Ep.4: The Death of Oversight?
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About this episode. Corporate monitorships have been in the news a lot lately. From the Department of Justice’s decision to terminate the Glencore monitorship early; to months of headlines about a proposed monitorship associated with Boeing’s guilty plea in the 737 Max criminal case. And so, in this episode of The Better Way?, Zach and Hui, along with special guest Todd Haugh, an associate professor at Indiana University’s Kelley School of Business, ask, well, what in the heck is going on!?
They also dive deeper into a recent paper co-authored by Hui and Todd called, “Remaking Monitorships: A First Principles Approach to Monitor Effectiveness.” In their paper, and in this discussion, Todd and Hui make the case for improving, not eliminating, monitorships. Topics include defining monitorships (which is trickier than you might think); the importance of measuring monitor effectiveness; the need for multidisciplinary monitorship teams; and an ongoing debate about diversity, equity, and inclusion in the monitorship space.
Who? Zach Coseglia + Hui Chen, CDE Advisors; and Prof. Todd Haugh, Indiana University's Kelley School of Business
Note: This is a fast-moving topic, so we asked Prof. Haugh to comment on developments that have occurred in the week since we recorded. Here’s what he shared:
“All the recent volatility and inconsistency around monitorships—a pause as to some, early termination of others, and some that are going forward without change—highlights the inconsistency in the entire monitorship process. Without a clear understanding of how to judge and measure monitor success, there’s no principled way to know which monitors are working and which aren’t. That’s what our paper is trying to address and that’s what the current administration should be focused on.”
Full Transcript:
ZACH: Welcome back to the Better Way Podcast brought to you by CDE Advisors. Culture. Data. Ethics. This is a curiosity podcast for those who ask. There has to be a better way, right? There just has to be. I'm Zach Coseglia and I'm joined as always by Hui Chen. Hi Hui.
HUI: Hi Zach. Hello everyone.
ZACH: We are very excited today, Hui, aren't we? We have another guest joining us on The Better Way?
HUI: Not only a guest, but a longtime friend. A wonderful, valuable collaborator.
ZACH: And he is a returning guest to The Better Way? We are joined today by Todd Haugh, the associate professor of business, law and ethics at Indiana University's Kelley School of Business. He is the Arthur M Weimer faculty fellow in business law. He's a thought leader in the world of ethics and integrity, with a point of view that really sits at the intersection of law, business and behavioral ethics. He's also, as Hui said, a friend of the podcast. And just a friend. So, Todd, welcome to The Better Way?.
TODD: Thanks, Zach. Thanks, Hui. And I should also . . . part of my bio has to be co-author with Hui Chen. So, we got to make sure we get that in there as well.
ZACH: Well, that's ultimately why you're here today, or at least part of why you're here today. Because we are very excited to talk about the paper that you and Hui recently co-authored, titled Remaking Monitorships: A First Principles Approach to Monitor Effectiveness. But before we even get into that paper, Todd, I'd love it if you could tell us a little bit more about some additions to your bio, including the Institute of Corporate Governance.
TODD: Sure. So, first of all, thanks both of you for having me. Yeah, I don't . . . am I the first returning guest; that would make me really happy. I don't know. There's probably been others, but . . .
ZACH: You are. You are the first returning guest. That is, that is in fact true. Yeah. Congratulations.
TODD: All right. Great. I'll take that. Yeah, we'll put that on my bio as well. So, yeah, so recently I became the director of what is now called the Institute for Corporate Governance and Ethics; so, we actually expanded kind of the remit of this center at the Kelley School and I'm really excited about it. I'm realizing how challenging and how much work it is to run an academic center, but it's really rewarding. Because what we're trying to do is think about corporate governance and ethics and compliance through a much broader lens. And so, we've brought in accountants and auditors to try to think about, you know, financial controls and risk. We have one of the largest business law and ethics programs in the country; and so, we have people that are interested in, you know, normative business ethics, behavioral ethics, corporate law and governance. Of course, we have finance professors that are doing great work and thinking about, you know, structure of boards and pay structures and all kinds of things like that. And so we're trying to think about corporate governance and ethics from this very, very broad view. And then at the same time, we also brought under the Institute of Corporate Governance and Ethics a group called Ethical Systems, which maybe some of your listeners are familiar with. That was an organization that was started at NYU by Jonathan Haidt about 10 years ago. They had this incredible collaborator network and so now ethics systems is also under the ICGE and so we've just built out research capacity like crazy and we're really now starting to get ramped up and doing all kinds of programs, and things like that. So it's a new endeavor, but it's a really exciting one and one that I that I'm hopeful is gonna have a big impact on the governance, ethics and compliance community going forward.
