Corporation Scandal

Classic shareholder Powers：

Voting on directors[看照片】

Week 2 The Board of Directors, Executives and the 3 Lines of

Defence

Board of directors：
Role of the board of directors:different tpye director different function
Audit committee
Risk Committee
Compliance Committee
Governance & Nominating Committee
Compensation

Fiduciary duties：受托责任

They must be loyal to the company

Must act honestly

Being loyal to the company and

Acting honestly and in good faith when exercising their powers 忠实、善意– i.e. oversight.
Where a director has a personal interest that may conflict with his fiduciary duties to the company,
he should make disclosure to the company and obtain the approval of the company.董事和公司有
利冲，要披露且获得公司批准

Power of directors
• Companies Act, Section 25B.—(1) In favour of a person dealing with a company in good faith,
the power of the directors to bind the company, or authorise others to do so, shall be deemed to
be free of any limitation under the company’s constitution.【读不懂】
• 157A.—(1) The business of a company shall be managed by, or under the direction or
supervision of, the directors.

Delegation of the board’s management power:董事会授权

1.Board committees
2.Shareholders agreements
3.Delegation to senior officers / executives 向高管授权
Director 不会每天到公司，需要向高管授权（让他代理）day to day 公司事务
Compliance 是公司每天的日常事务
高管是董事会的代理人

“Oversight”监督 – – Practical challenges

• 157.—(1) A director shall at all times act honestly and use reasonable diligence 忠实、勤勉尽
责 in the discharge of the duties of his office.【该条款可以让高管 24months-5years 监禁罚款等
后果】
• A director acting bona fide 善意 within the scope of his authority is immune from 免于 tortious
liability for procuring 促使 his company’s breach of contract (i.e. the director did not breach any
fiduciary or personal legal duty owed to the company) - Said v Butt [1920] 2 KB 497
• Preventing directorial misconduct (negligence 疏忽 v recklessness) – Abdul Ghani
Due deligence
• Re Caremark standard (United States)--director
Prevent offence， bribery？UK new law-- 规定相同内容 filling law？

Peer Pressure, Ethical Fading, Asymmetric Information 信息不对称

The Elevator Experiment: Peer Pressure

• In the 1950s, Solomon Asch, a psychologist and pioneer in social psychology, conducted a series
of psychology experiments to document how the desire to conform to a majority group influences
an individual's actions - He was interested in learning how group dynamics shape our behavior.
• How much social pressure can trigger group think (either from direct responses or observed
behaviour)?
• Can we combat it?
https://youtu.be/iRh5qy09nNw (responses)
https://youtu.be/TrTk6DsEJ2Q (behaviour)
People translation the
SingPost stock takes a hit for bad $170m ecommerce deal
..SignPost acquired firms like TradeGlobal as part of efforts to transform itself into a global
ecommerce player, as its traditional line of business – postal services like snail mail – became less
relevant….【director 】
A few months after the TradeGlobal deal, Singapore’s Securities Investors Association (SIAS)
assembled the board of SingPost for questioning. SIAS is a nonprofit organization advocating for
investor rights in Singapore.
SingPost, in its recent announcement, says the board formed an independent committee to review
the circumstance of the TradeGlobal acquisition. It will seek legal action if necessary.

..a SingPost spokeperson added that the committee is expected to complete its review before the
SingPost AGM in July 2017, and that shareholderswill be updated of the outcome of the review.

Two level P39 valuation;

Mitigating asymmetric information risk:

Management directors 高管

有两种：outside[ceo is the most important one]/ inside director

Get the people who are get close to the fact
• Qualifications of outside directors 外部董事的资格
Independent
• “Deep dives” 深 挖 ?: pay salary ask company do my own deep dives[transaction bill]tell the
company to pay for concri? Director need the ability to ask right question
• Culture of credible challenge:
• Risk management/compliance [internal controls]:
• Advisory directors 咨询董事

Problem 2-2
Sam smith is a independent director and is dating the cfo of this company, another independents
directors was roomate of ceo,deliberate decision to dedare these director to independent
notwithstanding their connections with the company. You want to remain on the board. What
should you do?
How could you m
Stock exchange has listing menua,
No way to proof the relation between

Tenure in office 任期
https://www.sid.org.sg.i
resign

Governance and Nominating Committee

Some Seperate， some are combination

The candidates and their qualifications. Who would you pick?

