Compliance: Ensuring It Is In Place And Remains In Place

Thursday, February 1, 2007 - 01:00

Editor: Mr. Robertson, would you tell our readers something about your professional experience?

Robertson: I have been an attorney since 1967, principally as a trial attorney. I began my career with the Army's Judge Advocate General's Corps and then moved on to the U.S. Attorney's Office for the District of New Jersey, where I spent nine years, completing my tenure as the United States Attorney for New Jersey in 1981. I have been in private practice since then, concentrating on complex civil litigation, including internal investigations.

Editor: Would you share with us the strategic thinking behind the founding of Robertson, Freilich, Bruno & Cohen in 1999?

Robertson: Our firm was founded on the proposition that a small, focused, litigation-only firm, properly supported with the latest technology, would be able to more effectively deliver legal services of the highest quality at a much more reasonable cost than the large multidiscipline firms.

Editor: How have the recent corporate scandals, and Sarbanes-Oxley and the regulatory structure that has emerged in response to the scandals, affected your practice?

Robertson: Today clients are much more aware of the need to have a compliance program in place than they were prior to the scandals. I hasten to add, well run companies have always paid attention to compliance, although not to the extent they do at present. I do not believe that the Enron and WorldCom incidents constitute an indictment of corporate America, but rather that these events reflect what can happen if power is concentrated in a few hands - in the case of the scandals these were unscrupulous hands - and goes unreviewed and unchallenged by the governing board or the audit committee. This is clearly recognized as an unhealthy situation today, and as a consequence clients rely on us to work with them proactively to address and mitigate the risks that attend even a hint of such a situation.

Editor: Given the culture of compliance that is now center-stage in corporate America, how does a company put into place an effective corporate investigation/self-critical analysis capability?

Robertson: Much of corporate America - and certainly the best corporations - has had an appreciation for compliance for a long time. That involves an appreciation of having to comply with certain outside standards. Ratcheting up the corporate mentality has not been a difficult exercise for these organizations. Where there may have been some difficulty lies with new businesses, evolving businesses, enterprises in new markets where there is little history of understanding and adhering to external compliance requirements and, of course, those corporations which have looked upon compliance as something of an afterthought.

If there is a need for a step-by-step approach, I think it is something like this:

identify the areas of risk within the industry and within the company;

establish an independent auditing process - internal, most certainly, but with an independent outside backup, if at all possible - to monitor the risk areas;

establish clear policies, train the employees in the implementation of those policies and ensure that the lines of communication are open;

retain independent experts to review and evaluate policies and procedures on an ongoing basis, and

stay abreast of industry developments that serve to identify new areas of risk.

Editor: What are the basic principles that the company must embrace to succeed in this effort?

Robertson: First of all, the company must have the foresight to recognize a need to be self-critical. There is a crucial need for the courage, and the ability, to look at the company and its operations from an objective vantage point. Given the present environment, it is suicidal for the company - and its officers and directors - to not be self-critical.

In my experience, those companies willing to identify and then confront shortfalls in their compliance programs are organizations with strong business models and, almost invariably, they are better prepared to compete globally than those unwilling to take such steps.

An excellent example of the type of corporate courage needed to face - however painful - the results of an investigation and then to take necessary steps to make the changes necessary to foster compliance and best practices is Johnson & Johnson's response to the Tylenol tragedy - an event that might have been a death blow to the J&J brand. The CEO, Jim Burke, together with the board of directors and the senior management team, addressed the crisis head-on and with a transparency that reflects the best traditions of corporate America. The courage and integrity shown by J&J and its CEO in that instance restored investor confidence and gained the admiration of the general public, and the long-term results speak for themselves.

Let me add that, as a consequence of the scandals, there is something of a view that corporate America has had to be harassed into doing the right thing. I am not of that school. Most corporations have been run competently by people who have tried to do the right thing and succeeded. They have not opted for profits over the demands of corporate compliance, and they continue to hew that line. They recognize that compliance ensures consumer safety and builds investor confidence, and those are the things that, in the long run, make for an enterprise's profitability.