ZACH: It's sounds incredible. Hui, it's a multidisciplinary approach to ethics and compliance. I mean, what more could you ask for?
TODD: Yeah.
HUI: Exactly. Exactly. So exciting.
ZACH: All right, all right. So, let's dive into the topic for today. And I actually am, in some ways, viewing both of you as guests—because we're going to talk about this paper that you've written. But before we even get into the kind of thesis of your paper or some of the recommendations that came out of it, let's just start by defining the most basic of terms for purposes of our discussion. And that is “what is a monitorship?”
HUI: So, I'm gonna start by just mentioning this: that we devoted three pages of our paper, including nineteen footnotes, to observe the fact that there is a whole lot of inconsistent definitions or lack of definitions in this space. We remarked on the fact that none of the Department of Justice memos that regulate (essentially, internally within DOJ) the conduct of monitors ever bothered to define the term. We remarked on the fact that many different organizations and scholarly work that's been published really never really defined the term. So, we did ultimately settle on something. So, I'm gonna turn it over to Todd because, you know, just remarking on the phenomenon that not everybody clearly started with a definition.
TODD: Yeah. And I think that's exactly right. That's where I was going to start with my explanation of what the definition was as well. And I also mention that's partly a function of just the breadth of monitorships, as a whole. And so over time, what we've had is this kind of accretion of definitions and the one that we settled on actually comes from Veronica Root, who is been in the compliance space for a long time; an academic at Duke, and written a ton on monitorships—probably the most on monitorships of anyone. And here's how she defines it. I'm just going to—I'll read it.
“A monitor is an independent private outsider employed after an organization is found to have engaged in wrongdoing, who effectuates remediation of the firm's misconduct and provides information to outside actors about the status of the firm's remediation efforts.”
OK. Now that's about as jargony . . . and I said, I think we say in the paper, you know, it doesn't exactly roll off the tongue that definition, but what it does is give you kind of a scope of . . . the breadth of a monitor’s work. So we know that they're intended to be independent. We know that they are gonna do have some kind of remediation function, right? They're trying to fix a problem. And they are going to be looking obviously at misconduct. But in sort of a partnership, usually now—if we're talking about kind of “the modern corporate monitor”—in partnership with both the company and the government. And so that definition kind of encapsulates a whole lot of what our modern monitorships are trying to do.
HUI: And just to put a finer point on that, when we say that a monitor may be working in partnership with both the company and the government, the government can be a government agency, like the Department of Justice; it could be a regulatory agency, like the Security and Exchange Commission; it can be a court. So, there's . . . it's a broad—it's that broad definition of a government.
TODD: I'll just I'll just add a little bit more. I mean, I think Hui was very good and pushed us—and me—to understand monitorships not just in kind of the traditional Department of Justice criminal context where we tend to think about it, in the FCPA context or something like that). But to really think about monitorships much more broadly; everything from, monitors that would look at a civil rights decree, for example. That would be, you know, ensuring that a school system was implementing a program properly or a Police Department, or something like that. All the way up to how most of us, I think in this space, think about monitorship, which is all about criminal wrongdoing.
ZACH: So, I want to ask you a question that may take us down a rabbit hole, but hopefully we'll, we'll, we'll fight against that. But that is as a follow up to what you were sharing, Hui, is: who are monitors accountable to?
HUI: That is a really good question. In some ways you can say “no one” because of the supposed . . . the very strong independent nature of them. So, no one, unless for example, in a situation where the monitor is appointed by the court. There may be some direct accountability there. A lot of this goes back to what exactly is the contractual language that actually led to the monitorship. Usually there was some kind of agreement. There could be a plea agreement. There could be a non-prosecution or deferred prosecution agreement, or some other type of set of civil settlement. So, the language in there is going to dictate what accountability the monitor in that agreement has; so, probably, the ones where the court is the appointing authority, there's likely going to be some level of accountability to the court. But certainly, in the context of, for example, the Department of Justice Criminal Division’s appointment of monitors, the monitors don't technically report to the government in the sense that you report to a superior; but there's some accountability—but it's really not direct; and it’s really always in view of the monitor’s independence. Todd, would you agree?
