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Presenting a live 90-minute webinar with interactive Q&ACorporate Governance and FCPA Compliance:The Board's Duties and ObligationsMeeting Duty of Care Requirements, Facilitating Effective Oversight, and Minimizing FCPA RisksWEDNESDAY, FEBRUARY 18, 20151pm Eastern 12pm Central 11am Mountain 10am PacificToday’s faculty features:Kathryn Cameron Atkinson, Member, Miller Chevalier, Washington, D.C.Jay G. Martin, Vice President, Chief Compliance Officer andSenior Deputy General Counsel, Baker Hughes, HoustonThe audio portion of the conference may be accessed via the telephone or by using your computer'sspeakers. Please refer to the instructions emailed to registrants for additional information. If youhave any questions, please contact Customer Service at 1-800-926-7926 ext. 10.

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Corporate Governance and FCPACompliance: The Board's Duties andObligationsMeeting Duty of Care Requirements, Facilitating EffectiveOversight, and Minimizing FCPA RisksJay G. Martin, Baker Hughes, Inc.jay.martin@bakerhughes.comKathryn Cameron Atkinson, Miller & Chevalier Chtd.katkinson@milchev.com

Introduction Directors have certain duties of care with regard tocorporate compliance. FCPA enforcement remains very active, and complianceexpectations have steadily risen over the past decade.Foreign anti-corruption enforcement has also increased. Sarbanes-Oxley and Dodd Frank similarly create additional expectations and obligations for Board oversight.To exercise their duty of care and evaluate a company’scompliance program, directors must be educated and/oreducate themselves on these rules and best practices.6

Potential for Liability In recent years, U.S. authorities have charged anincreasing number of senior executives for FCPA-relatedmisconduct, including: Two former board members from Siemens AG A former board member of companies involved in Haiti Teleco Nearly fifty CEOs, Chairmen, principals and/or owners ofvarious public and private companies, including amongothers: KBR; Noble Corp.; Bizjet; PetroTiger; Nature’sSunshine; Schnitzer Steel; Control Components Inc.; MagyarTelekom; Latin Node; Pacific Consolidated Industries; SyncorInternational; and American Banknote Corp.7

Control Person Liability Under the FCPA, executives can be liable as “controlpersons” for the illegal acts of their subordinates: Nature’s Sunshine CEOand former-CEO charged with control person liabilityfor failure to supervise (should have detected red flags)despite having no direct knowledge of bribes Noble Drilling Chargesagainst former CEO, Controller/Internal AuditDirector, and Director of foreign subsidiary includedknowingly circumventing or failing to implement a systemof internal controls8

Role of the Board: Duty of Care In re Caremark International, 698 A.2d 959, (Del. Ch.1996). Settlement of shareholder derivative action, followinghealth care fraud enforcement actions Board members “personally responsible” for ensuringeffective compliance program Refined in later case law, still the landmark case thatshifted balance of responsibility toward Board forcompliance, previously solely the domain of the CEO9

Effective Compliance: Sentencing Guidelines Establish standards and procedures to prevent and detect criminal conductEnsure Company’s governing authority is knowledgeable about thecompliance and ethics program and exercises reasonable oversight ofthe programMake reasonable efforts to exclude persons conducting illegal activitiesCommunicate periodically about the program and conduct training onthe programMonitor program to ensure it is followedPromote the program and enforce it consistently throughout theCompanyRespond appropriately to criminal conduct when detected10

Effective Compliance: Role of the Board U.S. Federal Sentencing Guidelines Manual, Chap.8:“The organization’s governing authority shall beknowledgeable about the content and operation of thecompliance and ethics program and shall exercisereasonable oversight with respect to theimplementation and effectiveness of the complianceand ethics program.”Guidelines § 8B2.1(b)(2)(A).11

Effective Compliance: Program Basics Establish standards and procedures to prevent anddetect criminal conduct Sarbanes-Oxley requires Code of Conduct applicable toBoard members Ensure program is tailored to a company’s risk profile Board should see the written program, discuss withmanagement and CCO12

Effective Compliance: Program Basics Regularly evaluate Company’s FCPA risk profile todetermine if changes to the compliance programare necessary What does the Company produce and sell? Where does the Company operate? To whom does Company sell? How does Company sell?13

Effective Compliance: Tone at the Top Must establish culture of compliance Promote the program and enforce it consistentlythroughout the Company14

