June 14, 2012

More on “Busted! Yahoo’s Resume Lies: How Much Should You Investigate a Director Nominee?”

Did you see this NY Times column about Yahoo? Amazing that boardroom conversations get leaked to the press, particularly when the situation is in litigation. Not good governance to blab about your bad governance. Remember the H-P fiasco!

Anyways, as I blogged a few weeks ago, it seemed like a no-brainer to me that companies would conduct a background check on a director candidate (and CEO recruit) – even though they are not necessarily universal practices. Marty Rosenbaum weighed in with his own thoughts in a blog entitled “Responding to the Yahoo Resume Debacle.”

In response, I received a wide range of responses – I guess reflecting the diversity of practice in this area. As I learned, there are numerous state laws on acquisition – and use – of credit information, as well as arrest and conviction information. Apparently, states are really clamping down on employers’ use of all of this information for hiring purposes in view of the purported potential disparate impact on applicants. For example, see this Cooley alert about new California requirements for background check disclosures. And see these EEOC FAQs providing updated guidance about the ability of employers to check arrest and conviction records – as analyzed in this Locke Lord memo.

On the other hand, I had some members argue that the federal sentencing guidelines practically require criminal background checks for “substantial authority personnel.” I’m told that a key problem remains over what you can do with the background information if it indicates that the person engaged in “illegal activities or other conduct” that is arguably “inconsistent with” a compliance program. To be on the safe side under the sentencing guidelines, I imagine you’d tend to not hire someone who was in the grey zone. Some members asserted that the sentencing guidelines safe harbor provision protects an employer who hires someone in order to comply with employment laws.

So I’m still not sure what the right answer is on background checks and definitely would like to get more feedback on that. In Yahoo’s case though, the resume lie would have been uncovered with a simple Google search. This would have revealed discrepancies by comparing what Yahoo disclosed as the CEO’s background compared to what other companies – on whose board the Yahoo CEO sat – were disclosing; or what the Yahoo’s CEO’s former school was saying about him in alumni announcements. As I noted in our new “D&O Questionnaire Handbook,” this kind of basic diligence should be conducted every year when reviewing responses to the questionnaires. It’s too easy to pass up – and can certainly spare you and your company some big headaches…

Check out this interesting blog from Keith Bishop entitled “The Case Of The Board Member Who Didn’t Show Up – Or Did She?“…

SEC and DOJ Issue First FCPA Declination Opinions

As noted in his “Cady Bar the Door” blog, David Smyth explains the SEC and DOJ sort of issued their first FCPA declination opinions, noting that the agencies have decided not to pursue a particular matter. Not only are these useful to the parties involved, they can provide a useful window into the factual scenarios that do not rise to the level of a FCPA prosecution.

This Cooley alert describes a recent New Yorker article regarding economics of the FCPA.

Deal Cube Tournament: Round One; 16th Match

Last match of the first round (I decided to go with 64 cubes per tourney because 32 matches in a single round is too many) – there will be a break before 2nd Round begins. As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:

Animal Feed/Water Tank
Barney’s Shopping Bag
Forklift with Paper Roll
eBay Shaped

Online Surveys & Market Research

– Broc Romanek