TODD: I would. I would agree. I think you're absolutely right. It's also, you know, fairly—it's a rarity that you would have a court having sort of, you know, direct oversight of a monitor really, because that's generally going to come in the context of a plea agreement. And as we know, there's not a lot of plea agreements with corporate entities, generally; and certainly large corporate entities where you would have corporate monitorships, we tend to see plea agreements with a lot smaller companies. That's the majority of the time that you get an actual plea agreement. And so that's sort of a rarity; it’s less than 200, you know, less than 200 plea agreements a year with corporate entities. Oversight by a court is going to be much more rare than no traditional oversight at all.
ZACH: All right, so this is the part in the discussion where we normally would have just dived deeper into your paper, the ideas and recommendations that you have for reshaping monitorships. But we live in unique times and so a lot has happened since your paper was published. And so, I want to talk about some of the recent events that sort of sit at the intersection of monitorships and current events. So, let's start with a little bit of a history lesson.
So, on January 1st (I'm just gonna go back to January 1st; we're not gonna go back that much further); but on January 1st of this year, Glencore, which is sort of a mining behemoth, was under two corporate monitorships. They were part of a $1.1 billion plea agreement, resolving violations of the FCPA, and another relating to commodity price manipulation.
A few weeks later, President Trump took office.
And a few weeks after that, Pam Bondi, the new Attorney general, issued a series of day one memos, which, Hui, you've written extensively about, some of which provided signals, though not explicit statements about the future of monitorships.
Shortly after that, the president issued his executive order on FCPA enforcement, which actually took one of the Bondi memos even further—and put the FCPA enforcement on pause. Episode one of our Better Way? podcast—or our new Better Way? podcast addressed that directly.
And a few weeks after that, so that brings us to this week, those Glencore monitorships have been terminated.
So, things can change very quickly. Now, there's nothing wrong with monitorships ending early, but Todd, I'm gonna throw this to you. What are your thoughts on these developments over the course of the past couple of months?
TODD: Yeah. So, I want to pick up where you just left off. There's nothing inherently wrong with a monitorship ending early; in fact, that is something that we should want under the right circumstances, right? Because what that would suggest, if things are done right and in fact things are done sort of in line with how we outline in our paper, that would mean that there is an indication that the monitor and the company have been successful in either remaking the culture of the organization; creating better controls; [and] ensuring that when the monitor leaves, they've put in place practices that are going to ensure that whatever the wrongdoing or the remediation they were there to effectuate is going to continue after they go. If you had that, right, if you had a really proactive company and a great monitor that understands human behavior and understands how to work these processes and can test and measure all those things—and is confident that that's going to happen—then we should want monitors to end . . . monitorships to end early. Because that's an indication that everything has gone very well; and it's a lot more efficient. It's a lot less expensive and all that would be good. The problem that I have, particularly with the Glencore monitorship is what Glencore had in place before their monitorship was basically nothing. OK. So, I went back and looked; Glencore is 150,000 employees. They operate in 35 different countries. As of 2020, they had no head of compliance.
That was a new thing that they put in place after getting in trouble—after the enforcement action. So, that is not a company that you would expect to have everything solved, even by, you know, by the end of, by the end of a monitorship—by the end of a short monitorship. And so, to end that early seems problematic, in one regard. And also, if you look at the statement or the order, there is no indication at all about really why this monitorship is being ended early. It just says we have authority to do it, the Department of Justice. And so, we're gonna end it. And that is antithetical to everything that we're arguing for in this paper, which is: “Hey, there's no real metrics by which to judge whether monitorships are effective. We don't really know why.” And so, I just don't have a whole lot of confidence that whatever has been done in Glencore . . . I mean it could be that it's fully compliant and they're never gonna have any problems again. But there's no indication of that on the face of the order; and so that's sort of my first my first point or problem with ending a monitorship early.
ZACH: Hui, what are your thoughts?
HUI: I completely agree; and I think I just, you know, point out what I think everybody has to be thinking, which is: it's ended early because this is not . . . this type of monitorship, at least in this particular case, is not a priority of this administration. And you know, this was something that Zach, you know, when I wrote that piece on the Bondi memos, you know, you and I talked about it offline—this was not in my writing; but I said, “watch that existing monitorships may be terminated.” And here it is, and Glencore being one of the, you know, one of the recent high profile and large-scale monitorships. You know, I had said that if I were Glencore's counsel, I would take Attorney General Bondi's memo and run to the Justice Department and say, “I think you need to put a stop to this.” That's exactly what I would do if I was Glencore’s counsel. So, I think . . . I think everybody must be thinking that there is no other reason than this not being something this administration believes in.
