A common result of mergers in the business world is the layoffs of employees whose jobs have become redundant after two units are combined.

“What some people may not know is that the same thing applies to in-house legal departments following corporate mergers and acquisitions,” writes Staci Zaretsky for Above the Law. This time around, in-house counsel at beverage giant SABMiller will need to grab a drink after the company’s merger with Anheuser-Busch InBev closes next month.”

And The Global Legal Post reports:

The redundancies form part of a company-wide structural overhaul that will also see SABMiller general counsel John Davidson stand down next year once the merger is complete. Senior lawyers have already been notified of the lay-offs by Mr Davidson himself, though consultations are still ongoing and staff won’t be formally notified of the management’s decision until the middle of next month. SABMiller company secretary and deputy general counsel Stephen Shapiro has already been confirmed as one of those affected by the lay-offs, as well as deputy GC for M&A Stephen Jones and deputy GC for regulatory and industry affairs John Fraser. The company has indicated that up to 35 in-house staff will be likely be affected by the cuts.

Read Above the Law and Global Legal Post.

Stephen R. Williams describes that uneasy feeling an in-house lawyer can experience when overhearing someone in the company saying the heart-stopping phrase “Legal said it was okay.”

Williams, writing for Above the Law, explains that it’s nearly impossible to remember each time he or his boss have weighed in on the legal aspect of a given topic. And then to hear someone who he can’t immediately identify, or cannot recall meeting with, cite something his department has said as the rationale for their action can invoke an immediate sense of panic.

He offers some advice by discussing two of the greatest lessons he has learned in his time in-house.

Read the article.

The National Association of Corporate Directors is offering free downloads of an article featured in the association’s July/August issue of NACD Directorship magazine, Tom Sager’s “How to Win at War.”

Sager is a former general counsel at DuPont Co.

The article describes how to:

• establish the general counsel position as vitally important;
• define your role in strategic boardroom decisions; and
• prepare for battling activists, based on Sager’s experience with Nelson Peltz.

NACD Directorship magazine offers boardroom intelligence and corporate-governance information. The full publication is available exclusively to NACD members, but anyone may download a complimentary copy of the article.

Download the article.

Bloomberg Law reports that salaries for in-house attorneys are increasing by more than four percent annually, but almost half are still unhappy with what they’re being paid, according to a survey released this week.

The BarkerGilmore survey of trends in legal department compensation also asked in-house attorneys to compare themselves to firm lawyers by asking them to rate their pay relative to their “peers.”

“While their salaries are going up at a rate of 4.2 percent across industries — well above the U.S.’s 2015 inflation rate of 0.1 percent — 44 percent of respondents said their compensation, including cash bonuses and equity awards, is ‘below or significantly below that of their peers,’ ” reports Bloomberg’s Blake Edwards.

The survey found that lawyers in the services industry reported the highest dissatisfaction rates, while lawyers in the energy sector were most likely to be looking for new jobs.

Read the article.

As  one of the country’s top paid lawyers, Viacom general counsel Michael Fricklas has also been one of the entertainment industry’s most influential. But now he finds his own job hanging by a thread as Viacom works through a months-long legal battle with founder Sumner Redstone for control of the media giant, reports The Hollywood Reporter.

“A settlement between Viacom and Redstone’s National Amusements, resolving Dauman’s lawsuit, allows Fricklas to resign with ‘good reason’ if he’s not serving under [Philippe] Dauman or [Tom] Dooley, and insiders say it’s likely he’ll exit if Dooley does at the end of September when Dooley’s interim term is up and the board picks him or someone else to lead the company. But even if Dooley survives, it’s hardly certain that Fricklas will, too,” according to reporter Eriq Gardner.

“As the lawyer who also held a front-row seat to this drama, and one with a hand in most of the company’s most sensitive affairs for the past two decades, he also knows where the bones are buried. That’s a potentially strong pitch he could make to the Redstones in an effort to keep his job,” comments Gardner.

Read the article.

Lawyers in corporate legal departments and attorneys at law firms both say the amount of outsourced legal work has increased over the past year, but they disagree by how much, according to the International Association of Defense Counsel’s (IADC) second annual Inside/Outside Counsel Relationship Survey.

This discrepancy, along with the survey’s finding that in-house and outside counsel continue to rate themselves higher than they rate each other, points to noteworthy and enduring disconnects in communication and in their understanding of each other’s challenges.

