he or his wife had done anything wrong. He acknowledged that his wife had been taken by ambulance to Christ Hospital from the Toys for Tots warehouse following an incident in April and said that she’d been diagnosed with bipolar disorder.

The former board member said his home was in foreclosure and that his financial troubles began when his wife “went on a spending spree.” He said he does not believe that she stole from Toys for Tots and that “nothing has been proven” but added that “anything’s possible, because she’s bipolar.”

Police have not spoken to him or his wife since April, he said.”

There are so many stories of embezzlement in NFPs.  This one is not so different than any other. Lessons learned?  Corporate governance principles applicable to the for profit corporate world are a must for all NFPs, large or small, because no NFP can afford to fail in its mission because of an internal theft or embezzlement.

Like all good Christmas stories, this one has a happy ending.  ChicagoBusiness reported today that as a result of the Chicago Sun-Times report, Toys for Tots Chicagoland received an anonymous $25,000 gift made in memory of former Chicago Bears great Sid Luckman.  This was followed by sizable donation from CouponCabin LLC, that matched the $25,000 as well as an undisclosed donation from Groupon Inc.

ChicagoBusiness attributes the anonymous donation to Fred Latzko, a real estate developer who did not comment on the donation by said in an e-mail that “Sid Luckman was an amazing person. The situation sounds fantastic for Toys for Tots with such a windfall that maybe they can look to share their fortunate situation with a smaller children’s charity that could be short of donations this Christmas.”  Seems Mr. Luckman, who passed away in 1998,  inspired Mr. Latsko by making similar donations to children’s charities over the years.   (Ironically, Mr. Latzko has his own story…)

Acts of lovingkindness inspire us all.  The day has been saved for Chicagoland’s children.  All in all, an additional $55,000 was raised to cover the losses.

Happy holidays to everyone!

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Driving business development under the influence of alcohol?

By on August 3, 2011

Last week, the U.S. Securities Exchange Commission (SEC) charged London-based Diageo plc with “widespread violations” of the Foreign Corrupt Practices Act (FCPA).  In settlement of these charges, Diageo agreed to “cease and desist from further violations and pay $11,306,081 in disgorgement, prejudgment interest of $2,067,739, and a financial penalty of $3 million.”

For those who don’t go to the liquor store,  Diageo is one of world’s largest producers of premium alcoholic beverages.  Times must be tough for Diageo, as it appears government officials in some countries aren’t satisfied with just a case of  Johnnie Walker or Ketel One.

The SEC claims Diageo made improper payments to government officials in India, Thailand and South Korea over a period of more than 6 years (and, one wonders, what took everyone — internally or externally — so long to figure this out?).

From 2004 to mid-2008, Diageo paid approximately $12,000 per month – totaling nearly $600,000 – to retain the consulting services of a Thai government and political party official. This official lobbied other high-ranking Thai government officials extensively on Diageo’s behalf in connection with pending multi-million dollar tax and customs disputes, contributing to Diageo’s receipt of certain favorable decisions by the Thai government.

The SEC claims that Diageo, in South Korea, paid more than $86,000 to a customs official as a reward for his role in the government’s decision to grant Diageo significant tax rebates.  Further, Diageo also improperly paid travel and entertainment expenses for South Korean customs and other government officials involved in these tax negotiations. Separately, Diageo routinely made hundreds of gift payments to South Korean military officials in order to obtain and retain liquor business.

In India, from 2003 through mid-2009, Diageo made over $1.7 million in illicit payments to hundreds of Indian government officials responsible for purchasing or authorizing the sale of its beverages.

Further, the SEC charged that Diageo engaged in lax oversight and maintained deficient controls.  Its subsidiaries were alleged to have routinely used third parties, inflated invoices, and other deceptive devices to disguise the true nature of the payments.  Sometimes, they failed to record the payments at all.

Indicating the penalties could have been more severe, the SEC noted that Diageo cooperated with the SEC’s investigation and implemented certain remedial measures, including the termination of employees involved in the misconduct and significant enhancements to its FCPA compliance program.

Clearly there are many lessons to be learned from “Diageo.” Among them:

  • The SEC continues to target companies headquartered outside of the U.S. for FCPA enforcement;
  • There should be an active, challenging and realistic dialogue with group and subsidiary management about any obstacles to doing business in various countries;
  • South Korea, India, and Thailand should be added to the list of high risk countries, if not already on your radar;
  • Not surprisingly, many of these payments were repeating — accounting and compliance should look for the frequency of payments made to individuals as well as considering the amounts and the purpose; and,
  • It’s important to analyze payments to third parties, especially when vague services are described.  Ask the important questions, including, what services are these third parties performing that would merit the size and frequency of the checks they receive from your corporation?