ZACH: Yeah. And I'm here to I'm. I'm here to just back you up, Hui.
TODD: Yeah, it.
ZACH: So everyone knows: you did absolutely predict that this would happen and you predicted it weeks and weeks ago, actually. Todd?
TODD: There's a lot of things that could be happening. Clearly, the administration is, you know, is sort of anti-FCPA. I mean, I, you know, I don't think that's a controversial statement. I mean, they've said essentially, we want a pause on FCPA enforcement; and the language has even been stronger than that. I will also just . . . let's be also very frank, right? The monitors for Glencore are Ropes & Gray, was a monitor; and Jenner Block, was the other monitor, right? There's sort of atypical in the sense you've had two different monitors. Both of those law firms have been, you know, I don't know if target is the is the right word, but they are in the crosshairs of this particular administration for different things. So that is a way to impact a law firm—would be essentially ending a monitorship, which would, you know, which would create fees for that for that law firm 15 months early. Now some people would say that's a good thing, right? Because monitorships are too expensive; and we'll talk about the selection process and all kinds of things. So, some people would argue that’s a good thing to end monitorships. It's a good thing; and it's good thing to keep the cost down if you're actually effectuating the change that you want, and you're gonna have true remediation efforts. If it is something where an administration is, you know, sort of ending something because of who the monitor is and they don't like the monitor, the law firm . . . that obviously is, is highly problematic.
ZACH: All right. So, let's talk about another current event. You both actually, together, wrote an op-ed in the Washington Post about the Boeing Monitorship, which is probably a misnomer because there actually hasn't been a Boeing monitorship yet. But again, let's do a little bit of a history lesson.
Under a DPA, or deferred prosecution agreement, Boeing had agreed to pay billions—actually, billions—of dollars relating to the catastrophic crashes of these two 737Max aircrafts.
Shortly after that, the DOJ said that Boeing breached that DPA. This was during the Biden administration, which brought everyone back to—sort of—the “negotiating table.”
So, what happened after that? Well, Boeing agreed to plead guilty to conspiracy to defraud regulators and agreed to pay additional fines and penalties. They also agreed, as part of that, to a three-year monitorship.
So now, let's come back to the recent history. In December of 2024—so, just 3 + / 4 months ago—the court rejected the plea agreement, largely due to so-called “flaws in how the DOJ intended to use race and diversity to select an independent compliance monitor.”
Then, again, on January 20th, President Trump took office.
And now, well, just a couple of days ago, we're not talking about that monitorship anymore. We're actually seeing Boeing seeking to withdraw its guilty plea. So, what's happening, friends?
HUI: So, I'm gonna say that, once again, I'm gonna, you know, I did also predict this one. And Zach, you remember our conversations on this. Only just because, as a former prosecutor, you know, plea agreements are not—you know, any agreement is (I mean anybody who's done any kind of agreement knows it) really not done until all the formalities are through. So when the election happened the way it did, and understanding the priorities of the Trump administration, again, I said if I were Boeing, I would start reconsidering what I want to do with this, hopefully, negotiation. Because now we have a whole different administration with different priorities and different preferences. And the fact that they want to come back and basically just walk away from the deal that they had under a prior administration is not at all surprising.
TODD: Yeah, I have. I'm on record on this in lots of different ways about the Boeing plea agreement. I just wrote yesterday “cluster F” whatever-you-can-fill-in-the-blanks . . . is what this is. I've never seen anything like the mess that that's happened around the Boeing case. You know, now we're in the third administration, basically. Trump 1.0. And then Biden. Now Trump 2.0. So, it sort of spanned all of that. You have a DPA that’s been violated; and then may not be violated now depending on the administration. So, this is just a very atypical thing; and you have a potential plea agreement, which again is pretty rare in in, you know, corporate cases. Add to that a monitorship selection process that was new and different just for Boeing. OK, so generally, and Hui can comment on this a little bit—and we talked about this in the paper; but you know, monitorships are generally pretty one sided, right? The company selects the monitors / gives a choice of monitors. DOJ says yes. Not exactly a rubber stamp, but, you know, they're gonna choose between a couple monitors that are selected by the company. That's generally how it goes, and that's how the memos would suggest [it goes].
