What Does it Mean to be a Monitor?

by Veronica Root

Monitorships are utilized when misconduct is found within an organization, but what does it mean to be a monitor?  In the past, I have spoken to monitors who insist that I don’t understand what it is they do, but what the conversations revealed over time is that the word monitor is used to encompass a great deal of similar, yet distinct, activity.

Is a monitor a person appointed by the court to assist the court in ensuring its mandates are followed?[1]  Is a monitor a person utilized to assist the government in enforcing the terms of a settlement agreement with a corporation that has engaged in misconduct?[2]  Is a monitor a person retained to help a corporation to understand the root-cause of misconduct that occurred within its walls and assist it in developing a new set of policies and procedures that will prevent similar future misconduct? [3]  Or is a monitor a person who works independently in an effort to assist a corporation in undergoing activities that will restore trust and confidence with the public?[4]

The answer to each of the above four questions can be answered in the affirmative, which makes efforts to understand and regulate monitorships quite challenging.

For example, there are robust debates involving academics, practitioners, members of the press, and others regarding the appropriate role of the court in overseeing monitorships.  Some argue that without court involvement, monitorships operate without sufficient amounts of independent oversight.  They argue that this independent oversight is necessary to ensure that the monitor, monitored-organization, and any involved enforcement actors are engaged in the activities necessary to achieve an appropriate resolution to the corporate misconduct at issue in the matter.  Yet, when court involvement is considered for four different monitorship types, the efficacy of universal court involvement is called into question.

  • Traditional, Court-Ordered Monitorships. A traditional, court-ordered monitorship is a monitorship that arises out of an express order from a court.  The monitor is an agent of the court, and is charged with ensuring that the monitored-organization complies with explicit court orders.  As a result, court involvement is an inherent necessity for this type of monitorship, because the monitorship is entered into so that the monitor can assure the court that the monitored-organization is complying with the court’s orders.
  • Enforcement Monitorships. An enforcement monitorship is a monitorship that arises out of a negotiated settlement between an enforcement agency or prosecutor and an organization that has engaged in misconduct.  The goal of the enforcement monitorship is to ensure the organization’s specific performance with the negotiated settlement’s terms.  For example, the recent Herbalife settlement has resulted in a call for monitor applications that includes an incredibly detailed scope of work section.  For an enforcement monitorship, court involvement could be helpful, particularly if there are strong concerns regarding monitor or regulator capture.  Court involvement could provide an additional check on the conduct of the parties involved in the monitorship.  Court involvement is not, however, clearly necessary to effectuate the monitorship’s goals.  The Herbalife Scope of Work requires the evaluation of matters that are relatively clear-cut and within the expertise of the applicable enforcement agency.  Court oversight may just add another level of costly oversight that is not actually necessary to ensure Herbalife’s compliance with the settlement terms.
  • Corporate Compliance Monitorships. Corporate compliance monitorships, unlike traditional court-ordered or enforcement monitorships, do not involve similarly clear requirements for the monitor to assess.  Instead of determining whether the monitored-organization has complied with a pre-set list of requirements, the corporate compliance monitorship is engaged to perform a root-cause analysis to determine why the organizational misconduct occurred.  After the monitor determines the source of the misconduct, the monitor works with the monitored-organization to develop a set of recommendations for the organization to implement going forward that are designed to prevent similar misconduct.  Because the monitor is not retained solely for the purpose of monitoring specific performance with a pre-determined list of requirements, it would likely be more difficult, although not impossible, for a court to gauge the effectiveness of the monitorship.

Additionally, corporate compliance monitorships are entered into by monitored-organizations on a purely voluntary basis.  While the organization often receives a certain amount of prosecutorial pressure to provide consent to the monitorship, the actual agreement is a voluntary one and this voluntary agreement is provided despite the fact that the organization does not know what the monitor’s recommendations will consist of at the time of agreement.  Because court involvement carries with it certain public disclosure norms, court oversight of corporate compliance monitorships may actually serve as a deterrent to organizations that are unwilling to provide voluntary consent to what may result in a public airing of uncertain monitorship results.[5]

  • Public Relations Monitorships. Public relations monitorships are entered into on a purely voluntary basis.  An organization that has discovered misconduct within its ranks voluntarily retains a monitor without prompting from an outside regulator, prosecutor, or court.  The monitor conducts an independent investigation, outside the confines of an attorney-client relationship, and provides a public report regarding the nature of the misconduct and possible suggestions for remediation measures that the monitored-organization can undertake in the future.  As such, court oversight of these monitorships would seem inappropriate, as an active judicial proceeding or prosecution is not the underlying basis for the monitorship.  Mechanisms for determining the reliability of these types of monitorships is probably warranted, but an extrajudicial option is likely needed.

Similar analytical differences to those found when assessing the importance of court involvement for monitorships come to light when one considers topics like the proper role of transparency for monitorships or the duties monitors owe to monitored-organizations and the public.  I discuss these issues in detail in Modern-Day Monitorships,[6] but the upshot is that there are different types of monitorships and these differences matter.  As a result, attempts to adopt universal rules governing monitorships may be, at best, misguided and, at worst, doomed to fail.

[1] See, e.g., United States v. Int’l Bhd. of Teamsters, 723 F. Supp. 203, 206 (S.D.N.Y. 1989).

[2] See, e.g., Request for Applications to Serve as Independent Compliance Auditor for Herbalife, Fed. Trade Comm’n, (2016), https://www.ftc.gov/system/files/documents/cases/160809herbalife-request.pdf.

[3] See, e.g., Deferred Prosecution Agreement ¶¶ 1, 3, United States v. HSBC Bank USA, N.A., No. 12-763, (E.D.N.Y. Dec. 11, 2012), http://www.justice.gov/opa/documents/hsbc/dpa-exe-cuted.pdf.

[4] See, e.g., Report of the Special Investigative Counsel Regarding the Actions of the Pennsylvania State University Related to the Child Sexual Abuse Committed by Gerald A. Sandusky, FREEH SPORKIN & SULLIVAN, LLP 8-9 (July 12, 2012), http://health-eq-uity.pitt.edu/3956/1/REPORT_FINAL_071212.pdf.

[5] Veronica Root, Greater Transparency in Monitor Reports:  An Unintentional Result?, THE COMPLIANCE & ENFORCEMENT BLOG (June 15, 2016).

[6] 33 YALE J. REG. 109-164 (2016).

Veronica Root is an Associate Professor of Law at University of Notre Dame Law School. Professor Root teaches Corporate Compliance & Ethics, Professional Responsibility, and Contracts. 

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