“The purpose of the 2016 Inside/Outside Counsel Relationship Survey was to better understand current trends in outsourcing legal services and to gauge how in-house counsel and outside lawyers are getting along, especially compared to the findings from the IADC’s 2015 survey,” said John T. Lay, Jr., IADC President and a shareholder at Gallivan, White & Boyd, P.A. “The survey results demonstrate that both sides still require greater understanding and support in certain key areas.”

Administered by a third party, the IADC online survey includes responses from 346 corporate attorneys currently working in the legal department of a company/corporation and 333 attorneys employed at a law firm or private law practice. Most respondents hold leadership positions within their organizations. A 2,500 member, invitation-only organization, the IADC conducted the survey in its role as a leader in many areas of legal reform and professional development.

Notably, sixty-one percent of inside counsel survey respondents reported an uptick in the amount of work they were contracting out to law firms over the last 12 months, while only 39 percent of outside counsel say their work from corporate clients increased over the same period. Compared to the previous 12 months analyzed in the 2015 survey, this year 8 percent more inside counsel and 12 percent more outside counsel reported growth in the overall amount of outsourced legal work. Also, slightly more than half of in-house respondents said they expect outsourcing to continue to grow over the next 12 months.

“The significant variance in opinion between the two groups on how much work is going to law firms tells us that companies are consolidating more work with a smaller number of law firms and that’s a trend that is having a significant impact on our industry,” said Andrew Kopon, Jr., IADC President-Elect and a founding member of Kopon Airdo, LLC.

The survey also revealed disagreements between inside and outside counsel on how well each group is doing in managing their client-vendor relationships and understanding of each other’s business goals and operations. Billing and budgets, unsurprisingly, are front and center among the survey respondents’ areas of concern. In-house counsel gave outside counsel their lowest grades concerning offering timely and realistic budgets and discounted fees/fixed fees/alternative arrangements when requested.

One in-house survey respondent noted that outside counsel “put multiple partners on the same matter; exceed budgets; do not offer fee arrangements that are linked to value.” Conversely, an outside counsel respondent suggested that in-house counsel should “eliminate budget requirements when a case is new and remove absurd billing guidelines.”

Communication also was called out by both inside and outside counsel respondents as an area of concern. One outside counsel respondent suggested that lawyers in legal departments should communicate “regularly and clearly on what the objectives are and the methods to be used to achieve those objectives.”

In-house survey respondents cited outside counsel communication failures including not returning phone calls and emails in a timely manner, insufficient updates on case developments and strategy changes, and “taking steps without first securing clearance from legal department.”

Inside counsel rated attorneys at law firms highest for their expertise and how well they work with the in-house legal department. Attorneys at law firms were most complimentary when rating in-house attorneys on responsiveness to questions, feedback, or requests for authorization.

To access a PDF of the 2016 Inside/Outside Counsel Relationship Survey results, visit http://www.iadclaw.org/assets/1/7/2016_IADC_Inside_Outside_Counsel_Relationship_Survey.pdf.

Phase 5, an independent market research firm, is conducting a comprehensive study of how third-party risks are managed within organizations.

Participants in the study will receive complimentary copies of the final report. All responses are confidential and will be reported only in aggregate form.

Some of the questions to be considered include:

• What are the top objectives organizations have when it comes to their third party risk management programs?
• What challenges do organizations face when developing their third party risk management programs, and what could undermine the effectiveness of their efforts?
• What processes do organizations employ to conduct third party due diligence?
• How does your organization compare to your peers when it comes to its level of third party program maturity?

Take the survey.

U.S. Transportation Secretary Anthony Foxx

Bloomberg Law examines a lawsuit involving U.S. Transportation Secretary Anthony Foxx, who is the target of an attempt to recover salary Foxx collected during his three-and-a-half year tenure as deputy general counsel at a now-defunct company.

“From 2009 to 2013, Foxx worked as a deputy general counsel at the bankrupt Charlotte bus maker DesignLine. During that time, he also served as mayor of Charlotte on a part-time basis, writes Gabe Friedman. “Now, the liquidating trustee in bankruptcy court is seeking to recover his pay — as a fraudulent transfer — during a three-and-a-half year stretch.”

The salary in question works out to $309,760, or $88,502.86 per year.

“The parties in the case have agreed to participate in a voluntary, non-binding mediation in Charlotte that will occur on or before Sept. 30, according to an order filed in federal bankruptcy court this month,” according to The Charlotte Observer.