This particular monitorship was an open sort of solicitation—at least that's how it was intended to go. And so, you were going to have, arguably, a lot more diversity in who would have been chosen. And then, you also had these sort of long-standing diversity, equity inclusion provisions, the Department of Justice has had put in place quite a long time ago. That, ultimately, is what catches the judges attention and also happens at a time where the sort of anti-DEI kind of movement, I would say, was at its height. Although you know, I'm not sure if we're quite there yet, but that was very, very strong in the news at the time. And the judge issues this order that says I'm gonna reject the plea agreement for two reasons. One is there's these DEI provisions; but also, the plea agreement itself basically takes out of my hands, as the judge, kind of like review or oversight of the monitor. OK. And interestingly, that order is 12 pages. The vast majority of it is all about DEI. A very small portion of it is about this oversight function, even though the oversight function is really what historically judges have argued and been upset about. That they haven't had enough ability to effectuate, for prosecution agreements, monitorships—it's kind of like we were saying—because there rarely is a case where they actually have oversight duty; and so, by doing that, we've kicked out now the plea agreement, and it's gone on, and we have a new administration, and now it's really unclear exactly what is going to happen—because Boeing now wants to pull the monitor or sorry, pull the plea agreement, but the judge just set a trial date.
So, you know, we're sort of back to square one. And it's really unclear what's going to happen. The Department of Justice—the new administration—could say, “listen, there actually wasn't really a violation of the DPA in the first place. We've re-looked at everything and we found actually there wasn't really a violation. So we're just gonna keep the old DPA in place and let that run out, OK?” That's one option. That would be kind of weird, considering, in the interim there was this door plug that blew out of a plane, OK? So, most people would say that that's a problem, a big problem.
They could say, “well, we are gonna have the DPA or we're gonna have a second DPA and it's not gonna have a monitor. We don't want monitors, OK?” That also is kind of weird, again, because there wasn't a monitor to begin with, and then we have this door plug blows out; so, it seems like there needs to be some oversight, some outside oversight. So . . . but that's up in the air. Or we could have a new plea agreement, in theory . . . that has, what, higher penalties? I don't know . . . the Department of Justice right now doesn't seem like they want to penalize companies more than they already were. We were talking about $400 million, roughly, in compliance expenditures that Boeing had agreed to already. And by the way, it essentially had agreed to the wrongdoing. It's agreed to . . . that it's committed wrongdoing multiple times. So, I guess I just this is all way of saying I still think this is a huge mess, I don't really know exactly where it's gonna go, but I think everybody wants it over with and, particularly with this administration, the only people who don't want it over with are the victims; and they have a very, very good and loud counsel, Paul Cassel. And so, I think we're kind of back to square one with a whole lot of baggage.
HUI: May I add a third option to what you listed there, which is they could decide that there was never a breach of the DPA—and we can just end the existing DPA early.
TODD: Yeah.
HUI: So, you just walk away completely.
TODD: Yeah, I think you're absolutely right, Hui. That certainly a possibility. You know, the victims group will go bonkers, and probably rightly so. I don't know that they have a whole lot of recourse at that point, but yeah, that's certainly, I think that's absolutely a possibility. And in fact, that would be consistent with the Trump administration in the first go around, right? Because they were the one who kind of negotiated what the victim saw is sort of a, quote-unquote, kind of “sweetheart,” you know, deal, which was a DPA with no monitor. Which many people saw as not appropriate when there was so . . . obviously, you know, deaths of so many people. The only thing I'll add—but the judge is also on record, this particular judge, as saying this is one of the deadliest corporate crime cases in history. So that's a pretty, you know, that's a pretty significant statement if you think about other instances of corporate wrongdoing.
ZACH: All right, let's spend a little bit more time digging into this paper that you both have written. Again, it's called Remaking Monitorships: A First Principles Approach to Monitor Effectiveness. And look, you don't write about reshaping something unless you see some cracks, so I'm just going to ask you a real general question. What is your take on the state of monitorships? What's the thesis of this paper that you've written?
TODD: Sure. So I mean, listen, I think the headline or the, you know, the final line maybe of the paper is: what monitorships have been missing, and in many ways this means what compliance has been missing, because ultimately a monitorship is about a way to effectuate ethics and compliance in an organization. I mean, that's what it's there for. It's there to remediate wrongdoing, but it's trying to set up a process by which that wrong move won't happen in the future. So that means it's really about kind of compliance in the end? That there really has never been a full-scale kind of reckoning with how do we . . . how do we effectuate that, right? How do we measure it? How do we make it happen? OK. And so, what we wanted . . . what we try to do is think through: what are all the reasons for that? And I'll let Hui touch on this in a bit; but ultimately, listen, what we think of as effectiveness—and so what a monitorship, in our opinion, should be thinking about is effectiveness—is demonstrated behavioral change, right? Demonstrated behavioral change in an organization, and an indication that that behavioral change is gonna last after the monitorship is over. Ultimately, that's really kind of the standard by which we should judge the effectiveness of a monitorship, and until that is done, you know, those cracks are gonna remain.
