WORLD RECOGNITION of DISTINGUISHED GENERAL COUNSEL

GUEST OF HONOR: Joseph Wayland Executive Vice President and General Counsel Chubb Limited / Chubb Group WORLD RECOGNITION of DISTINGUISHED GENERAL COUNSEL

THE SPEAKERS

Joseph Wayland Donald Hawthorne Executive Vice President and General Counsel Partner, Axinn, Veltrop Chubb Limited / Chubb Group & Harkrider LLP

Edward Best Elizabeth Sacksteder Partner, Mayer Brown LLP Partner, Paul, Weiss, Rifkind, Wharton & Garrison LLP

(The biographies of the speakers are presented at the end of this transcript. Further information about the Directors Roundtable can be found at our website, www.directorsroundtable.com.)

TO THE READER General Counsel are more important than ever in history. Boards of Directors look increasingly to them to enhance financial and business strategy, compliance, and integrity of corporate operations. In recognition of our distinguished Guest of Honor’s personal accomplishments in his career and his leadership in the profession, we are honoring Joseph Wayland, General Counsel of Chubb Limited* with the leading global honor for General Counsel. Chubb Limited is one of the world’s largest multiline property and casualty insurers. His address focuses on key issues facing the General Counsel of an international insurance corporation. The panelists’ additional topics include insurance, mergers & acquisitions, governance, business litigation, cyber security, and the Rule of Law.

The Directors Roundtable is a civic group which organizes the preeminent worldwide programming for Directors and their advisors, including General Counsel.

Jack Friedman Directors Roundtable Chairman & Moderator

* ACE acquired Chubb on January 15, 2016

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Joseph Wayland is Executive Vice President Before joining ACE, Mr. Wayland was with and General Counsel of Chubb Limited. Simpson Thacher & Bartlett, where he He is responsible for the company’s global worked from 1988 and became a partner legal affairs and serves as principal coun- in 1994. From 2010 to 2012, he served in sel to the CEO, senior management team, the United States Department of Justice, and board of directors. Mr. Wayland also fi rst as Deputy Assistant Attorney General leads the legal organization that supports responsible for litigation for the Antitrust Chubb’s business operations globally and is Division, and was later appointed as the Acting Assistant Attorney General in responsible for all legal functions, including charge of the division. Earlier in his career, corporate affairs and securities, litigation, Mr. Wayland served as a Captain in the compliance, and regulatory and govern- Joseph Wayland United States Air Force. Executive Vice President and ment affairs. He also serves as secretary to General Counsel the Chubb Limited Board of Directors. Mr. Wayland holds a Juris Doctor degree Chubb Limited / Chubb Group from Columbia University Law School and Prior to ACE’s acquisition of Chubb in a Bachelor of Arts degree from Washington January 2016, Mr. Wayland was the General University. He also holds a Master of Laws Counsel of ACE Limited, a position he degree in International and Comparative held since joining the company in 2013. Law from Georgetown University Law He was appointed Executive Vice President, School. Mr. Wayland is a Fellow of the ACE Group, in March 2014. American College of Trial Lawyers.

About the New Chubb The insurance companies of Chubb serve forma basis, Chubb’s core operating insur- multinational corporations, mid-size and ance companies maintain fi nancial strength small businesses with property and casu- ratings of AA from Standard & Poor’s and alty insurance and services; affl uent and A++ from A.M. Best. Chubb is the world’s largest publicly traded high-net-worth individuals with substantial property and casualty insurer. With operations assets to protect; individuals purchasing life, Chubb Limited, the parent company of in 54 countries, Chubb provides commercial personal accident, supplemental health, Chubb, is listed on the New York Stock and personal property and casualty insurance, homeowners, automobile, and other spe- Exchange (NYSE: CB) and is a component personal accident and supplemental health cialty insurance coverage; companies and of the S&P 500 index. insurance, reinsurance and life insurance to a affi nity groups providing or offering acci- diverse group of clients. dent and health insurance programs and Chubb maintains executive offi ces in life insurance to their employees or mem- Zurich, New York, London, and other loca- The company is distinguished by its extensive bers; and insurers managing exposures with tions, and employs approximately 30,000 product and service offerings, broad distribu- reinsurance coverage. people worldwide. tion capabilities, exceptional fi nancial strength, underwriting excellence, superior claims han- With $150 billion in assets and $37 billion dling expertise, and local operations globally. of gross written premiums in 2014* on a pro *Pro forma December 31, 2014 ACE and Chubb

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JACK FRIEDMAN: Good morning, every- one. I’m Jack Friedman, Chairman of the Directors Roundtable.

