Corporate Counsel
  • Home
  • News
  • Surveys
  • Resources
  • Lawjobs
  • Advertise
  • Subscribe
  • Bookstore
  • Contact

Topics » IP Insider | Labor & Employment | From the Experts | On the Job | Moves | DC Watch | International

Home > Hurricanes, Nate Silver, and Assessing Corporate Risk

Font Size: increase font decrease font

Previous

  • 1
  • 2

Hurricanes, Nate Silver, and Assessing Corporate Risk

January 16, 2013

  •    
  •    
  •    
  •      
 

But the best these tools can do is help compliance lawyers make more informed decisions. For instance, a tool to track gifts may tell you that an operating unit took an official from a state-owned company to dinner and spent an amount exceeding the limit set by the company policy. The tool will never tell you, however, whether the dinner was improper entertainment because it cannot reveal the intent of the employee in organizing the dinner or what was discussed there.

Another problem with technology, as Silver points out, is that computers are so literal-minded that they are unable to recognize patterns when subjected to even the slightest degree of manipulation—even changing a few letters can throw them off. Not so with humans, who can "rapidly parse through any distortions in the data in order to identify abstract qualities." Silver concludes in his chapter on baseball statistical analysis that even sporting organizations that are leaders in statistical analysis, such as the Oakland Athletics, rely heavily on scouts to analyze the human factor.

A technology tool cannot promote a culture of integrity, or show employees how good ethics makes the business stronger. That comes from people who believe in the organization and understand how to use risk data to promote the compliance program and its messaging.

The new FCPA guidance notes that taking a risk-based approach is particularly critical with respect to due diligence procedures for assessing third-party relationships. Using empirical data to evaluate third-party risk may be even more challenging depending upon the reliability of the data obtained from the third party to assess risk and, for initial due diligence purposes, the lack of historical data about the third party. Risk-based systems address this lack of historical data with more stringent due diligence based on the risk of the third party. A sales agent who works on commission in a country with historically high levels of corruption should receive more scrutiny than a visa agent who will be paid according to a publicly available fee schedule in a country with historically lower levels of corruption.

The longer a company operates in a particular environment with different third parties, the better it should get at evaluating the risks of entering into those relationships. The sample set will get larger and the risk analysis better.

The Justice Department and SEC guidance makes clear that companies have to assess risk and adopt a "risk-based" approach. Eventually, this may mean that companies spend less on compliance as their programs get more efficient at addressing risk. Risk models will change as compliance programs become more efficient and gather more empirical data. The success of a risk-based model, however, will ultimately depend not on technology tools, but on the compliance lawyer's ability to successfully analyze risk data and sort the signals from the noise. That lawyer must be adaptive, creative, and look beyond the data to see organizational and industry trends and risks. By helping us understand the limits of technology and how to use data, Nate Silver can make us all better compliance lawyers.

Ryan McConnell is a partner at Morgan, Lewis & Bockius in Houston and a former federal prosecutor. He teaches international corporate compliance and criminal procedure at the University of Houston Law Center. Dianne Ralston is deputy general counsel at Schlumberger Ltd., where she focuses on mergers and acquisitions. Charlotte Simon is an associate at Morgan, Lewis & Bockius in Houston and former law clerk to U.S. District Judge Keith Ellison in Houston. She also teaches international compliance at the University of Houston Law Center.

This article originally appeared in Corporate Counsel under the headline “What Computer Models Can—and Can't—Do.”

Previous

  • 1
  • 2


Subscribe to Corporate Counsel

You must be signed in to comment on an article

Find similar content

Firms mentioned

    
  • Morgan, Lewis & Bockius

Companies, agencies mentioned

    
  • Morgan Lewis & Bockius
  • Press HC
  • United States Securities & Exchange Commission
  • Oakland Athletics
  • Justice Department
  • University of Houston
  • Schlumberger Limited
  • United States Department of Justice

Key categories

    
  • Corporate & Business Law
  • Corporate Governance and Compliance
  • Executive Agencies
  • Internet and Technology Law

Most viewed stories

    
  1. Best Legal Departments 2013
    •      
  2. 3-D Printing: The Next Big Thing in IP Law?
    •      
  3. 6 Things In-House Counsel Must Know About E-Discovery
    •      
  4. Bristol-Myers Squibb: The Caped Crusaders
    •      
  5. U.S. Legal System Ranked as Most Costly
    •      
lawjobs.com

TOP JOBS

MORE JOBS

POST A JOB

From the Law.com Network

The General Counsel and the Compensation Committee

Your Company's Been Hacked -- What Comes Next?

Simpson Helps Yahoo, Tumblr Connect for $1 Billion Deal

Kasowitz Benson Launches in Los Angeles

Contrite Companies Can Win Forgiveness in Bribery Cases
  •      
    • Subscription Required

Plaintiffs Want to See Toyota's 'Crown Jewels'
  •      
    • Subscription Required

Collaboration Is Key to Defending Cyberattacks

Stanford Law Builds on Role as Legal Tech Incubator

Prolific ADA Plaintiff Faces Nemesis in Harassment Suit

Ullyot Exit Closes Chapter for Facebook

South Florida Attorneys Lead Force-Placed Insurance Fight

Suit Names Missing Attorney Timothy McCabe For Alleged Fraud
  •      
    • Subscription Required

Circuit Voids $3 Million Judgment Against 'Girls Gone Wild' Producer

Judge Says Boston Bombings Had No Affect on Terrorist Sentences
  •      
    • Subscription Required

The Affordable State-Specific Practice Solution
Available in NY, NJ, PA and CT editions - research, draft and prepare even the most complex cases with ease.

Judge Declines to Block Act-of-War Defense in 9/11 Case
  •      
    • Subscription Required

Panel Finds 'Excessive' City Fine for Poaching Antenna From Trash
  •      
    • Subscription Required

Lawsuit Testing Federal Porn Regulation Allowed to Survive

Ex-College QB Can Press Claim Over EA's Video Game
  •      
    • Subscription Required

Law Schools Are Looking Beyond LSATs, Says Mich. Dean

Is Freezing Your Eggs the Solution?

Water Warriors: Local Governments Bring Pollution Suits
  •      
    • Subscription Required

Sanction Reversed; Filing of Sexually Explicit Chat OKd
  •      
    • Subscription Required

Brooks Looks To Political Ally For Criminal Defense

Attorney Fee Hearing in Waffle House Sex Case Heats Up
  •      
    • Subscription Required

Corporate Bribery Case Part Of National Trend
  •      
    • Subscription Required

Court Continues To Grant Lawyers Fraud Immunity
  •      
    • Subscription Required

  • About |
  • ALM Properties |
  • ALM Reprints |
  • Customer Support |
  • Privacy Policy |
  • Terms & Conditions |
  • ALM User License Agreement
ALM Media