Read the article.

Bloomberg Law is reporting that Yahoo General Counsel Ronald Bell could receive as much as $9 million in severance payout as a result of Verizon Communications’s $4.8 cash acquisition, according to the company’s filings.

In the report, Gabe Friedman points out that Bell’s so-called golden parachute payday is subject to a number of caveats, including that Verizon closes its deal to purchase Yahoo and that he is terminated.

By analyzing SEC filings, Friedman estimated severance payouts for other Yahoo executives, including $54.8 million the company’s CEO Marisa Mayer, $19.8 million for its chief revenue officer Lisa Utzschneider, and $16.1 million for chief financial officer Ken Goldman.

“All of those payouts are dependent on a number of factors, including that the executives leave the company,” according to the report.

Read the article.

The Ninth Annual Blickstein Group Law Department Operations Survey, in cooperation with Consilio, is being conducted online now, with a deadline of Tuesday, August 9.

The survey is the oldest research specifically covering law department operations. It is designed solely for the professionals who manage complex legal department operations for their companies, Blickstein Group says on its website.

The LDO survey was first created in 2008 to give law departments a consistent platform to benchmark themselves and shed light on the then-emerging profession of law department operations.

Sponsors of this year’s survey include QuisLex, Exterro and Onit.

Survey participants will receive copies of the proprietary.

Topics include:

• Compensation
• Metrics and Reporting
• Outside Counsel Management
• Technology and Cybersecurity
• Change Management

Participate in the survey.

By Monica Zent
Founder and CEO of Foxwordy and ZentLaw

The reluctance of legal departments to adopt new technologies to improve their work is a tried but true narrative. While many general counsel are making progress in adopting technologies, perhaps by necessity as budgets shrink, there are still many GC at legal industry events who are avoiding technologies that have the potential to evolve their practice and their teams for the better.

It doesn’t need to be this way. General counsel can serve as the champion in their department for legal technology, and the reality is that technology is here to stay. There are certain basic technologies that have become absolute imperatives for successful GC leadership.

Here are the five basic technologies every GC must adopt now:

1. LinkedIn Is No Longer Optional

Despite the networking site’s recent $26 billion acquisition by Microsoft cementing its ubiquity, I continue to encounter an astonishing number of otherwise brilliant GCs who have little to no appearance on the site. This is a mistake, as LinkedIn provides many opportunities for in-house legal departments. For instance, the site’s massive talent pool is essential for recruitment. In addition, GCs can use their blogging platform, Pulse, to demonstrate their expertise to those outside the company, as well to prove to the C-Suite the value of the legal department in budget allocation. For GCs who are not on the site already, the time is now to set up a LinkedIn profile, complete with a photo, and begin taking advantage of its potential for both recruitment and reputation-enhancement purposes.

2. ELM Software Streamlines Legal Operations, Especially E-Billing

Electronic Legal Management (ELM) software is a no-brainer for general counsel seeking to free up space within a budget. ELM adoption overall is expected to increase by 20 percent by 2020, but even then that will only account for half of in-house legal departments. Do not be among those late-adopting GCs who will only start considering these solutions in 2021. At the very least, waste no time looking into e-billing software that automates invoicing. Some e-billing services that can help get you started are SimpleLegal and Serengeti Law.

3. Analytics Are Crucial for Keeping Employees Engaged

Within a legal department, work can sometimes feel tedious and slow. Working solely to fix problems and provide brief counsel can leave you with an excess of idle time, leading to boredom among staff and, in a sense, reverse burnout. Interestingly, integrating data analysis into the work of employees can help keep them engaged by expanding their perspectives past the company.

A recent survey by the Coalition of Technology Resources for Lawyers found that seventy-one percent of legal departments expect spending on analytics to either increase or stay the same, but this was specifically for e-discovery. Analytics provide so many more interesting opportunities for law departments to survey the legal industry as a whole, such as using predictive analytics for behavior of particular judges, types of plaintiffs and competitors. Implementing analytics in these creative ways can energize the legal department when work begins to get dull.

4. Collaboration Tools Are Now Indispensible for Profit

The benefits of collaboration for lawyers are well documented. Harvard Law Scholar Heidi Gartner found that among some major international law firms, those execs who work with more people to service a client either hold profitability steady or increase it over time. Meanwhile, a recent Raconteur survey of C-Suite executives found that 73 percent believe their organization would be more successful if their employees were able to work in more collaborative and flexible ways.

