A General Counsel Speaks Out On Compliance Readiness

Sunday, October 1, 2006 - 01:00

Anastasia ("Stasia") D. Kelly

I read with great interest the cover interview of Governor Thornburgh in last month's issue of The Metropolitan Corporate Counsel, especially the six significant issues he identified during the WorldCom investigation. As MCI's General Counsel during its emergence from bankruptcy, I had responsibilities in the development and implementation of solutions to address these and other issues that surfaced during the WorldCom investigations. I thought it might be of interest to detail how we, as a legal department, addressed each of the six important issues articulated by Governor Thornburgh in his interview.

At a high level, my advice on all of these six issues is to suggest that the lawyers pull their seat closer to the table while reconsidering their role within the organization and as a business partner. And as events have unfolded, the need for legal to step up and play the role of a "strategic business partner" could not be more evident. But before I dive into the specific issues raised by Governor Thornburgh, I want to thank him and Mr. Missal for their hard work and dedication as examiners during the WorldCom bankruptcy proceedings. Their clear articulation of the issues facing WorldCom, along with Richard Breeden's help as our Court Monitor, made our jobs in the legal department that much more straightforward.

Issue 1: "Manage" a dominant CEO.

I believe that every director today should expect that the company's GC will have the strength of character, level of intelligence, and professional judgment to be able to deal appropriately with a strong CEO and to fulfill the best interests of the shareholders.

Issue 2: Keep the board of directors fully informed.

This is a cardinal rule. Outside independent directors lead very busy lives, so they need to have all of the information necessary for them to do their best job for shareholders - and that information is almost exclusively in the hands of corporate management. Management must always have a part of its brain focused on what information the Board needs to do its job. Another cardinal rule: No surprises. The Board should never hear news of the company outside of the organization first. If your instinct is that the Board should be aware of something, they probably should.

Issue 3: Supervise your law department.

Prior to its bankruptcy proceedings, MCI/WorldCom had a large and geographically dispersed legal department, but Governor Thornburgh rightly points out that dispersion is no excuse for poor supervision. To address this situation, I implemented a simple organizational structure within the law department with clear lines of authority, which infused the whole department with a strong sense of accountability. Even in a complicated matrix structure, clear accountability of lawyers to the GC is critical and possible. Furthermore, this organizational structure created the framework for greater consistency of approach and more effective decision making. This was ultimately critical to the successful implementation of the many difficult cultural and compliance changes required to enable MCI to emerge from bankruptcy. Implementing this organizational structure required that we identify lawyers with excellent managerial skills. I needed managers who would motivate and inspire our group to fulfill the vision of a compliant and effective legal department. The right lawyers in the right jobs made supervision a much easier task for me.

Beyond this work, I also made a strong effort to bring the legal department into alignment with MCI's corporate policies. As one example of many, I required the department to use Purchase Orders when procuring outside materials. This was not an easy transition, but we made it work by re-designing our systems to accept the standard purchase orders. Many other law departments have the perspective that "legal is different" and is therefore outside corporate policy, but I found that working strictly within general corporate guidelines not only made our department stronger, but it also generated a great deal of goodwill from other departments, such as HR and IT, who were already following these guidelines.

Issue 4: Designate a senior lawyer to track significant matters.

MCI faced a number of significant matters following its declaration of bankruptcy, and I made it a priority to understand the most vital issues concerning the Board, the CEO, and my peers within MCI. Once I understood those specific issues, ranging from a need to generate new streams of revenue, to maintaining MCI's lead in product development to resolving the various legal claims against MCI, I was able to develop a strategic plan along the lines of what Governor Thornburgh suggested. Specifically, I assigned a Deputy General Counsel or a Vice President to each major issue. The designated attorney and I then jointly developed a plan to address the issue. We also discussed this plan with the relevant stakeholders in an effort to maintain strong lines of communication between our department and the rest of the company. We made such a concerted effort to incorporate other departments because we knew that if MCI was going to succeed it was going to take everyone pulling in the same direction.

Before I continue, I'd like to acknowledge all of the members of the legal team at MCI whose hard work went a long way to putting the company back on its feet. Particularly, I'd like to thank Carol Ann Petren, Paul Eskildsen, Jim Lewis, Nicole Jones, Bob Peterson, Maureen DelDuca, Jennifer McGarey and Brian Benjet for their effort.

Issue 5: Monitor the activities of other corporate governance gatekeepers.

The legal group needs to maintain open lines of communication with the other corporate governance gatekeepers in order to create a consistent message concerning compliance to the company as a whole. At MCI, we accomplished this by the direct involvement of either myself or of a member of my team with the corporate governance-related initiatives within the company, helping to ensure that any steps taken are in full compliance with legal and regulatory requirements.

One of the most successful collaborations with another governance gatekeeper came in our interactions with the Ethics and Business Conduct function. At MCI, the Ethics and Business Conduct function was responsible for the ethics program while the law department had primary responsibility for the compliance program. Our desire to promote clear and consistent messaging to MCI employees regarding their corporate responsibilities led to a very close working relationship between the legal and ethics functions. Senior members of the two groups met regularly and there was very close coordination and collaboration around major initiatives such as launching new corporate-wide compliance training.

Issue 6: Promote a culture of compliance.

As Governor Thornburgh correctly put it, the CLO must create a culture of compliance within a firm. But how do you create a culture? At MCI, one secret to our success was messaging. We created a centralized compliance function from scratch, and we asked MCI's CEO, Michael Cappellas, and his senior team to frequently address compliance issues in communications with the company. Michael and the rest of the executive leadership team also became involved in the launch of many other initiatives, including training, and his participation sent a strong message to internal and external stakeholders that compliance was a central issue at MCI.

However, compliance themes need to be included in multiple channels of executive communication for them to resonate throughout the company and become embedded in the culture. For example, at MCI, we developed a website that detailed our compliance initiatives so that employees and external stakeholders could have another resource to understand exactly what our compliance program was. We also had numerous programs to educate the company on the importance of compliance to our business.

In closing, I want to emphasize two main points. First, the legal department must be a business partner within the firm, and it must take an active role in the business. Secondly, the legal department must, simply put, be more active in helping its company manage risk. Compliance is not an impossible task, but it requires foresight, initiative, and hard work to achieve.

Anastasia D. Kelly is Executive Vice President, General Counsel, and Senior Regulatory and Compliance Officer of American International Group, Inc. (AIG). Most recently, Ms. Kelly was Executive Vice President and General Counsel of MCI.

Editor's Note: Stasia Kelly, who served as MCI's General Counsel during its bankruptcy proceedings, shows step-by-step how her office addressed the six issues identified by Governor Thornburgh in last month's issue. Ms. Kelly has since moved on to the General Counsel position at AIG, where the experience and skill gained during her time at MCI will no doubt serve her well.