So the investigation is finally over, and settlement negotiations are nearing their end. The whole company can breathe a sigh of relief that the constant interviews, document requests, and never-ending upheaval in your offices and stress on your employees is over, right? Wrong. The company has been hit with a monitorship. The nightmare stories of the “runaway monitors” in the New Jersey medical device cases – some of whom cost more than $50 million – and Apple’s woes with its judicially-appointed monitor cast a pall, promising three more years of the same.
But there is some hope. For monitors in transnational bribery in both the U.S. and the U.K. (at least pursuant to the new U.K. DPAs), the company gets to nominate three candidates from which the government will select the monitor. Careful selection of those candidates can minimize the cost to the company, both in terms of the monitor’s fees and the business disruption that comes from a monitorship. Here are the key questions to ask of those you invite to pitch to you:
Do you know transnational bribery and my company’s industry?
One of the key complaints Apple had about its antitrust monitor was that he had no experience in antitrust. Your monitor candidates need to know the FCPA and the UKBA, of course, but it’s also helpful if they understand anti-bribery laws more broadly so they can check your systems across the board. You don’t want to have to pay for their education. If they lack the broader expertise, you may end up with repeat reviews to check for other compliance issues or to go back and evaluate key risk areas that the monitor missed the first time around. Worse yet, failure to look for other compliance issues – as happened with a number of medical device companies – can lead to a second set of prosecutions under a different anti-bribery law. Waiting for the monitor to learn all the rules will cost you.
Likewise, if your monitor candidate is not already familiar with the risks specific to your industry and how your industry operates, you’re looking at paying for a longer ramp-up time as they get to know where the issues might be and where they need to focus. This not only increases your costs, but it might delay the start of the monitorship. In addition, it may mean the first report to the government is all about how your company operates and how the industry works, which the government already knows from the investigation, rather than getting down to business – potentially delaying resolution of the monitorship.
What is your plan for the monitorship?
So many monitor candidates walk into the interview with the government – let alone the company – with no plan for conducting the monitorship. The presentation is basically, “I used to be someone important, therefore I’ll be a great monitor.” Having once held an important position does not necessarily correlate to being a good monitor who won’t waste your time or your money – in fact, history shows those types of candidates sometimes make the worst (and certainly the most expensive) monitors. You aren’t looking for a big name. You’re looking for someone who knows what they’re doing, and will do it efficiently.
The first stage of any monitorship is the proposal of a work plan, which is reviewed and approved by the government. There’s only so much a monitor candidate can do before they know all the details of the problems the company already had, but some candidates don’t want to invest in putting a plan together at all until they are being paid for it. They will come in to pitch to you empty-handed aside from their resume. Don’t let them get away with it – there is virtually no way to ensure their plan is properly designed to minimize both fees and disruption to business operations if you don’t know what the plan is until they’ve been appointed. At a minimum, the candidates should be able to outline (in writing) their philosophy, strategy, and approach. The better they know the issues and the industry, the more detail they can provide. Particularly if the monitor is offering an alternative fee arrangement like a soft cap, the plan needs to be accurate and appropriate, to limit the possibility that they will cite unforeseen complications as a reason to exceed the cap.
Who is on your team?
Although a monitor is appointed as a single individual, rather than a group or a firm, no monitor can do the job without some kind of a team. How big is the team? What kind of expertise do they have? Are they entry-level associates, mid-level associates, partners? Will they be using local talent for offsite visits, or flying their people all around the world? And perhaps most critically, do they – and the monitor him or herself – really have the time and capacity to focus on your monitorship? If the firm that is pitching you already has multiple large investigations or multiple other monitorships, you are not going to be a focus of the team, and delays and last minute rushing around to meet the government’s deadlines is not in your interest.
A monitor can reduce the overall costs significantly if they use their partners sparingly and for particular expertise, and leverage local offices and in-house capabilities for on-site work to the maximum degree possible. Depending on the size of your operation, the core team should likely be at least one senior associate and one mid-level associate in addition to the monitor and the forensic accountant (see below), with other members swapped out as their particular skills are appropriate. Look not just at the billing rates of the team, but whether they are appropriate in terms of level and experience. Then compare the plan to the team and assess whether the monitor can realistically accomplish what they say they can.
How will you approach forensic accounting?
You should always ask the candidates how they plan to handle issues related to forensic accounting. If the answer is that they haven’t decided yet whether forensic accounting will be necessary and will figure that out later, pick another candidate. Forensic accounting will virtually always be necessary, and if it isn’t included from the beginning, can cause costs to skyrocket down the road.
That does not mean a Big Four accounting firm has to be hired, however. Can the monitor rely on in-house expertise already at the company? If that is their plan, ensure that your in-house resources are sufficient to both assist the monitor and accomplish day-to-day work, or you might face significant interruptions in normal operations because the monitor has hijacked all of Internal Audit. If the candidate plans to bring in outside forensic accountants, find out how they will be integrated into the team and what their role is in designing work plans. Ensure, like with the monitor’s own team, that the forensic accounting is streamlined and appropriate for the work. It is also critical that the forensic accountants be working together with the monitor, rather than seriatim, to avoid repeat reviews of the same materials or multiple interviews with the same people (who, after all, have their regular jobs to do).
Are you focused on testing or investigating?
You should have a sense of this from the answers you’ve already received, but this is the most important question of all. Remember, a monitor’s role is to ensure that the company’s internal financial controls and compliance processes are reasonably designed to prevent and detect misconduct, to avoid future problems for the company. The point is not to conduct a whole new investigation, digging around until dirt is found, all the while piling up the billable hours. After the initial review and upgrading (or creating) of the processes the company needs, the focus should be on testing those processes to ensure that they work, not hopping around to every nice office you have in the world to ask people the same questions they were asked during the internal investigation you already paid for.
If the monitor does find something – a red flag, a whistleblower report – it is not the monitor’s job to investigate it. The company, either with in-house resources or with the help of its own outside counsel, should do that. There are three reasons for this: first, it’s probably going to be a lot cheaper and less disruptive than the monitor. Second, the monitor has other things to do and needs to get them done in time to keep the monitorship from being extended, and shouldn’t be running down three-year-long rabbit holes that will potentially cost you millions. But most importantly, investigating independently from the monitor gives the company the chance to present to the government that it handles reports and red flags appropriately – it gives you the chance to show off to the authorities how far you have come, and demonstrates to them that you can handle issues in the future even once the monitor has gone home. This is the best chance you have to show you’ve reformed.
There are great monitors out there, who will make the process as cheap and painless for your company as they can. There are also terrible monitors out there, who will cost you a fortune and do you no good. Unlike those who went before you, you get to choose. Choose wisely!