The Directors Roundtable is a civic group. We have never charged, in 800 events, for anyone to attend. Our goal is to pro- vide the finest programming for boards of directors and their advisors including General Counsel. This world honor series for General Counsel began when directors told us that companies do not receive credit for the good things they do. This series gives top executives and General Counsel an opportunity to speak on these areas. Additionally, there will be a transcript that goes out globally to about 150,000 people, to share the wisdom of the speakers present today. I want to thank the Mayer Brown staff for the hospitality and helping make this a successful event.

Joseph Wayland, as well as being General partners from Simpson Thacher, where I Obviously it’s a busy time for us as we work Counsel of ACE Limited, has had a dis- spent much of my career and have very fond to get the closing done as early as possible in tinguished career in government with the memories of learning to become a lawyer. 2016 — as I said, hopefully this month — and DOJ in the antitrust area. He has also had There are also a number of friends and we’re very excited about the future of the new a career in the military and private prac- tice, as a captain in the Air Force and as a colleagues who represent us at ACE — I’m Chubb and what it can do for our custom- lawyer. Educationally, he has a Juris Doctor delighted that all of you came today — and a ers, our shareholders and our employees. from Columbia University Law School, number of good personal friends are here, a Bachelor of Arts from Washington as well. So I thank all of you for coming One of the unique and pleasurable aspects University, a Master of Law in International and joining us this morning. of this honor is the invitation to bring some and Comparative Law from Georgetown, reflection and thought about a compelling issue and he’s a Fellow of the American College I’ve had the pleasure of serving as the through the preparation of this talk. We don’t of Trial Lawyers. General Counsel of ACE for about two normally get a chance to do that; in our world, and a half years now. ACE, for those of you it’s a rare treat. Like most of you, I spend most Without further ado, we are honored to that don’t know it, is a global company. We of my time dealing in very short communica- have as our special guest today, and honoree, operate in about 54 countries. And as all of tions, brief emails, very short memos, short Joseph Wayland, Executive Vice President you may know, our acquisition of Chubb is discussions with people — rarely anything that and General Counsel of ACE Limited. imminent. We will be changing our name exceeds a few pages. So on a daily basis, I and I expect to be the General Counsel of think all of us strive to find enough time to be JOSEPH WAYLAND: Thanks, Jack, for Chubb instead of ACE. both reactive and proactive, managing various that introduction. I am truly honored to be immediate problems versus addressing larger chosen as the recipient of the Distinguished This is the largest combination in the prop- strategic issues and planning for the future. General Counsel Recognition by the erty & casualty market ever, and it brings We don’t usually have the luxury to develop Directors Roundtable. I certainly haven’t together two of the very best insurers in the a topic over any length of time, and certainly been a General Counsel very long, so world in a merger that we think will create not over the course of an essay, and I very I hope I’m worthy of this! In any event, I a global leader with enhanced growth and much enjoyed the opportunity presented by appreciate all of my friends and colleagues earnings power, and an exceptional balance this honor. I want to thank our international that are here today. I see a number of peo- of products with greater product and geo- counsel, Nicola Port, who’s sitting right here, ple from ACE. I see a number of my former graphic diversification around the world. for her invaluable assistance on this project.

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My topic this morning is the Rule of Law. on a global basis. Many societies, of course, It’s important to me for several reasons. are and have been governed by laws that First, as the General Counsel of a multi- may be consistently applied, but are inimical national company engaged in international to our conceptions of freedom and justice. commerce, I’m concerned about creating the political stability and legal fairness The American Bar Association’s World necessary to encourage economic activity Justice Project offers the following working throughout the world. definition that comprises four principles:

Second, with respect to our specific busi- 1. A system of self-government in which all ness of insurance, we have regulators in persons, including the government, are every state of the U.S. and every country accountable under the law. in which we operate. In order for our busi- 2. A system based on fair, publicized, ness to operate predictably, we need the broadly understood, and stable laws. actions of these regulators to be transpar- ent, rational, and consistent. And we need 3. A fair, robust, and accessible legal pro- court systems that effectively and efficiently cess in which rights and responsibilities resolve disputes involving both the scope of based in law are evenly enforced. our policies and liability disputes giving rise 4. Diverse, competent, and independent to coverage claims. lawyers and judges.