Technology has the power to enhance collaboration among legal colleagues. The obvious technology for facilitating workplace collaboration is phone conferencing using tools like UberConference. However, there is increasing potential for social enterprise tools in the workplace. According to a McKinsey survey, 72 percent of executives expect their organization’s investment in social tools will increase. As a GC, you may not see investing in such services as an urgent need, but given the research on the relationship between collaboration and profit, neglecting tools that can enhance collaboration is like leaving money on the table.

Bottom Line

Like all other industries, technology is continually transforming the legal profession. As such, today’s general counsel have the unique opportunity of serving as the visionary for their organizations and keep their departments relevant, efficient and capable of delivering real value. As new technology continues to evolve, there are certain basic technologies that have already become “musts” for general counsel. By ensuring a solid LinkedIn presence and by implementing ELM software, analytics and collaboration tools, GCs will establish a solid tech foundation for their departments today that will benefit them in the future as well.

Practical Law will present a complimentary webinar on the use of Practice Point to incorporating new technologies into legal practices.

The 75-minute event will be Wednesday, August 3, at 1 p.m. EDT.

The discussion will cover three projects: an executive employment agreement, the creation of leave policies, and independent contractor classification, with explanation on how in-house practitioners can leverage Thomson Reuters.

Presenters:

Kate Bally, Co-Director, Practical Law Labor and Employment Service
Kate Bally joined Practical Law from Littler Mendelson P.C., where she worked as an associate in the employment group. Previously she was also an associate at Day Pitney LLP and a law clerk to the Honorable Stefan R. Underhill. Kate is Co-Director of Practical Law’s Labor & Employment Service.

Craig Vaughn, Strategy Manager, Practical Law
Craig Vaughn joined Practical Law in 2010, where he was one of the first Trainers and Account Managers to roll out the offering to the US market. Craig is now the Strategy Manager for Know-How and helps firms and companies best use Practical Law and Practice Point.

This program has been approved for CLE credit in AK, AZ, AR, CO, DE, FL, GA, IL, IN, KY, LA, ME, MN, MS, MO, MT, NE, NV, NH, NY, NJ, NV, ND, OK, PA, RI, SC, TN, UT, VT, WV, WI and WY.

Register for the webinar.

Bloomberg Law has drilled down through Securities and Exchange Commission documents to see how the compensation of 30 of the highest paid general counsel compares to the pay for other top-ranking executives in their corporations.

The analysis found that 10 of the GCs were the fourth highest paid at their company, meaning less well-compensated than at least three other executives. “Then, in order, eight of the GCs were the third highest paid exec at their company, seven were in the number five spot, two were the second highest paid and so on,” wrote Gabe Friedman.

Thomas Mason was the only GC from the list ranked as the highest paid executive at his company. Mason’s whose title changed in December 2015 from a vice president to executive vice president and general counsel of Energy Transfer Equity, a Dallas-based natural gas storage and transportation company, the report says.

Read the article.

Bruce Sewell is Apple’s general counsel and senior VP of Legal and Global Security.

Bruce Sewell, senior vice president of legal and global security and general counsel at Apple Inc., leads Bloomberg Law’s list of the most highly compensated general counsel in American companies.

While his 2015 salary was $1 million, other benefits brought his total compensation to $25,017,626, according to the report.

The list names 30 of the best-paid GCs, with total compensation ranging from $4.8 million for Eli Lilly’s Michael Harrington, to Sewell’s $25 million.

The top five slots on the list include GCs from Apple, General Electric, Amgen, Hertz and PayPal.

Blake Edwards and Gabe Friedman, with special assistance from Brandon Kochkodin, compiled the list for Bloomberg.

Read the article.

The National Association of Corporate Directors (NACD) recently released Director Essentials: Preparing the Board for Shareholder Activism and provides an executive summary of the report for free download.

As year-round shareholder activism becomes the new norm in the American boardroom, directors are called upon to prepare for and respond to any possible activist challenges, the NACD reports. The new publication is designed to equip directors with the knowledge and tools they need to address this challenge.

This report includes information on trends in activist campaigns, types of investors and their methods of influence, and the board’s role in preparing for and responding to an activist campaign.

The full publication is available exclusively to NACD members, but the executive summary is freely available.

Download the executive summary.

