“Where does creativity fit into compliance? In more places than you think. Problem-solving, accountability, communication, and connection – all take creativity.”
– Thomas Fox, Podcaster & Contributing Writer, JD Supra
This week, we look at a recent example of regulatory fines handed down by the SEC to Activision Blizzard regarding workplace misconduct complaints. We consider questions regarding the scope and application of the recordkeeping provisions of the Investment Advisers Act of 1940. We examine a toxic workplace court case against the Mcdonald’s Corporation that holds corporate officers responsible for oversight obligations. Finally, we learn how creativity fits into the world of compliance.
Activision Blizzard Paying $35 Million to Resolve SEC Investigation
Activision Blizzard has agreed to pay $35 million to settle regulatory claims tied to its process for deciding whether its disclosures to investors should reflect employee complaints regarding workplace misconduct. The investigation by the SEC also alleged that the company violated a whistleblower-protection rule. Public companies are obliged under investor-protection laws to maintain a system for ensuring their disclosures reflect material risks and business developments. The $35 million fine is a significant penalty for an enforcement case focused on a company’s disclosure procedures. Under Chair Gary Gensler and Enforcement Director Gurbir S. Grewal, the SEC has increased penalties, saying fines need to be higher to deter wrongdoing effectively.
Managed Funds Association and Others Urge Narrower Enforcement of Advisers Act’s Recordkeeping Requirements
The SEC has consistently prioritized compliance with books and recordkeeping obligations for registered broker-dealers, especially regarding failing to preserve communications from personal devices and ephemeral messaging applications. Since December 2021, the SEC has procured over $1 billion in penalties from registered broker-dealers that failed to maintain and preserve electronic communications. In October 2022, the SEC began sweeps of investment advisers to determine if they had adequate policies and procedures to preserve “off-channel” communications. Questions were then raised about whether advisers are subject to the same recordkeeping standards as broker-dealers. As a result, the Managed Funds Association, along with other trade associations, wrote a letter to SEC Chairman Gary Gensler, raising questions about the scope and application of the recordkeeping provisions of the Investment Advisers Act of 1940. This article examines the context giving rise to this letter and summarizes its position.
McDonald’s Toxic Culture Ruling Sheds Light on Officer Liability
A recent ruling of the Delaware Chancery Court explicitly held—in a toxic workplace case against McDonald’s Corp.’s former chief people officer—that CEOs and other executives owe investors a duty of oversight comparable to that owed by a board of directors. This ruling sheds new light on oversight liability and raises questions on how far the line of duty extends. Vice Chancellor J. Travis Laster ruled that a group of pension funds can move forward with sections of their shareholder derivative lawsuit against David Fairhurst, who was fired over sexual harassment allegations. Fairhurst argued that shareholders couldn’t sue him because Delaware courts have found that oversight obligations fall to a board of directors, who monitor corporate officers. But Laster disagreed by saying corporate officers manage day-to-day company operations and, therefore, must identify red flags and address them or report the information to the board.
Creativity and Compliance – Changing the Ethics & Compliance Brand with Yum!
While creativity and compliance may seem like they don’t have anything to do with each other, they are more related than one might think. Problem-solving, accountability, communication, and connection all require creativity and exist within compliance. This podcast episode covers compliance program rebranding that Learnings & Entertainment lead for Yum! Brands. They changed the program name, created a new logo, and created a jingle for compliance. The company focuses on changing the tone of compliance communications and messaging to make the compliance program, policies, and resources more accessible.
