THE ROLE OF LEGAL COUNSEL IN EFFECTIVE RISK MANAGEMENT.

THE ROLE OF LEGAL COUNSEL

IN EFFECTIVE RISK MANAGEMENT

“It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but you do know yourself you will win one and lose one. If you don’t know your enemies nor yourself, you will be imperiled in every single battle.”

Sun Tzu (544-496 BC by tradition)

William A. HicksShareholder

One Allen Center, 500 Dallas, Suite 1200Houston, Texas 77002E: [email protected]: 713.655.1200, Ext. 144F: 713.655-0222Areas of Expertise

• Complex Litigation• Employment Litigation• Oil Field & Industrial Litigation• Corporate Governance & Compliance

Bar Admissions• Texas, 1980• United States Court of Appeals for the

Fifth Circuit• United States District Court for the

Northern and Western Districts of Texas

EducationTexas Tech Law School, J.D.• Phi Alpha Delta• Board of BarristersLamar University, BA

Recognition• American College of Trial Lawyers• American Board of Trial Advocates• Association of Corporate Counsel• Texas Association of Defense Counsel• AV Peer Review Rating, Martindale-

Hubbell• Life Fellow, Texas Bar Foundation

Over 34 years of legal experience

• General Counsel, Chief Compliance Officer and Corporate Secretary with more than 7 years of experience providing legal counsel and advice to Board of Directors, Executive Management and Board Committees on a broad range of issues for one of the leading pressure pumping service providers in the United States

• AV Rated litigator with first-chair trial experience in more than 200 civil jury trials, as well as other litigation, bench trials, arbitrations, medications and appeals over a period of 26 years, with peer recognition by selection for membership in the American College of Trial Lawyers and American Board of Trial Advocates

2PERSPECTIVES

OUTSIDECOUNSEL

IN-HOUSECOUNSEL

“Who was minding the store?”

“Were the lights on over there?”

“What were they thinking…or were they thinking at all?”

“Play nice inside the sandbox”

“Stay between the lines”

“It’s damage control time”

WHAT IS THE ROLE OF LEGAL COUNSEL IN RISK MANAGEMENT?

LEADER OR ADVISOR

SURPRISES

FOR A LAWYER TO BE THE MOST EFFECTIVE LEADER

FOR A LAWYER TO BE THE MOST EFFECTIVE LEADER

How Legal Counsel Can Lead in Area of Risk Management

“Build the Walls”

“Know Yourself…Know your Enemies”

“Dig the Moat”

“Guard the Walls”

“Protect the Frontier”

“Sound the Alarm”

“Go to War”

Enterprise Risk Management

Contracts

Whistleblower/Audits/Ethics & Compliance Management/Ongoing Assessments

Legislative & Regulatory Affairs

Effective Reporting/Timely Decision Making

Litigation, Lobbying & Investigations

Policies/Processes/ Governance & Controls

“Know Yourself…Know your Enemies”

Lawyer as Leader in Effective Risk Management

QuarterlyReporting

ENTERPRISE RISK MANAGEMENT PROCESS• Quarterly Identify, Evaluate & Access Risks• Risks Include

o Strategico Operationalo Reputationalo Financialo Legal

LEGAL DEPARTMENTS REVIEWS OF CONTROLS & AUDIT PLANS• Annual Audit – ensure includes audit of

maters that could create liability or compliance issues

WHISTLEBLOWER PROGRAM “SPEAK UP”• Control Deficiencies or other risks

identified by whistleblowers

CONFLICTS OF INTEREST• Issues arising from disclosures/lack thereof

Audit Committee &Board of Directors

Disclosure Committee(Managements’ Discussion and Analysis)

Executive Management

External Auditors

Internal Auditors & Accountants

Risk Management & Insurers

Enterprise Risk management Report to Audit Committee

“Building the Wall”

Contractual Protection & Risk Transfer

• Master Service Agreements

• Master Purchase Agreements

• Purchase Orders – Terms & Conditions

• Purchase Agreements

• Real Property Purchases & Leases

• Confidentiality & Non-Disclosure Agreements

• Employment & Severance Agreements

• Work Orders & Field Tickets

• Releases

CONTRACTS IMPORTANTTO PROTECTION OF COMPANY

• Clear expression of “Intent of the Parties”• Definitions • Parties• Adjectives & Adverbs• Specificity – Performance & Payment Terms• Audit & Inspection Rights• Representations & Warranties• Remedies• Disclaimers• Indemnification• Insurance Coverage Requirements• Term ( Specified Term, Evergreen Clause)• Notice Requirements • Venue & Jurisdiction• Applicable Law• Alternate Dispute Resolution• Disclaimer of Representations Not Contained in Contract

