Jay Rosen, “Mr. Monitor,” continues his series on corporate monitorships. Here, he discusses the various ways a proactive pre-settlement monitorship is used and the reasons an organization may want to employ one.
Today we are exploring the many uses of pre-settlement monitorships. Most generally, a pre-settlement monitorship occurs when an organization engages an independent body to conduct any kind of a third-party review or assessment. This may often be known as a “proactive monitorship.” In either situation, a company desires to assess its implementation of a compliance and ethics program on a proactive basis. Such a monitorship does more than simply focus on whether there is a compliance program in place, but more fully assesses its effectiveness. This assessment can be used by a wide variety of end-user parties, such as the corporation itself, with its stakeholders, with regulators or even with the public to demonstrate compliance with a wide variety of issues.
Internal Cultural Assessment
A key piece of the pre-settlement monitorship is to assess the company’s culture of compliance.
Using this type of a proactive monitorship can help an organization not only to assess where they might be at this point in time, but also to create a roadmap to improve and strengthen their culture of compliance and ethics going forward.
Another reason for performing a pre-settlement monitorship might be when a company wants to explicitly demonstrate its due diligence to law enforcement or regulators should something occur in the future that would result in action against the company.
Pre-emptive Strike/Preventing a Suspension/Debarment Action
Another way to look at the pre-settlement monitorship might be as a pre-emptive strike against a forthcoming punitive action on the part of government agencies.
My company, Affiliated Monitors, has had instances where companies subject to an action with one level of government, such as a U.S. Attorney’s Office in one area of the country, will use the pre-settlement monitorship to avoid being suspended or barred by the federal government and from federal government contracts. The pre-settlement monitorship performs a complete review, then made recommendations for remediations. This led to positive resolution with the government in the form of declining a suspension or debarment action.
M&A Due Diligence
Another use of the pre-settlement monitorship is in the mergers and acquisition arena. We have had situations where companies will, as part of the merger and acquisition pre-acquisition due diligence process, hire an independent third-party monitor to review the target company to ensure that they in fact have a robust ethics and compliance posture and corporate ethical culture to be able to fully integrate into their organization if closing occurs. Once again, this scenario speaks to the breadth and scope of the pre-settlement monitorship as a tool.
Powerful Prescriptive Tool
When viewed in the light of the three prongs of any best practices compliance program – prevent, detect and remediate – the power of a pre-settlement monitorship comes more clearly into focus. A monitorship has been traditionally viewed as an after-the-fact piece of an enforcement action.
However, through the pre-settlement monitorship, the tool becomes not only proactive, but prescriptive as you are using an ongoing monitoring solution.
It is even more powerful because of the independent nature of the monitor, which brings an unbiased eye to a compliance program.
In all these scenarios – internal cultural assessment, preventive strike or M&A due diligence – it is critical that the monitor bring real value through the monitorship. The monitorship should provide insight by employing a variety of investigative techniques, including interviews, document reviews and forensic auditing. All of this can provide solid information to not only the Chief Compliance Officer (CCO), but also the leadership of the organization.
In case you missed the earlier installments of this ongoing series, please see the links below.
Part 1: Corporate Monitorship 101: Who Are They, and What Can You Expect?
Part 2: What is a Post-Resolution Monitorship?