Adam Kwok, Singapore’s former Ambassador to the UK, has served on the board for the 15 years
since his retirement from at age 65. You notice that recently he has been falling asleep at board
meetings and seems to be increasingly forgetful. You mention this in confidence to the chief
executive officer, who responds, “I know Adam has lost a step or two, but he's influential and
besides, I don't want to hurt his feelings.” What should you do? Would it matter how many people
serve on the board?
Alan Able: Age 68. European-American. Retired CEO of Underhill Co. Graduate of Harvard (AB)
and Stanford University (MBA in Marketing). He spent his career at Underhill, starting in the
stock room and returning after completing his education. Improper payments for publications were
received by company officers under his tenure but he was not personally involved. Under his
leadership, Underhill Co. doubled in size and saw its profits grow by an average of 7 percent per
year. Able's candidacy is favored by the son of the company's founder.

anice James: Age 57. African-American. Graduate of Middlebury College (AB). She is a
renowned poet and novelist and winner of the Pulitzer Prize in Fiction. Member of the Board of
Directors of Placing Kids First, a charitable organization dedicated to improving educational
opportunities for underprivileged children.【postive person】

Samuel Chin: Age 58. Chinese-American born in Hong Kong. Graduate of the Hong Kong
University of Science and Technology (Bachelor of Accounting) and Singapore Management
University (MBA in Accounting). Fluent in Chinese, English, and Malay. A former partner at a
“big four” accounting firm, he now runs a successful hedge fund focusing on emerging markets in
Asia.

工业机器人制造公司，Acton 推荐 Thomas 是名人厨师？有内幕交易案底，是 A 女友

Proxy fight/battle 代理权之争: using shareholding to pursue change the company
Collection of vote：代表投票 表决权征集
In financial institution, can say the person do not fit
Inside trading, personal profit you put up recommendation, take my view
公司法案 s44 local law

Risk committee

Problem 2-11: You are a lawyer and an independent member of the board risk committee of
Fincorp, a consumer lending firm. You were appointed because the governance and nominating
committee believed your legal skills would be helpful in managing risks of government regulation
and class action lawsuits. Terry Thomas, Fincorp's chief risk officer and a graduate of MIT, makes
a presentation to your committee describing a new computerized risk-management system which
involves “state of the art” modeling under different economic scenarios.

The presentation is mostly in the form of math that is so far over your head you don't even know
how to ask a question. You are comforted by the fact that Jenny Jones, the chair of the risk
committee and a professor at Harvard Business School, is smiling and nodding in agreement—
especially when Thomas makes it clear that the financial models he is proposing to use are derived
from Jones' own research papers. What is the risk here?
【Can you handle the peer presure? No, so maybe will make some same choice as the other two
director.I can not give professional advice, feel confident about their models theory】

Problem 2-7:
You are appointed as an independent director and chair of the audit committee of Gordito, a
Delaware company with its principal place of business in a South American country. Gordito is in
the business of importing vegetables from South America for use in gourmet snack foods. The
management and board chairman of Gordito are South American nationals and the board meetings
are conducted in Spanish, with simultaneous translation into English. You learned a little Spanish
in college but have forgotten everything you knew.
During your service on the audit committee you notice references to large cash transfers being
made to a bank you have never heard of in South America. You ask the company's internal audit
department (located in the company’s headquarters in South America) to check into the matter and
are informed that the practice is perfectly normal. A little while later an investigative reporter calls
you at home and asks if you know anything about Gordito being a front for drug cartels. What
should you do?【legal，compliance. Thank you for your call, but tommorrow maby i can give a
comment, if you do not know the fact and then you can denial.】communication is privelige,
In this situation, speak more is not suitable.

“风险偏好” 收购固定利率抵押贷款支持证券—不构成安全风险 保险监管机构看法不同

Everyone has different risk appetite, aggresive slower steaty, please regulator mybe shareholder
not happy. Secure. 做好决定取决于自己获得更充分的信息
Audit committee

Problem 2-9:
You serve as an outside director on the audit committee of SpaceTech, a company that supplies
guidance systems for military and civilian spacecraft. A recent internal audit uncovers instances
where required protocols for safeguarding government secrets were not followed. Sally
Sanders, the company's chief of internal audit, decides that these problems are minor and easily
corrected, and therefore are not a matter that needs to be brought to the committee.

You find out about the issue only by asking probing questions at the audit committee meeting. In
your opinion, the issue poses a risk to the company's reputation and certainly should have been
disclosed proactively. This is not the first time that Sally, in your opinion, has minimized the
seriousness of audit findings; past remonstrations have not changed her behavior. Although you
are upset, you also know that Sally is being groomed by the chief executive officer as his
successor when he retires next year. What are the possible adverse consequences? What should
you do?