Image by Marc van der Chijs

Google’s self-driving car project has created a general counsel position—and hired Kevin Vosen, the chief legal officer of The Climate Corporation to fill it—as it prepares to shift from moonshot to company, reports Kirsten Korosec for Fortune.

“Alphabet’s Google has teams of lawyers. And even the Google self-driving project, which is housed under X (the division where the company’s experimental projects reside), has lawyers. But until now, it’s never had one dedicated to the project full time and of this level of seniority,” she writes.

The article points out that the hiring comes at a critical time as Google aims to commercialize self-driving cars by 2020. With a CEO and a director already in place, a chief lawyer has been a missing piece.

Read the article.

Archer Norris published its second annual California Business Litigation Report, revealing that corporate lawyers continue to view many aspects of California’s business environment as perplexing, downright exasperating, and in many ways more challenging than other states.

In a release, the firm said employment laws and labor issues were found to be by far the most significant legal concern of companies doing business in California, reported by 62% of respondents. When it comes to areas in which litigating in California is more challenging than in other states, employment law and labor issues again landed in the top spot (69%), followed by environmental law and regulation (57%). The survey showed that the most-cited legal stumbling blocks also include commercial litigation, product liability, intellectual property, land use, and health care. Among out-of-state counsel specifically, regulatory compliance was repeatedly cited as a chief challenge across a wide spectrum of legal concerns.

Conducted in partnership with ALM Marketing Services, Archer Norris’s survey polled general and corporate counsel with business interests in California on their opinions of the California legal climate, how they evaluate litigation matters, and how they choose outside counsel for handling these matters.

This year, Archer Norris also examined current attitudes toward hot issues such as cybersecurity, finding that anxiety about exposure to cyber risks indeed runs deep among in-house counsel, with nearly two-thirds reporting they are “very concerned.” They are most worried about information loss and associated costs resulting from data leakage or systems attacks, damage to critical IT infrastructure, and risk arising from malware and computer viruses.

“The results of our 2016 survey make it clear the legal terrain in California continues to prove daunting not only to companies new to litigating in the state, but also to those who have been handling matters here for some time,” said Gene Blackard, Managing Partner of Archer Norris. “In order to overcome these challenges, it’s more critical than ever for companies doing business in California to have highly responsive and knowledgeable outside counsel. Archer Norris has guided hundreds of businesses through the complex litigation and transactional landscape here, with the goal of seeing our clients succeed in California long-term. With more than 100 attorneys practicing in five offices across the state, we’re exactly where our clients need us to be to best handle their diverse needs.”

The survey also yielded insights about how in-house counsel evaluate which outside California counsel is the right partner. While 55% of respondents noted the importance of a firm offering competitive rates and fees, a number of other factors were deemed more important than cost. Respondents first and foremost look for dependability and consistency (74%), followed by responsiveness, depth of experience, knowledge of the business and industry, and whether the law firm is one known for thoroughly exploring options for resolution other than going to trial.

Respondents reported spending about one-quarter of their overall legal budgets on outside counsel, and most said their budgets will stay the same or increase this year (37% and 29% respectively) compared to last. Many admit they would consider paying “premium” fees (up to 30% above the norm) to defend “bet the company” issues (23%) or legal matters where the client risks losing $1 million or more (32%).

The previous Business Litigation Playbook white paper, which also reveals corporate counsels’ greatest legal concerns within a variety of practice areas, can be downloaded.

Bank of America’s top lawyer isn’t the only in-house attorney expressing displeasure with associate salary raises announced recently by BigLaw firms and boutiques, reports Sara Randazzo of The Wall Street Journal. She says other general counsel are sending letters to their outside law firms, warning them of the potential for relationship problems if they join in the pay hikes.

The report quotes a letter Allstate Corp.’s general counsel, Susan Lees, sent to some law firms, challenging the logic of paying first-year associates $180,000.

“[O]ne must question the merits of a business model that compensates fresh law school graduates, who are devoid of any meaningful lawyering experience, with a salary greater than that of a seasoned in-house corporate attorney with a decade or more of experience counseling senior leaders in our organization,” states Ms. Lees’s letter, which was reviewed by Law Blog.

Read the article.

By Jose Tabuena, JD, CFE, CHC

In continuation of the discussion of compliance program “effectiveness” and the challenges of metrics and measurement, is the concept of benchmarking — an oft misunderstood term. Simply put, it is the process of comparing one’s own business processes and performance to industry standards and peers to determine a relative degree of success.