Editor: Who should be in charge of the compliance effort? General counsel? Outside counsel? How about a non-lawyer, say the Chairman of the Board?

Robertson: There is no single answer. There are times when in-house counsel is the appropriate person to handle the effort, including the initial inquiry or investigation. There are other times when in-house counsel is perceived as being too close to whatever prompted the inquiry, and a disinterested outside person is the right choice. Very often that excludes the regular outside counsel as lacking the requisite independence and objectivity. The exercise is not merely a question of integrity but also of the appearance of integrity.

Editor: What is the role of senior management, and particularly the CEO and the board of directors, in the process?

Robertson: They play a critical role. Only senior management and the board can fully empower an investigation, can endow it with the credibility necessary to enable the investigative team to evaluate the effectiveness and reliability of the company's compliance program. If the team is truly invested with the authority of the company, everyone in the organization is going to be aware of their obligation to cooperate with its efforts. In the absence of the perception that senior management and the board fully support such an initiative, however, the team is going to be hard put to do anything more than go through the motions. Put very simply, if senior management and the board are committed to the process, it has an excellent chance of working; if they are not, invariably the results of the process will have little value.

Editor: Is it possible to determine whether a real culture of compliance has penetrated down through the corporate structure?

Robertson: I know of no perfect test. Certainly evidence of a healthy program exists where a compliance program is confronted with a challenge and functions the way it was designed to function. It is important to test the system on an ongoing basis, however, and to try to get to know the worker population and to listen to them. That is often more valuable than reviewing documents, and, in certain circumstances, can be far more revealing than listening to senior management. The rank-and-file may be in a far better position to tell you whether everyone in the organization acknowledges compliance as a priority and, if not, whether a training program is the appropriate response.

Editor: Once an effective system has been developed and put in place, how do you go about insuring that it remains effective?

Robertson: An effective compliance program must be reviewed and critically scrutinized on an ongoing basis. Training is a regular exercise, not a one-time response to a perceived need. Training is something that should be a part of the company's culture, and the people who carry on this function should be recognized and rewarded for their contribution. Above all, an effective compliance program requires leadership at the top, which entails management and the board meeting a responsibility to continually promote a culture of compliance throughout the organization. To be sure, some industries appear to be better at this than others. In the pharmaceutical industry the pressure for quality control seems to reinforce a compliance culture that is integral to the company. That is something that others might well emulate.

Editor: The response to the corporate scandals was swift and, according to at least some commentators, may have gone too far. "Boards of directors are so focused on process that no one is minding the substance of the enterprise." Do you agree with such an assessment?

Robertson: Essentially, no. There is no question but that boards are asked to do a great deal more today than they were just a few years ago. Senior management is today required to analyze and distil an extraordinary amount of information for the board's consideration. Nevertheless, the board continues to have oversight and strategic responsibility for the enterprise's activities - and not for day-to-day operations - and it is important for the board not to suffer from information overload or be distracted by issues more properly the province of management. Specialized board committees - and the audit committee, for starters - are in a position to address many issues in an informed way that the full board is not. I believe that a successful board - one that is going to lead a successful company in today's highly competitive business arena - is one that fully understands its responsibilities to ensure that a culture of compliance prevails throughout the company and to be focused on both process and substance. In meeting those responsibilities, such a board will carefully marshal all of the resources at its disposal, from within the board itself, from within the company and from outside the company.

Editor: Is there anything you would like to add?

Robertson: If a company is perceived from the outside - by investors and the general public - as having a solid culture of compliance, it is going to have a much easier time attracting investors, recruiting good personnel, addressing government scrutiny and, in general, avoiding the kinds of risk that often derail enterprises that are focused solely on the bottom line. In my experience, in addition, that company is going to have a workforce that takes some pride in the company and its culture. For all of these reasons, I think that having a good compliance program as a mark - perhaps the mark - of a well run company is here to stay.

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