Finally, as a lawyer steeped in the Anglo- While this definition does not directly the Magna Carta, and how few societies over American legal heritage, my hope is that address substantive concepts of justice, it those centuries have come close to the ideal. people everywhere have access to legal sys- certainly provides a framework for consid- Think of the “ism” threats just in the last tems that respect and protect human rights ering the Rules of Law issues facing global century: fascism, Nazism, communism, and provide for the peaceful and fair resolu- businesses. Indeed, if these principles were fundamentalism, all of various shades. tion of disputes of all kinds. uniformly followed around the world, many The “isms” have had powerful appeal, but of the international business community’s even as they wax and wane across nations As I will discuss today, at ACE, we recog- concerns would be addressed, and eco- nize how these various interests intersect, and societies, the “isms” have never extin- nomic activity would certainly be enhanced. and I am very proud of ACE’s unique guished the yearning for the Rule of Law. Of course, it’s much easier to find common Rule of Law Fund that supports projects Article 39 of the Magna Carta rings more ground across the globe on the ABA’s four around the globe to further the ideals of true to us today than any of the dogmas of principles than attempting to reach agree- the Rule of Law. the “isms.” ment on the meaning of freedom or justice.

Let’s start with a definition. The “Rule of The Oxford definition of the “Rule of Law” There is nothing original for me in identify- Law” is an ideal that traces its roots back is, “the restriction or the arbitrary exercise ing the basic concerns of the international in Anglo jurisprudence at least 800 years to of power by subordinating it to well-defined business community with respect to the Rule the Magna Carta. Article 39 of the Magna and established laws.” I think this is a good of Law in general, or insurance companies Carta, written in 1215, remains compelling beginning, focusing on precluding arbitrary in particular. It may be more interesting, today. Here’s what it says: “No free man action, and it is certainly at the heart of therefore, and perhaps more helpful to this shall be taken or imprisoned or deceased or what corporations seek as they do business audience, to focus on some of the specific exiled or in any way destroyed, nor will we around the world. issues that businesses, including insurers, go upon him or send upon him, except by face in conducting business in a world in the lawful judgment of his peers by the law But at least in the Anglo-American perspec- which the ideal of the Rule of Law remains of the land.” tive, the ideal of the Rule of Law is more elusive in practice. commonly understood to include concepts It’s worth taking a moment to reflect on the of justice and equality. Indeed, in the U.S., Our business — contractually assuming the extraordinary universal appeal of that ideal. when we think of the Rule of Law, we think risk of individuals and enterprises so that Think about all of the fundamental threats of the protections provided by the Bill of they may face the future with greater peace to the Rule of Law over the centuries since Rights, and efforts to protect human rights of mind — is very much affected by whether