【Told CEO this government secret, relate company’s Reputation. Some internal and sally know,
but as an independent director i don’t konw. Ask board classify sth minor】

Problem 2-10: You are an independent director and head of your company's audit committee. At
the most recent audit committee meeting, you notice that Bob Blanchard, the head of internal
audit, seems uncomfortable when describing the results of an audit of supply chain management.
During private time, Blanchard tells the committee that the vice president in charge of the business
line had demanded that the audit findings be revised to downplay the significance of the problems
discovered during the audit. Blanchard admits that because this executive is a powerful figure in
the organization, internal audit had softened the finding from “critical” to “significant.” What
problems does this present to you and to the committee?
【】
Compliance Committee

医院合规委员会负责人 医院被多付了医疗补助费 偿还则会使医院破产

Provide admitting? Start asking more information, financial statement. Software get the onsite, the
software answer tomorrow
当不知道答案的时候要知道去寻求帮助--本案中寻找这个软件帮助

Compensation Committee 薪酬委员会

Janice 要 600 万赔偿，公司收入 10 亿

Revenue ≠profit，利润可能更少，律师提供的是观点建议
This risk the board challenge
deep dive
Capacity the
Decision
Diversity
Longer change
Different kinds of work with
Week 3 Executive Officers

Actions taken by people in the 1 st line of defence

• Announcements by a company / PR 公关
• Social media / press reports – can they be ignored?
• Internal investigations?
• Accountability?
• Asymmetrical informational risk?
• Performance 绩效 ←→ Culture

酿酒上市公司，whistle-blower 说财报低估啤酒花成本，首席财务官说告密者精神有问题，
误解公司成本会计制度
A: 相信 CFO
B：
2 weeks to report，
在公司被起诉或者起诉前，看目标公司是否破产
General / Chief counsel 总顾问 second line

电气设备制造商 内部总顾问 公司工业发电机冷却剂关闭阀采购合同 工程师担忧阀门质量

问题 CEO 认为足以满足客户需求且在董事会上说节省成本 没有提出工程师的问题
If GC don not do something, People can loose their lives,
1.you Need plan 2.you need a law 3.law recognize that there are many method that you can get

电车电池生产上市公司，Mark 为一家高尔夫车生产商采购经理安排海岛度假，该客户第四
季度订单加两倍，未来季度订单会减少
内部审计部门提出会计条例不允许未来采购订单计入当期利润，度假问题
It is hard to prove Bribery, corruption
Under 30 thousand just fine,up need to go to jail
Do not Hire external counsel
If do not sign it,

Outside counsel

公司总顾问 sybil sweet 电话告知：收到 SEC 可能提起强制执行程序的告知，sweet 问是否

要报告 well 公告，她不愿意提交会影响投资者反应
If you are GC of HPL WHAT DO YOU do? Are you state in your filing?
Require Outside counsel

Internal Audit

Have invited this vendor 供应商 to come and serve your company
Due deligence
Operating
Delegator
director agree to
Adress bases alone

Your information miss

Remove the confidential information

Chief Compliance Officer

Stewardship?管理
The business line often decries 痛斥 having their wings clipped by the compliance team.

Secretly meeting with

Chief compliance officer--line 1

In this seminar, students will learn the importance of the concept known as the ‘tone at the top’,
the challenges a company’s board of directors (“Board”) faces, and importance of creating internal
controls in order to reduce informational asymmetry. We consider the practical challenges a Board
faces in establishing oversight over the activities undertaken by the executives when making
strategic decisions on behalf of the company, and how the lawyer can be expected to assist the
Board. We also consider policy and legal issues relevant to the Board such as independence,
directors’ qualifications, and fiduciary duty. We then undertake a deep dive of the Board by
considering the various sub-committees a Board is typically made up of (i.e. audit committee,
governance and nominating committee, risk committee, compliance committee, and compensation
committee).
We study the concept of the ‘three lines of defence’. We begin by generally considering the
misalignment of interest that often exists between the business line executives (first line of
defence) and the corporation. We then explore the role performed by the General / Chief counsel
(“GC”) and Chief Compliance Officer before moving on to examine the third line of defence;
served by the internal audit function. Finally, we consider the how outside / external counsel can
be expected to assist the GC in real life, which sets the stage for Parts II and III of the course

Presentation:
What went wrong?
How was it uncovered?
Why was there a compliance failure?
What challenges, if any did investigations throw up?
What remedial steps were taken and/or would you recommend?[examples]

Week 4 internal enforcement

Why is internal enforcement necessary?