HUI: I'll just supplement that by putting it in hopefully very everyday language terms, which is monitorship happens when a company has done something wrong. Not just the small thing, but something that tend to indicate systemic issues and that has caused significant harm in some way—financially, or in terms of the people that they have impacted, and the laws that's been broken. So you've done something wrong that is systemic and serious. We're going to get someone the monitor in here to help you fix your system, so that you do not repeat that mistake again. That's the premise.
The problem is: the system has developed in such a way that after you put this person in place, which costs a lot of money, and caused a lot of effort on the part of both the company and the monitorship team, there is no standard by which to judge whether this company has improved at all. So, you go into this with a problem that is serious and systemic. When you come out of all this effort and spending, can anybody say that there has been any improvement? No. And that really is fundamentally the problem of monitorship in its current state.
ZACH: I mean it in some ways. Well, maybe in all ways it's the fundamental challenge that we see in the compliance Community more generally, right? It's about making it about more than just what you're doing, Todd. You said earlier that one of the just most obvious shortcomings in the Glencore scenario was that they don't have a global chief compliance officer. They don't have someone in charge of compliance. Now, they could put someone in place—and that's great. And that would check a box. But what we're talking about is what impact does that actually have? What behaviors have actually been changed? How has the culture been moved? How has the system been improved? And that could be a conversation that we have—well, it is a conversation that we have about compliance. Full stop. Not just about monitorships.
TODD: Yeah. I think that's absolutely right. I think a lot of this stems from, you know, compliance—and certainly monitor ships, right—they develop out of sort of an enforcement lens, if you will, right? And a legalistic lens, which is: okay, a law has been broken, which triggers a monitorship and then triggers compliance sort of obligations that come from that. And so, what we tend to do is say: okay, well, how do we make sure laws aren't broken? Lawyers like rules and training and processes, and they like to learn what laws and regulations are; and they sort of assume that if we just tell employees, all those things, they'll be able to not break those laws, right? Sort of a traditional kind of incentive, you know, economic sort of punishment model that lawyers are pretty familiar with. What we now know, from 20-plus years of behavioral ethics research and social science research is that it's not that easy, right? That you've got to really think about changing behavior of employees and that includes the culture and the social influences that happen in an organization. That's really how you can actually effectuate change. And so, we, you know, one of the things we argue in this paper is we've got to think about monitorships through kind of a new lens. And that includes lots of lots of data analytics to really understand exactly what's going on; using psychologists and behavioral specialists to understand how do you actually change behavior; using communication in a different way, right? That can be done. It is not easy. I'm not suggesting it's easy, but that can be done. But the vast majority of, I think, lawyers / monitors, who almost always are lawyers, right . . . that's just not the lens that they that they come at this with. They tend to think about policies and procedures and traditional trainings, and what we know—and I know that you all know because this is what you're doing day-to-day—is that those are input metrics, right? Input metrics are great if you wanna show a regulator that you've done some stuff. They are not good if you wanna actually change behavior and change outcomes. And so that's part of the embedded thesis of this paper—is we really gotta be thinking about monitorships and compliance differently.
HUI: And I'm going to add also a different dimension to it too, with the discussion that we just had about Boeing, for example. So, generally we're talking about wrongdoings that can be, at least theoretically, remediated with changes in behavior. But when you think about Boeing, for example, and this really illustrates how much this legal mindset has dominated the monitorship field. Boeing, the core of the Boeing matter, is aviation safety. It's literally that is the core of the case. The plea agreement that would have led to a monitorship specifically excludes—and for those who don't know this, I . . .
TODD: Thank you.
HUI: . . I really am not making this up—it specifically excludes any sort of aviation safety expertise from the monitorship; and specifically says the monitor is not to look at aviation safety. Doesn't need to know much about aviation safety. Who does that? If the core problem is aviation safety, why would you exclude that from the monitorship that is supposed to fix that problem? So, this this is how legalistic it's gotten in the monitorship field—that it becomes an exercise all about these things that lawyers are familiar with. Let's do the policy and procedures and the training and communications. Did they make any difference? We don't know how to measure, so we're not going to measure it. If it has something to do with some other topics that we don't understand, we're just going to exclude it. I think that really shows you how fundamentally problematic the existing monitorship regime has become.