IMPORTANT CONTRACT TERMS

• Checklists and forms

• Approval for variances

• Compliance with Matrix of Authority

• Confirmation of No Conflict of Interest

• Interaction with Risk Management – Insurance Coverage

Requirements

• Regular Audits/Reviews – Agreements & Processes

CONTRACT MANAGEMENT

“Digging the Moat”

Policies/Processes/Governance & Controls

Corporate Governance

GOVERNANCE DOCUMENTS

BOARD COMMITTEES

• Audit• Compensation• Nominating &

Governance

MANAGEMENT COMMITTES, POLICIES,

PROCEDURES, & CONTROLS

• Disclosures• HR

• HSES• Environmental• Social media

• Document Retention• FCPA

BOOKS & RECORDS

MATRIX OF AUTHORITY

DISCOLURES & COMMUNICATIONS

MATRIX

SHAREHOLDER & BOARD ACTIONS

CODE OF BUSINESS CONDUCT & ETHICS• Ethical &

Appropriate Conduct

• Conflicts of Interest• Business• Personal• Nepotism

Creating Corporate Culture of Compliance• Tone at the Top• Mood in the Middle• Buzz at the Bottom

 Methods to Achieve a Culture of Compliance• Corporate training – all levels of Company• Inter-Departmental Ethics & Compliance Team• Senior Management visible support & “walking the walk” – credibility

o Newsletters & Company-Wide Communicationo “Town Hall” Meetingso Introduction or statement by Senior Management at Training

Sessions

Culture of Compliance

Circumstances where corporate existence can be disregarded and shareholders held personally liable for corporate debts and obligations –

• Corporation used as sham to perpetrate a fraud;

• Corporation is the alter ego of its shareholders;

• Corporation is used for an illegal purpose;

• Corporate fiction is used as a means to evade an existing legal obligation

• Corporate fiction is used to circumvent a statue or regulation;

• Corporate fiction is relied upon as protection of crime or to justify a wrong; or

• Corporate fiction is employed to achieve or perpetrate monopoly.

PROTECTING THE CORPORATE VEIL

“Guarding the Walls”

Whistleblower/Legal/Ethics & Compliance Management/Ongoing Assessments

• Managed by third-party• Process for promptly addressing and investigating complaints• Documentation and Closure• Most important:

• Timely Response• Timely Action

(even if not what whistleblower wants)• Documentation

Whistleblower “Speak Up” Hotline

Weekly Legal Department Leadership Meeting• Detailed standing agenda addressing all areas of operations, governance and

compliance Quarterly Internal “Deep Dives” & Internal Audits of Contracts & Controls• 30 Day Pre-Dive Meeting – Establish Agenda/Review Minutes• Deep Dive Meeting

• Includes results of internal departmental audits• Minutes specifying:

• Findings and decisions• Follow-up schedule to correct deficiencies• Signed by owner of process audited

• Subject Matter Areas:• Litigation• Transactions• Corporate Governance• Regulatory Compliance• Corporate Records

• Organizational Documents and Reports• Permits & Licenses• Minutes, Resolutions, Consents, etc.

Legal Department Management

External “Experts” - Checking Our Work

Annual or Bi-Annual External Audits of Contracts, Policies & Litigation

• Performed by outside counsel

• Are we doing it right? Can we do it better?

Internal and External Auditing of Controls

• Identifying and Correcting Deficiencies

• Identifying and Addressing Needs for Effective Controls

• Input into Annual Audit Plan

“Protecting the Frontier”

Legislative & Regulatory Affairs

“Sounding the Alarm”

Effective Reporting/Timely Decision Making

Who Needs to “Hear the Alarm”?

Legal and Compliance Reports, Advice and Counsel

Auditors

EnterpriseRisk Management

Committee

Insurers

Executive Management

Audit Committee

& Board

Regulators

Litigation Action Report

• Executive Summary

• Current Status

• Budget/Expenses to Date

• Current Evaluation (highlight recent changes)

• Prior Authorizations

• Top 3 Reasons We Will Win

• Top 3 Reasons We Will Lose

• Top 3 Reasons We Should Try Case

• Top 3 Reasons We Should Try to Settle

• Decision Tree Analysis/Present Value

• Recommended Action

• Authorized Action

• Signature of Authorizing Executive (compliant with Matrix of Authority)

“Going to War”

Litigation, Lobbying & Investigations

Three Best Defenses for Company if Sued or Investigated

• Diligent, effective and good-faith efforts to be safe and compliant

• Documentation of efforts and their effectiveness

• Documented correction of identified safety or compliance issues

You Select the Battlefield and Secure the High Ground

• Venue, Jurisdiction & Applicable Law

• Take the Offensive

SURPRISES