Effective Compliance: Tone at the Top Frequent, explicit questions from Board tomanagement regarding ethics and compliance Put management through their paces If it’s not on the Board calendar, request it be added Question management’s efforts to communicate tone attop, middle Board support for ethics and compliance should bevisible to all employees Reference in ethics and compliance communications Reference in investigation documentation15

Effective Compliance: Continuing EducationThe organization “shall take reasonable steps tocommunicate periodically . . . its standards andprocedures . . . to [the governing authority] byconducting effective training programs and otherwisedisseminating information appropriate to suchindividuals’ respective roles and responsibilities.”Guidelines § 8B2.1(b)(2)(A).16

Effective Compliance: Continuing Education Is the Board equipped to evaluate what it hears frommanagement? FCPA training should be on the Board calendar Whether in-house or outside FCPA counsel conductsthese training sessions will vary The Board should be conversant in: the company’s FCPA risk profile currentanti-corruption enforcement trends compliance programbest practicescomponents, staffing, and budgets17

Effective Compliance: Access to the BoardThe Chief Compliance Officer “should, no less thanannually, give the governing authority or an appropriatesubgroup thereof information on the implementation andeffectiveness” of the program.Guidelines §8B2.1, Commentary, Application Note 3.18

Effective Compliance: Access to the Board Add it to the Board calendar Tailor time allotted and level of detail to level of risk Key program components Program metrics (e.g., training completion, hotline calls) Status of planned program enhancements Relevant audit/investigation findings and status ofresponse Whistleblower reports and response Publicly available enforcement updates19

Effective Compliance: Periodic TestingCompanies should periodically test the effectivenessof their ethics and compliance program.Guidelines §8B2.1(b)(5)(B)20

Effective Compliance: Periodic Testing Testing is itself a differentiator Many different ways to test Analyze metrics captured in program operation Data analytics Town hall meetings Mini-assessments/compliance reviews Leverage internal audit/compliance audit (more frequent) Engage outside experts (less frequent) Board can drive this program element21

Effective Compliance: Reporting MechanismsAn effective program must “have and publicize asystem . . . whereby the organization’s employeesand agents may report or seek guidance regardingpotential or actual criminal conduct without fear ofretaliation.”Guidelines §8B2.1(b)(5)(C).22

Effective Compliance: Reporting MechanismsDodd-Frank presents an opportunity for the Board toengage management on the subject of the reportingmechanisms in place. What are they? How often are they used? What kinds of issues are being reported? Where? Bywhom? What is the process for responding to concerns? How is the process documented? Is the process working, or does it need improvement?23

Effective Compliance: Responding to Issues How does the Board exercise oversight when an issuearises? How does the Board ensure management properly pursues anFCPA investigation? How to manage diverging management and Board/Audit Committeeviews on how to proceed during an FCPA investigation? What is the outside auditor’s role during an investigation? What does the Company tell outside auditors and when? Understand the factors that can lead to soaring costs in aninvestigation.24

Effective Compliance: Responding to IssuesReview when to hire outside counsel: Decide if Company should get outside counsel only inthe event of a crisis (investigation, conflict betweenManagement and Board) or for normal business on aregular basis If outside counsel retained only for investigations, decidewhether they are hired only for outside investigations(involving the Government) or also for internalinvestigations If the Audit Committee, the Board, and Company sharesame legal counsel, determine how and to whomcounsel reports25

Effective Compliance: Responding to Issues Involvement of the Board in determining whether to selfdisclose potential anti-corruption violations How soon should a suspected FCPA violation be reported to theBoard? To whom should issues be reported? What issues should be reported? What criteria should apply to the reporting decision? How often should issues be reported? Benefit vs. risk of self-reporting, given the circumstances?26

Effective Compliance: Best Practices Board needs to do four things in FCPA compliance: Understand the company’s FCPA risk profile Understand FCPA compliance best practices Understand the company’s FCPA program Question and test whether the company’s program isproperly tailored to the risk profile, and is maintainedconsistent with best practices27

6 Introduction Directors have certain duties of care with regard to corporate compliance. FCPA enforcement remains very active, and compliance expectations have steadily risen over the past decade. Foreign anti-corruption enforcement has also increased. Sarbanes-Oxley and Dodd Frank similarly create additional expectations and obligations for Board oversight.