Occasionally one can still find reference to a board director or company executive stating, “We decided to “benchmark” our compliance program, but actually meaning, “We brought in a consultant who linked the elements of the Federal Sentencing Guidelines to our program, gave us a grade, and then talked to us about what’s going well and what could be improved.”

Although we don’t need to get tied up in the semantics, it is important to keep distinct benchmarking from other processes involved in a program evaluation. Benchmarking is a discrete process from the assessment or audit of the effectiveness of a compliance program. While benchmarking can be part of a program evaluation, by itself it does not comprise an evaluation and determination of effectiveness. It does, however, enable organizations to develop plans on how to make improvements or adapt identified leading-edge practices, usually with the aim of increasing some aspect of performance.

Benchmarking already seems to be an implicit feature of a program evaluation, whether conducted by a prosecutor in deciding if a company’s compliance program is so deficient that criminal prosecution may be appropriate, or performed internally when a board direct asks how the company program compares to competitors. In the event of a compliance failure, government investigators are said to compare the organization’s compliance program to those of similar organizations (in terms of size, complexity, industry, geographic footprint, etc.). Companies whose programs are not comparable to those of their peers are more likely to be found ineffective and could be subject to harsher penalties.

Recent developments, including the Department of Justice creating a new position and hiring a compliance counsel, suggests that government authorities will be looking more closely at compliance programs not only to see if they actually exist or meet minimum standards, but whether they are closer to better practices. The charge of the new compliance counsel includes assisting prosecutors in establishing appropriate benchmarks for corporate compliance. According to the DoJ section chief, this means “benchmarking with various companies in a variety of different industries to make sure we have realistic expectations … and tough-but-fair ones in various industries.” This trend of the government to provide more guidance has continued with the DoJ stating it plans to release a set sample questions to give companies an idea what investigators and prosecutors are concerned with.

Types of program benchmarking

Compliance professionals and auditors should monitor this promised guidance from the Justice Department’s Fraud Division on how it proposes to evaluate the existence and effectiveness of individual corporate compliance plans. A recent and detailed “open letter” to the DoJ’s new compliance counsel (published in the Harvard Business Law Review) serves in part to provide recommendations on how the Department should implement this goal of establishing industry-specific benchmarks by which individual programs may be evaluated.

As described in the open letter, some of the principal categories of business benchmarking to consider include:

External benchmarking. This involves analyzing “best in class” outside organizations, providing the opportunity to learn from those perceived to be at the leading edge. This is the type that probably comes most readily to mind, and seems the most intuitively appealing—why not learn from the best? But three caveats are in order.

While benchmarking can be part of a program evaluation, by itself it does not comprise an evaluation and determination of effectiveness. It does, however, enable organizations to develop plans on how to make improvements or adapt identified leading-edge practices.

First, this type of benchmarking can involve implicit decisions about what makes certain organizations best-in-class for certain corporate compliance functions. This is an area of uncertainty, though promising empirical studies are emerging. What works (or what works best) is still not fully known.

Second, the DoJ’s own experiences with corporate investigations have revealed that companies with a general best-in-class reputation (in terms of size or profitability) can still have significant deficiencies in their compliance programs.

Third, solutions that work effectively for very large companies may not be practicable for smaller companies that cannot afford the necessary resources or technology to implement them.

Internal benchmarking. This entails benchmarking businesses or operations from within the same organization (e.g., business units in different countries). At first blush, this type of benchmarking may not seem worthwhile. If a compliance program is found deficient in one business unit within a company, examining how that program works in other business units of that company might seem pointless. However, companies have discovered that in examining a particular process across the organization, they may find significant variations between units or product lines. Such variations can help identify flaws the company should fix or enhancements the company should adopt, and determine whether ongoing monitoring is necessary.

Performance benchmarking. This looks at performance characteristics in relation to key products and services in the same sector. Although the DoJ does not set production performance standards—for example, how many units per hour should be produced—it could use performance benchmarking to identify features of compliance programs that yield quantitatively measurable results. One example would be aboveaverage detection of instances of potential misconduct or numbers of corruption-related Suspicious Activity Reports. In healthcare, this could entail the frequency and accuracy of regular audits of billing and coding processes to ensure that medical services were billed and paid correctly given the scrutiny of government reimbursement.

