When you really think about, compliance and parenting have much in common. (See here).
There are some general legal parameters that govern the act of parenting, yet most parenting is left to the discretion of the parent subject to rather loose “reasonableness” standards.
Indeed, parenting is largely a “standardless” endeavor.
The same is generally true for compliance.
For example, issuers subject to the Foreign Corrupt Practices Act’s internal controls provisions have an obligation to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that,” generally speaking, corporate assets are properly used and accounted for.
As the internal controls provisions specifically provide, the statutory standard is not absolute, but rather subject to a reasonableness requirement, a concept the FCPA specifically defines as “such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.”
Beyond this, the internal controls provisions lack any explicit standards.
In fact, in SEC v. Worldwide Coin (a rare substantive decision interpreting the FCPA’s internal controls provisions), the judge stated:
“The main problem with the internal accounting controls provision of the FCPA is that there are no specific standards by which to evaluate the sufficiency of controls; any evaluation is inevitably a highly subjective process in which knowledgable individuals can arrive at totally different conclusions. Any ruling by a court with respect to the applicability of both the accounting provisions and the internal accounting control provisions should be strictly limited to the facts of each case.”
In its earliest FCPA Guidance (1981), the SEC explicitly rejected the notion that internal controls “conform to a standard of absolute exactitude or that a company’s control system meet some absolute ideal.” On this issue, the SEC stated:
“Inherent in [the reasonableness] concept is a toleration of deviations from the absolute. One measure of the reasonableness of a system relates to whether the expected benefits from improving it would be significantly greater than the anticipated costs of doing so. Thousands of dollars ordinarily should not be spent conserving hundreds.”
The SEC further stated: “The test of a company’s internal control system is not whether occasional failings can occur. Those will happen in the most ideally managed company.”
This balance inherent in the internal controls provisions has been formally acknowledged by the government on several other occasions. For instance, in a 1999 Staff Accounting Bulletin the SEC stated: “The concept of reasonableness of necessity contemplates the weighing of a number of relevant factors, including the costs of compliance.” In the FCPA Guidance, the government acknowledged:
“The term ‘reasonable detail’ is defined in the statute as the level of detail that would ‘satisfy prudent officials in the conduct of their own affairs.’ Thus, as Congress noted when it adopted this definition, ‘[t]he concept of reasonableness of necessity contemplates the weighing of a number of relevant factors, including the costs of compliance.’”
Against this largely “standardless” framework, compliance professionals understandably have many questions such: is due diligence of a third-party legally required? If so, what type of due diligence? How much due diligence is enough?
The FCPA does not answer these questions.
I was reminded once again how compliance and parenting have much in common by a recent article in the Wall Street Journal titled “Sleepovers Are Now A Battleground.” The article states:
“Deborah Pagani, a fine-jewelry and hair-accessories designer in Manhattan, says that before her 14-year-old’s friends sleep over, their parents often ask the same laundry list of questions: Do she and her husband smoke? Are they planning to leave the house? Is their liquor locked up? […]
“I’ve had parents ask me if we have a water filter, which we do,” Ms. Pagani adds. “Can you imagine in the ’90s if a parent called up and was like, I just want to make sure you guys have a water filter. What type of water are the kids drinking, and is there going to be gluten?”
Sleepovers once were regular pastimes known for movie marathons, pillow fights, secret-swapping and not much sleep. These days slumber parties are another parenting clash-point, marked by anxieties about safety, TV programs, screen time, diets and rule-following.
Some parents and experts contend there are now all kinds of worrisome things children might encounter on overnights—guns, TikTok, sugar. For those, including Ms. Pagani, who take a more laissez-faire approach, hosting pajama parties has become a headache.”
What are “best practices” for parents hosting a sleepover or allowing their children to attend a sleepover? Very few. Just be reasonable.
What are “best practices” for compliance professionals relevant to the FCPA’s internal controls provisions? Very few. Just be reasonable.
