1. GENERAL FACTS
You recently were hired by BETTER-BUY, Inc. ("BB") as Assistant General Counsel in its headquarters' office in Los Angeles, California. BB is a publicly-traded manufacturer of its own brand of electronic products and sells them and other products from its retail outlets in the U.S. and around the world, primarily in Western European countries and Japan, South Korea and Australia in Asia. By outsourcing much of the manufacture of these goods and their components to low-cost labor companies-for example, The Philippines, Guatemala, some sub-Saharan countries including Nigeria, northern Africa (Morocco and Tunisia), some Eastern European countries, and China--BB keeps production costs low and profit margins high.
BB's Chief Executive Officer ("CEO")recently learned that the United Nations' Human Rights Council unanimously endorsed "Guiding Principles on Business and Human Rights" ("GPs") in 2011 [referred to in Ms. Mikhail Reider-Gordon's lecture for Class #12 and in the materials for that class and for Class #13; sometimes referred to as the "Ruggie Principles" and available on this class' TWEN page]. The GPs, which were explained at a meeting attended by CEO, detail a three-pillared framework referred to as: "Protect, Respect and Remedy", specifically calling for-
(1) the State's [country] duty to protect against human rights abuses by third parties, including business;
(2) the corporate responsibility to respect human rights; and
(3) the need for greater access to remedies for victims of business-related abuse.
The GPs related to the second pillar apply to all business enterprises, not just publicly traded companies or companies of a certain size. Thus, it was CEO's conclusion that corporations/companies should institute processes in order to ensure respect for human rights. While he understands that the GPs are not directly legally binding obligations, nonetheless along with other corporate social responsibility ("CSR") concerns (such as labor and workplace policies, the environment, fair operating practices, consumer issues, community involvement and development), businesses may comply with their CSR by developing systems in their companies to ensure they don't have adverse human rights impacts and breach human rights norms.CEO further realized that business may cause impacts that raise CSR issues in several ways: through their own activities; by contributing to the impact (e.g., imposing on a supplier an unreasonable deadline on the production of a product forcing the supplier to require workers work excessive hours); and by doing business with companies that, in turn, impose requirements resulting in human rights abuses and other adverse impacts on their supply-chains.
There are also a number of U.S. sanctions programs developed by the U.S. Government to penalize certain countries for policies and actions that are against the interests of the United States and to ensure national security. A short, but not exclusive, list of countries subject to these sanctions programs includes: Cuba, Iran, Libya, North Korea, Somalia, Sudan, Ukraine/Russia, Venezuela, Yeman and Zimbabwe. The sanctions programs tend to be focused on the exportation of goods and services to these countries that may concern national security.
CEO is also keenly aware of the newly aggressive prosecutions by the U.S. Department of Justice and the U.S. Securities and Exchange Commission of the Foreign Corrupt Practices Act (FCPA) and, when corrupt activities in violation of the Act are discovered, penalizing companies that do not have an internal compliance system in-place.
For some time, CEO has wanted to install some kind of internal company compliance system to ensure that BB will not violate the FCPA. She now feels that--for efficiency purposes and to avoid duplication of activity-there should be one system that encompasses the CSR issues, the company's anti-corruption efforts, and compliance with the various sanctions programs.
Accordingly, CEO ordered that BB's Legal Department develop several documents in response to these concerns. The General Counsel has turned to you and assigned you the following:
1. Drawing on the lectures and course materials for Classes 12 and 13, as well as the understanding you've acquired about transnational transactions from other classes of our course and course materials, PREPARE A DETAILED OUTLINE WITH EXPLANATIONS (but no more than 5 pages [double-spaced, 12 pt. Times-Roman font] OF A COMPLIANCE PROGRAM FOR BB to address issues of CSR, anti-corruption and sanctions compliance. In other words, identify (in outline fashion) in a list (with explanations) what issues should such an internal compliance system address, to whom/what should it be directed, and how will it be implemented? How should this corporate self-regulation system be integrated into the operations of BB?
2. As noted above, BB outsources the manufacture of many of its electronic products to companies in The Philippines, Guatemala, Nigeria, China and other countries. In other words, it contracts with companies in these countries to supply it products per its specifications.In these contracts, are there contractual obligations you can impose to ensure those suppliers and their suppliers comply with your CSR, anti-corruption and sanctions compliance concerns? Similarly, might you contractually ensure that the suppliers are not involved in any conduct that may be a violation of the FCPA or sanctions which may then be attributable to BB?
2.A. DRAFT A CLAUSE(S) THAT BB WILL INSERT IN ITS CONTRACTS WITH THESE SUPPLIERS to accomplish these goals.
2.B. Do BB's wholly-owned retail stores operating in the countries mentioned pose any concerns regarding BB's CSRs, anti-corruption, and sanctions compliance? If so, the contractual arrangement giving the foreign entity its subsidiary status and relationship to BB, may provide an opportunity for BB to ensure contractually that the subsidiary adheres to its CSR, anti-corruption and sanctions compliance discipline. If you think so, DRAFT A CLAUSE(S) TO TAKE INTO CONSIDERATION THESE CONCERNS. If not, EXPLAIN WHY NOT (2 page limit single-spaced for such an explanation).
3. Wearing a different hat-in other words, assume that because of your fine performance with BB, you were hired by a major international law firm, Kant Reed LLC ("KR"), in downtown Los Angeles and are now a third year Associate Counsel there. KR is firm with 2500 lawyers world-wide. The managing partner, S.P.D. Reader, summons you to his office and assigns you the following tasks:
3A. Assume the law firm of KRhas adopted the same or similar CSRs, anti-corruption and sanctions compliance goals articulated by BB. Managing Partner Reader wants you to provide instructions to the other lawyers in the firm about how to implement these CSR goals in their dealings with and counseling of clients. PREPARE A MEMO TO THE FIRM'S ATTORNEYS INDICATING HOW THEY (THE INDIVIDUAL ATTORNEYS) SHOULD INDIVIDUALLY IMPLEMENT KR's corporate social responsibility, anti-corruption and sanctions compliance goals consistent with their obligations to clients and the profession. (Maximum 3 pages, double-spaced).
3B.Mr. Reader also reminds you that, like its many clients, KR operates a business-the business of providing legal services for client consumption. He asks you to prepare a second memo (maximum 3 pages, double-spaced) on HOW KR SHOULD/CAN IMPLEMENT A CSR/ANTI-CORRUPTION/SANCTIONS COMPLIANCE PROGRAM FOR ITSELF (i.e. the law firm)?
N.b., In addition, up to 10 points will be awarded for format and up to 10 points will be awarded for writing, good grammar and syntax, and clarity.