TODD: Yeah, I think that's exactly right. I mean, it also gets to a challenge—a critique of—using sort of corporate crime enforcement generally, right? I mean, this is it's really a fraud case that's brought against Boeing; but at the heart of it is engineering safety, aerospace engineering. But you know, there's not a criminal law that says you have to have, you know, good engineering safety. What they could sort of use in order to get into the company is a fraud . . . is a conspiracy and a fraud charge. And so, it's always . . . there's always this weird fit, you know, when you're talking about corporate crime and corporate enforcement. But it's sort of, I think, indicative of this idea of “well, listen, we're lawyers, we know how to do one thing, so let's stick with that, we’ll carve everything else out and try to plow forward.” And then, we wonder why we see, you know, repeat offenses and multiple monitorships and, you know, remediation that doesn't work in the future.
ZACH: All right. So, we talked earlier about the role that diversity, equity and inclusion played in the proposed Boeing monitorship and how that ultimately resulted in getting kicked. Can you talk a bit more, as you do in your paper, about why that provision was included; and specifically, the, I guess, lack of diversity that we've historically seen in corporate monitorships?
HUI: When I was working in the fraud section as the compliance counsel, the first year that I was there, all the monitors were men. And there was only one who was not Caucasian. And that is just gender diversity and race diversity. There is another dimension of diversity that I care very much about, which is the diversity of skill sets and background that monitors bring to the table. Almost all the monitors were partners of major law firms. Almost all of them are essentially white shoe Washington, DC-Beltway players. And none of them had any behavior scientist or data scientist on their immediate teams. They often do team up with forensic partners, but the monitors themselves are pretty much from the same background. And that, in itself, was limiting in terms of what monitorships are, you know . . . the monitors are bringing to the table in terms of what they can impart to the companies in in their work.
Around the same time I was there, the Fraud Section began to pay attention to the diversity issue, and in all aspects—but certainly, the race and gender diversity issue. So, it was around that time that they started sort of putting this language into the agreement that indicated a long-standing federal government policy encouraging diversity. So, this is not a new policy; but this was really just making sure the agreements called attention to this federal government policy that had been long standing. So that was sort of the background of this. And around the time . . . around my second year in the Fraud Section, we began to have monitors who were of slightly different background. And that was really sort of the beginning of what you might call the DEI consciousness of the monitor selection process.
ZACH: Hui, I want to actually share an excerpt from your paper just to really put some numbers behind what you're sharing. You both write: “the first female monitor was appointed in 2017. Of the 22 persons appointed as monitors between 2012 and 2016, there were no female monitors and only three persons of color, two of whom were appointed only in 2016. As of 2016, the fraud section had nine active monitors. All of them white men. A year later, there were 20 monitors, all male, eighteen of which were white.” Then you say, “there have been some improvements in the intervening years, but overall,” as you just shared Hui, “the pool of monitors remains demographically and professionally homogeneous.”
TODD: We also tend to see is the same law firms and the same people getting multiple monitorships, right? And some people would say, “well that makes sense because they're, you know, the most experienced or the most skilled or whatever.” But what you constantly see is: we don't really know, and we don't have good metrics about what makes an effective monitor. Right? This goes back to kind of our fundamental point. But what the judge was basically saying in the Boeing case is . . . sort of hinting at, “listen, we're getting less skilled monitors if we have more diverse monitors.” I don't think monitors were working all that well beforehand. And I think it's like, let's give it a shot, right? Let's try to get more people into the monitorship pool, and particularly from places that we they hadn't come from before. And so I guess my point is, let's try something new—in order to see what will happen. And so, that's really what those policies were trying to do. So, I think it's a total red herring basically by the judge in the Boeing case. The thing that was that was going to come out of the selection process in Boeing was something entirely new because it was a broad way of trying to solicit monitor candidates that we had not had in the past. And I think that was a good thing that was gonna likely increase the potential pool, the diversity of the pool in all ways.
HUI: So, I also want to add a couple of sort of, you know, just observations from my time in the in the Fraud Section: women actually had been monitors, they just never got the credit for it. So, I can think of—off the top of my head, you know—at least three cases just right now, that the entire monitorship was run by the official monitor’s partner, who in all three cases were women. If you go and ask the people and the companies being monitored “who is your monitor?”, they would not even know who the official monitor was because the official monitor really only showed up for meetings. In one case I remember very clearly, every time he showed up for a meeting, he had not one word to say. He stared at the wall and looked at his watch and looked at his phone and all the work was done by the woman partner. So you know, some of this is really just about giving credit where it's due.