Strategic benchmarking. This involves examining long-term strategies, for example regarding core competencies, new product, and service development, or improving capabilities for dealing with change. Standard components of compliance programs, such as risk assessment processes and cultural assessment, may come to mind here. The methodology could include strategic approaches for companies developing or improving compliance programs.

Here again the auditor can bring his or her toolbox to assist the compliance professional in benchmarking the program. Methodologies and techniques for benchmarking comprise the evaluative approaches the audit profession has used for systematic program evaluation. The audit practitioner could apply rigorous approaches such as maturity and internal control reliability models with different levels of effectiveness when benchmarking the compliance program.

A feature ideal for benchmarking is assessment of whether the compliance officer has the appropriate autonomy and resources to oversee the compliance program. Because what constitutes appropriate autonomy and resources can vary widely for smaller and larger companies, the general standard and guidance is too general and laden with contingency. For instance, a single paragraph in the FCPA Resource Guide states multiple times that the degree of autonomy and extent of resources devoted to the program will “depend” on circumstances.

Benchmarking on autonomy and resources would be more useful if it concentrates on identifying examples of suitable practices to ensure sufficient oversight, autonomy, and resources in companies of different sizes. For example, while a number of large companies have now separated their risk and compliance functions from their legal departments, smaller companies may need to decide whether and how they can leverage their compliance or legal departments (whichever is currently in place) to be effective overseers of risk and compliance wearing dual hats. Ideally what may emerge is the ability to identify percentage data that could be useful for companies of various sizes. For example, “We found that companies with annual revenues of less than $50 million, those companies that appeared to have effective compliance programs typically devoted between A and B percent of their annual budgets, while companies with annual revenues of $500 million or more appeared to have effective compliance programs typically devoted between C and D percent of their annual budgets.”

Another component for benchmarking is the compliance hotline. Auditors can benchmark the company’s hotline data to the vendor’s other customers of a similar size and industry, or to another credible external source. If you are only getting a fraction of the industry average number of complaints, there may be problems with the training and communications program. Further analysis can show whether the variance in hotline data (volume, incident mix, use of anonymity) is local or pervasive.

Considering the old adage of the usefulness of measuring call volume, benchmarking can help auditors assess if low volume is indicative of particular issues with the hotline process, by comparing call volume to industry averages. A low call volume can instead be due to employees using other methods to report potential wrongdoing. Before benchmarking your hotline, consider aggregating data from each reporting method to allow for such differences.

Benchmarking adds another piece to the puzzle of evaluating program effectiveness. Compliance officers themselves do not always know what works in compliance. For instance, it is difficult, if not impossible, to show whether an investment in additional training will make a meaningful difference in employee behavior, or whether one form of compliance infrastructure is better than another, or what the right level of staffing or resource allocation is for a particular compliance department.

If compliance officers cannot answer these questions definitively, there is good reason to suppose that generalist prosecutors who are not embedded in the day-to-day operation of the subject organization cannot precisely answer them either. At a minimum there is value in better understanding what practices are in place and how your organization compare.

All these developments suggest that the DOJ will be scrutinizing compliance programs much more closely. Significantly it reveals recognition by the government of the need to be more transparent about how its decisions are made regarding prosecution and related matters while acknowledging that at the moment program evaluation needs benchmarks in order to better evaluate effectiveness and performance.

Originally published in Compliance Week

Thomson Reuters Practice Point, a new tool that integrates the legal resources attorneys need to advise, negotiate and structure business dealings, is hosting a series of free 30-minute webinars providing an overview of current in-house legal trends.

June 15: Practice Point Exclusive Sneak Peek: Labor and Employment, 1:30 p.m. CT, featuring Kate Bally, Co-Director of Practical Law’s Labor and Employment service.

June 16: Practice Point Exclusive Sneak Peek: Capital Markets & Corporate Governance, 1:30 p.m. CT, featuring Chris Roehrig, Senior Legal Editor of Practical Law’s Capital Markets & Corporate Governance service.

June 22: Practice Point Exclusive Sneak Peek: Intellectual Property & Technology, 1:30 p.m. CT, featuring Rita Berardino, Senior Legal Editor of Practical Law’s Intellectual Property & Technology service.

June 23: Practice Point Exclusive Sneak Peek: Commercial Transactions, 1:30 p.m. CT, Featuring Laszlo Serester, Senior Legal Editor of Practical Law’s Commercial Transactions service.

Register for the webinars.