Disgorgement of profits is a tough remedy (though not as tough as China’s executions for receiving the bribe).  Better to have the controls that can recognize the violations sooner, than later.

And, BTW, compliance training, compliance training, and compliance training with a lot of genuine tone from the top is a good start.

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Receive a bribe, pay with your life…

By on July 26, 2011

Death penalty as deterrent for corporate corruption?  The U.S. has the Foreign Corrupt Practices Act.  The UK has its Anti-Bribery Act of 2010.  Not surprisingly, China has its own ways of dealing with corruption. In China, the penalty you pay may well be your life.

The New York Times reported that a former China Mobile executive was sentenced to death with a 2-year reprieve.  Zhang Chunjiang, the former vice chairman of China Mobile, was charged with accepting briges of more than $1.15 million over a period of 1994-2009, when he worked at various state-run telecom companies.  With good behavior during the first two years, his sentence could be commuted to life in prison (and we pause here for a philosophical moment…)

If you think it is easy to commute that life sentence, consider that four years ago, the head of China’s Food and Drug Administration was, indeed, executed for corruption and failing to protect consumers.  And, Chen Tonghai, the former chairman of Sinopec, the Chinese oil company, was sentenced to death with this two-year reprieve — but it seems there is no report on the outcome yet.   The report is, however, that this week, two former vice mayors in Chine were executed for accepting substantial bribes.

This recalls the 10 year jail sentence applied to Stern Hu of Rio Tinto plc   convicted of accept just less than $1 million in bribes.

It is reported that telecommunications is the current targeted industry for Chinese investigations into corruption.

Missing from the NY Times report is information about the penalties assessed by the numerous companies that paid off these officials, whether those penalties are incurred in China, the U.S., U.K., or elsewhere.  So far, and unlike many anti-corruption laws,  it seems China’s focus is on the recipient and not the briber.

It will be interesting to watch the evolution of enforcement in China.  Will they begin to share or shift any of the penalties between the briber and and the one who accepts the bribe?  In any event, inside counsels, lawyers and compliance officers may wish to include these actual cases in training employees doing business in China.  It’s always good to know just how personal it gets.

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New Canadian Consumer Safety Law

By on June 22, 2011

It’s a new era for manufacturers, importers & retailers in Canada.  With Royal Assent, the Canada Consumer Product Safety Act (CCPSA) came into force on June 20, 2011. Everyone making or selling consumer products for the Canadian market should be mindful of these new laws requiring “incidents” to be reported to Health Canada upon “becoming aware” of them.

The Canadian legislation does not mirror the US Consumer Product Safety Improvement Act (CPSIA), although the new CCPSA is admittedly designed to bring Canada’s consumer product safety system into line with their key trading partners.  Consumer products, defined broadly and including children’s toys, household products and sporting goods, are regulated by the CCPSA. Motor vehicles, food, drugs and animals continue to be regulated by other Canadian laws.

Health Canada endeavors to be a “user friendly” administrator, so its website is packed with much useful information about the new law and how to comply.  In general, they note that key provisions of the CCPSA include:

  • reporting of incidents, with “early warning”
  • maintaining records/paperwork
  • reporting or obtaining information on product safety
  • packaging and labeling
  • enforcement of prohibitions related to manufacture, importation, sale or advertisement of consumer products that could pose an unreasonable danger to the health or safety of Canadians

Among the guidance currently provided, you may wish to access the Guidance on Mandatory Incident Reporting and the Guidance on Preparing and Maintaining Documents.

Yet, this is new ground for Health Canada. As it reports, Health Canada is “preparing to implement the Act and is consulting Canadians as guidance is developed that will assist industry in complying with the new requirements.” So, there will be a bit of “wait & see” as the CCPSA evolves…

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The “Maine” Toy Requirements…

By on June 8, 2011

Are the folks in Maine more interested in children’s safety than, let’s say, California or Texas?  On June 3, 2011, the Maine State Legislature finalized amendments to its Toxic Chemicals in Children’s Products Act of 2008, known (in Maine, that is) as the Kid Safe Products Act. We will recall that there was a flurry of legislation in 2008 for children’s products, most notably the national Consumer Product Safety Improvement Act of 2008 (CPSIA), legislation not without its own defects and need for amendments, due, in part, to the haste in drafting it.