And to add to the point of what Todd is, you know, saying about the skillsets in the backgrounds. I remember interviewing monitor candidates for a monitorship that involved a specific foreign country; and we would ask the monitor team that's presenting . . . that's pitching the work, you know, “what makes you sort of able to do work in this country that speaks, you know, not English?” And I kid you not, there was one team that when we posed that question to them, they looked at each other and one of the senior associates says, “well, my wife is from that country.” That was the entire team's argument about their ability to do the work on this monitorship that's actually . . . for a company that's based in the foreign country. That consideration is just . . . it's kind of ludicrous, when you think about it.
ZACH: Indeed, it is indeed. All right, we're running out of time. Sadly. I want to get to a couple of the big ideas in your paper. You start, as we've talked about, with a new approach to monitoring effectiveness. What is the standard by which we will actually assess a monitor and what tools will a monitor actually use to prove that their work has actually had some impact? But you also propose creating, as you call it, “an office of monitorships.” Tell us about this idea. What does this look like? And I guess also share with us your thoughts about how realistic it is, as, well, going forward, given everything that's happening in the world.
TODD: I won't bury the lead. Totally unrealistic right now; but that's OK. We’ll, with this . . . this is why it's an academic paper, because we get to propose something, and we'll see. We'll see what happens. You know, maybe people will come to the idea in the in the future, even if it's not sort of realistic right now in the sort of doge era. OK, go ahead. The way you, I want you to talk about the substance of, of the of the office.
HUI: The idea behind the office is really institutionalizing monitorship; and you know, and it can take any number of forms, and we sort of put out what the, what a basic notion of the institutionalization might look like is where you have a stable group of people not different firms for different monitorships. So, you have a stable group of people who are not incentivized by billable hours. Who can be interdisciplinary. Who can be consistent in their approaches across monitor ships. Who can be free from conflict of interest, because that is a big issue with monitor selection—because oftentimes, the bigger the case, the more firms would have been involved in the litigation and settlement process; and they're all conflicted out by the time you come to select a monitor. So that oftentimes ironically resulted . . . would result in the bigger the case, the smaller the pool of potential monitors. If you have a group of essentially institutionalized and professionalized monitors, you wouldn't have that problem.
TODD: The other component to this is: it's not just that we are critiquing on the monitor side. We also critique on the Department of Justice side, as well. Just that there's some shortcomings—because there really isn't a great retention of like institutional memory, right? Because it's kind of . . . these monitorships don't happen all the time. And so, what the office would do would be . . . would allow, from the Department of Justice side, to identify and foster effective monitorships, as well, right? And to use this as kind of like an innovation lab, innovation hub—and also a repository of best practices. And right now, you don't really have that, right? Monitorships kind of happen on their own. Is it going to happen anytime soon? No, we're just realistic about that. But it doesn't mean it's the wrong idea. Yeah. And maybe in the future, someone will come to it—or a version of it—that we can actually push monitorships forward.
HUI: We also see, you know, it's not just the United States that has the system of monitorship.
TODD: Yeah.
HUI: So you know, even though the conditions are completely against it right now in in the United States, there are other jurisdictions that have engaged in in this experiment of corporate monitorships; and you know, we hope that some of the thoughts and considerations that we have offered in the paper might also influence their thinking as they consider how to go forward.
ZACH: Todd, thank you so much for joining us; and Hui, of course, thank you for also sharing your thoughts about this important paper that you two have written.
There's no Better Way? questionnaire today because, Todd, you've appeared on the podcast before. But I do want to just ask you one of the questions in the questionnaire because it is the one that changes—or at least changes more frequently—and that is give us a word that describes your day so far.
TODD: I'll give you two: energized and grateful. It's early or pretty early still here, but I'm really energized now after this conversation, and I'm certainly grateful to be both on the podcast and to have this interaction, but also to have Hui as a as a co-author.
HUI: Right back at you.
ZACH: And thank you all for tuning in to The Better Way? Podcast. For more information about this or anything else that’s happening with CDE Advisors, visit our website at www.CDEAdvisors.com, where you can also check out the Better Way blog. And please like and subscribe to this series on Apply or Spotify. And, finally, if you have thoughts about what we talked about today, the work we do here at CDE, or just have ideas for Better Ways we should explore, please don’t hesitate to reach out—we’d love to hear from you. Thanks again for listening.