May 20, 2013

Corporate Counsel Magazine: "How an Ombuds Can Foster Collaboration and Reduce Risk"

The current issue of the leading periodical and website for in-house attorneys includes an article on Ombuds. The piece focuses on the benefit of Ombuds for "knowledge workers," who collaborate frequently and are largely autonomous.
These workers are a special challenge for management because interpersonal conflicts can dramatically affect their performance, and because supervisors are less aware of potentially harmful problems when they develop. The author says, "Ombuds can help."

The recent bankruptcy of MF Global—provides an example of a knowledge-based company that could have benefited from an Ombuds's early notice of potential liability.
In September 2010, Chief Risk Officer Michael Roseman warned Chief Executive Officer Jon Corzine that the company's bets on European sovereign debt, which at that time stood between $1.5 billion and $2 billion in exposure, presented a significant liquidity risk. Corzine disagreed with that assessment—and in October 2010, he asked Roseman to seek permission from the board of directors to raise the stakes to $4.75 billion. Instead, Roseman repeated his concerns to the board—but the scenarios he presented were rejected as implausible. In January 2011, the company replaced Roseman as CRO and continued on the course recommended by Corzine.
However, by the summer of 2011, when the company's exposure to European sovereign debt had grown to more than $6 billion, Roseman's replacement advised the company to take steps to mitigate the financial risks. It was too late. In early October 2011, news reports surfaced that MF Global had been required in August to put additional capital into reserve. Its stock price plunged. By the end of October, MF Global had declared bankruptcy.
These facts suggest that MF Global's collapse could have been avoided if the board had followed Roseman's advice in 2010. Although Corzine's contrary opinion was clearly deemed persuasive, an Ombuds's contribution, had it existed, would have added weight to Roseman's position. Indeed, we now know that more than one senior manager shared Roseman's concerns in 2010, but they were afraid to confront such an imposing figure as the CEO. If an Ombuds had been available to assimilate and relay the anonymous fears of multiple employees, MF Global's board might have perceived the situation as more dangerous than simply a conflict between a risk-averse CRO and an aggressive CEO -- but, rather, as a potential crisis involving exposure to an unacceptable level of liability should the trades result in damage to the value of the company.
The article was written by David P. Clark, a mediator, arbitrator, and adjunct professor of law at the Washington College of Law at American University. (Corporate Counsel.)

Related posts: ADR Times: Unique Role for Ombuds in Corporate Dispute Resolution Systems; Ethics Resource Center Says Ombuds Have Role Under Federal Sentencing Guidelines; Corporate Secretary Magazine: "Is an Ombudsman Right for Your Company?"; NACD Magazine: Building a Culture of Trust From the Ground Up; Research Shows More US Corporations Adopting ADR, Including Ombuds.

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