• How to regulate the behavior of a non-homogenous group of employees ?
• Is it necessary to articulate a compliance policy? What are the benefits to be gained, if any?
• What does internal and external investigations entail?
• How to conduct investigations

Setting the Tone for Internal Enforcement 为内部执法定调--CEO、management director

A Compliance Policy 合规政策
A Compliance Program 合规计划【让得以真正实施的计划，Mechanism to bring policy to
life】

Compliance program 起草合规政策的必须考虑的 5 个内容：

- General commitment (Code of Ethics) 一般承诺（道德准则）
- Education & training 教育与培训【company make employee go for training,如果给员工培训
后就会】
- Reporting of issues (system / processes)问题报告（系统/流程）【如何发现问题，因为子公
司可能在世界各地，】
- Hiring standards 聘用标准【如果不事先规定好】
- Monitoring / Surveillance 监测/监督【工作期间 smoke break、washroom number of tap in/out
可以监控】

Pre-Employment Safeguards 雇佣前保障措施

- Background checks 背景调查
- Criminal antecedents 犯罪前科
- Credit history 信用记录
- Social profile?社会概况？

Internal Enforcement / Monitoring of employees 内部执法/员工监督

- Periodic Drugs and alcohol testing 定期药物和酒精测试
- Surveillance (emails, mobile phones, printer logs)监视（电子邮件、手机、打印机日志）

Types of Investigations 调查类型

Routine investigations (some examples include)常规调查（部分例子包括）
-Sexual harassment (see FT article – 19 Nov 2019)性骚扰（参见《金融时报》文章--2019 年 11
月 19 日）
-Theft 盗窃
-Insider trading 内幕交易
-Fraudulent behaviour e.g. Falsification of documents, invoicing fraud 欺诈行为，如伪造文件、
发票欺诈
-Bribery (?)贿赂
日常调查是律所进行的常规调查
Non-routine investigations 非例行调查
-Hiring of external counsel 聘请外部顾问
- Disclosure considerations 披露考虑因素
- Prospect of regulatory enforcement action 监管执法行动的前景
- Negative publicly 负面公开

Conducting Investigations 开展调查

（1） ‘Outside-in’由外而内
为什么有转账
只有一次机会访问？
（2）The Trail: Preservation of evidence (including digital evidence)足迹： 保存证据（包括数
字证据）
• Emails 电子邮件
• Cloning of hard-drives 克隆硬盘
• Surveillance data 监控数据
（3）Recording witness statements – Upjohn warning 记录证人证词【这应该是第一步要做
的事情】 - Upjohn 警告
胁迫、欺骗、利诱 promise 等非自愿方式获得的
Compensation：withhold salary--
如何预防此类事件-detect one
1、invoices-some way to validate that
Invoices portal-
Technological part--supplier
Company contract
DOA-banking approach payment

Ban practice

如何调查该事件-Detection
Checking the cash balance record
Internal auditor【比外部审计便宜成本低更了解案件事实】 can do sampling invoices【filght
inspection】
External inspection
Plan financial structure
Bank rolling--浮动支出
Send invoice and item
Deliver

Access to information (global company)获取信息（全球性公司）

§ Who is my client (employee v company) / conflict situations, Upjohn warnings
(Upjohn Co v United States) 谁是我的客户（雇员诉公司）/冲突情况，Upjohn 公司的警告
(Upjohn 公司诉美国）

§ Dealing with managers and business heads (recommendations to fire bad actors)与经理和业务
主管打交道（建议解雇不良分子行为者）
ØLocalised v Endemic problems (HSBC Mexico money laundering)局部问题与普遍问题（墨西
哥汇丰银行洗钱案
ØCo-ordination challenges (cross-border regulatory intervention, cross-agency objectives) – Semb
Marine employee charged by Brazil 协调挑战（跨境监管干预、跨机构目标机构目标）--胜宝
海运员工被巴西起诉

Practical Challenges 实际挑战

Legal advice / litigation Privilege 法律咨询/诉讼特权
Would you release your findings, interview records to the Regulator?你是否会将你的调查结
果、访谈记录透露给监管者
How to maintain an audit trail?如何保持审计线索？
Independence – biting the hands that feeds 独立性--自食其果
Your firm can be terminated 您的公司可能会被终止。.

Week 5
High court, state court,
To prosecute (criminally) or not
Public interest served?-yes
What there any substantial restitution to the victims?