Why did Maine need to amend this relatively new legislation?  The reformed law (LD 1129) is intended to reduce unnecessary and costly regulations that may have negatively impacted small businesses in Maine.  Included among the regulations was a requirement that toy companies doing business in Maine had to test and document that their products do not contain any of the more than 1,750 “priority chemicals” named by the Maine Department of Environmental Protection (DEP). That’s a whole lotta testing.

While the Toy Industry Association, Inc. (TIA) continues to seek a waiver for reporting Bisphenol A (BPA) in toys, the DEP has merely granted an extension for reporting of BPA and other priority chemicals in toys and other products until October 3, 2011.  BPA is found in hard plastics, like water bottles.  The extension is to allow more time for companies to comply with the submission requirements.

According to the TIA press release, other modifications to the bill include:

  • The exemption of  inaccessible product components;
  • The provision for a de minimis level of chemicals in products;
  • A clarification that the focus of the law is on “intentionally-added” ingredients; and
  • The requirement that credible science be used in the DEP’s decisions.

Those modifications say a lot, don’t they? Like…did you have any scientific basis in the first place for legislating certain requirements? Or, when you legislated these requirements, did you consider that a child will not be exposed to certain chemicals if they are in inaccessible components?

Individual states persist in setting their own standards when it would appear so much more can be achieved by working cooperatively with the federal government to determine product safety requirements for children’s products.  It becomes virtually impossible for manufacturers to comply with individual state requirements.  It’s impractical on so many levels, not the least of which is the size of the legal bill for any company to determine each state’s requirements and maintain compliance with them over time. Just consider how much time, effort and expense most likely went into reforming the Kid Safe Products Act.  This, of course, adds to the overall expense of the products we buy.

For the most part, the Consumer Product Safety Commission (CPSC) is in the best position to determine safety requirements for children’s products.  To the greatest extent, manufacturers need a single source for product safety requirements.  This should promote healthy businesses and facilitate trade without compromising safety. State legislators reacting in haste can have a negative impact on businesses while not necessarily positively impacting the quality or safety of toys and other children’s products.

Is BPA is good or safe enough to warrant a total waiver of requirements for reporting in toys, as the TIA proposes?  Online research provides lay people with conflicting information.  Yet, if the Maine DEP has enough scientific evidence to substantiate legislation, it should share the research with the CPSC and work toward a federal solution, so that all kids in the US and, ultimately, around the world have the benefit of protection…not just the kids in Maine.

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Time to safeguard your tax and business records

By on June 2, 2011

 

Referencing the beginning of the 2011 hurricane season,  the Internal Revenue Service encourages individuals and businesses to safeguard their tax and business records against natural disasters by taking several simple steps discussed below.

It’s ironic that the IRS is referencing hurricane season when the significant devastation from deadly tornadoes has been most prominent in the news lately.  Our hearts and, hopefully, our charity goes out to those who have lost family, friends and homes to tornadoes in 2011, making this the deadliest year for US tornadoes since 1950 according to the Christian Science Monitor.

In any event, the IRS’s suggestions for protecting records are valuable and practical.  We can all benefit from a review and an assessment of how prepared we are to access important personal and business records.  The IRS recommends:

Create a Backup Set of Records Electronically

The backup should be stored away from the original set!  Some of us forget that it doesn’t help to store the computer information on a backup disk if the whole house is destroyed.  There are services that will store them in “the cloud.”

Document Valuables

Photograph or videotape the contents of his or her home, especially items of higher value. The IRS has a disaster loss workbook, Publication 584, which can help taxpayers compile a room-by-room list of belongings.

While the IRS may recommend that photos should be stored with a friend or family member who lives outside the area, consider that most are digital today.  Store them in “the cloud.”

Update Emergency Plans

Emergency plans should be reviewed annually. Personal and business situations change over time as do preparedness needs. When employers hire new employees or when a company or organization changes functions, plans should be updated accordingly and employees should be informed of the changes.

Check on Fiduciary Bonds

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider.

IRS Ready to Help (yes, that’s what they say…they are here to help us!)

If disaster strikes, an affected taxpayer can call 1-866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues.

Back copies of previously-filed tax returns and all attachments, including Forms W-2, can be requested by filing Form 4506, Request for Copy of Tax Return.

We hope you never need to put this plan into action, yet you’re encouraged to plan ahead!

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