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the Rule of Law principles I have identified ACE, for those of you that don’t know it, is a global are followed in the jurisdictions in which we operate. company. We operate in about 54 countries. And as all of you may know, our acquisition of Chubb is imminent. We When we enter an insurance contract with an individual or corporate client, we expect will be changing our name and I expect to be the General and rely on the consistent application of fair legal rules governing the formation of those Counsel of Chubb instead of ACE. — Joseph Wayland contracts, and the resolution of the inevita- ble disputes that arise about the coverage in ways that seem — from our perspective, at Let me give you a few examples, including least — to be arbitrary and inconsistent with provided. We also expect and rely on the an example from our experience at ACE, the efficient operation of insurance markets, consistent application of fair legal rules gov- to show you why we are so concerned which is not in the interest of policyholders. about adherence to the Rule of Law. Let’s erning disputes giving rise to liability that start with a basic consumer product — auto may be covered by our insurance contract. Local regulators seem to forget, sometimes, insurance. In the U.S., when you have a For example, a system that fixes liability in that their citizens’ insurance needs are best serious accident, the police come. They gen- a tort action based on expectations of insur- served by the free flow of capital across erally can be expected to write an objective ance coverage, rather than the merits of the borders and the global distribution of risk. report about what seems to have happened, dispute between the parties, is obviously Indeed, when disaster strikes, much of the and if there is any dispute about liability, problematic for an insurer. insurance to pay mega-claims, like those aris- the issue can be resolved in a court of law, ing from the 9/11 attacks, Hurricane Katrina, where the litigants generally can expect a As a regulated business, much of what we or tsunamis, comes from global insurers. fair hearing from judge or jury. Insurers do is affected by regulatory oversight. The providing insurance thus can price their terms of our contract; our rates; the type An insurance company such as ours can product with the assumption that the legal of insurance we can provide; the amount of withstand the impact of adverse legal rul- system is rational and based on a fair appli- profit we can make on particular products; ings, and we can generally accept that rules cation of the law. our interactions with customers; the amount will be promulgated by regulators that will of capital we need to hold, and where we sometimes go against our interests. We In some countries, however, when the need to hold it; what counts as capital; our become quite concerned and hesitant, how- police arrive at the scene of an accident, relationships with third parties, including ever, about investing capital, employing a they may determine fault on the basis of brokers and agents — all of these activities, workforce, and providing the economic who pays the first or best bribe, and if liabil- and many other aspects of our business, are security that comes with adequate insurance ity ever reaches a court, resolution may be subject to regulatory investigation, review, or protection, where we fear that an arbitrary problematic because of long delays and the approval. So it is obviously critically import- thumb is on the scales of justice, where we arbitrary nature of judicial decision-making. ant that the regulatory rules of the road be worry about arbitrary regulatory action. rational, clearly articulated, and consistently In response, many insurers incur substan- applied in every jurisdiction. In addition, the Rule of Law is seriously tial expense to build their own adjuster weakened when the procedures for promul- teams, who race to the scene of the accident Even in jurisdictions with a long tradition gating the laws and regulations that govern ahead of the police in an effort to make a of adherence to the ideals of the Rule of individuals or groups are perceived as arbi- more rational assessment and allocation of Law, we worry about regulators exercising trary or even nonexistent. liability. This obviously distorts markets and the broad discretion they are afforded within increases costs for consumers. many regulatory regimes. In recent years, we In some jurisdictions, we have observed have seen regulators move far beyond the important laws and rules being issued with Here’s a more complicated and potentially role that has served the industry so well for minimal notice and comment periods, or more serious issue for businesses of all so long, which is to ensure that policyholders even no notice at all. This means that we types. Suppose that you uncover financial will be paid when they submit claims. often find ourselves explaining, after the fraud or other serious misconduct commit- fact, how that new law or regulation may ted by an employee that may even involve Whether prompted by concerns about some be entirely unworkable for a globally active collusion with criminal elements or the conception of consumer welfare, financial company; how it may conflict with various corruption of government officials. In many system stability, local market protectionism, other countries’ competing laws; and how, countries, apart from any statutory or regu- or other matters, we have seen regulators act in the end, it hurts domestic policyholders. latory obligation to report the misconduct,

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provide more details — but the basic outline ACE lawyers around the world find proj- is this: An insurance company that ACE ects in their jurisdictions and submit grant purchased some years ago issued a policy to requests to support organizations engaged a business in Liberia. The business was ulti- in Rule of Law projects. To date, the fund mately damaged by civil war in Liberia, and has provided more than half a million the owners sought coverage. But the policy dollars to projects in Asia, Latin America, had a clear, unambiguous war exclusion, as Africa, Europe, and the U.S., including determined eventually by U.S. federal court. support for the following projects: Backed by third-party litigation funders, however, the business owners obtained • The development of civil legal codes in what was clearly a tainted judgment from emerging economies and the creation of a Liberian court, finding coverage, which an Africa-wide guidebook for evaluating the they then tried to enforce in the Cayman fairness of judicial processes, setting forth Islands, even seeking an injunction to pre- basic guidelines for the conduct of fair trials; vent ACE from re-domesticating from the • Improving the administration of crimi- Caymans to Switzerland. nal justice in Mexico through projects to support and encourage law enforcement We prevailed, eventually, and we’re now in officials to combat violence; a business can expect that local, regional the midst of contempt proceedings against the • The development of pro bono legal stan- or national law enforcement officials will plaintiffs and the litigation funders in fed- dards in South America; respond with an impartial investigation, eral court, but this is an example of the cost and if appropriate, prosecute the wrong- and risk of operating in jurisdictions where • The training of American judges on the doers. There may be consequences for the the Rule of Law has failed. proper handling of human trafficking cases. reporting company, as well, but the range of possible penalties is governed by regulation The risks are magnified when the practice Most recently, the fund has supported the and subject to judicial review. of law is reduced to a form of financial spec- International Bar Association’s Judicial ulation. Bad things are bound to happen, Integrity Initiative, a global project aimed at In some jurisdictions, however, local counsel including a weakening — even among the combatting judicial corruption. may advise a foreign business not to involve lawyers themselves — of the norms that a government law enforcement agency for enforce obedience to the judgments of duly I’m proud to say that our fund enjoys wide reasons that generally have something to do constituted courts. support among ACE lawyers, who view the with the failure of the Rule of Law; including, fund both as a means of fulfilling the notion first: the investigators may be susceptible to, These are just a few of the difficulties that of the practice of laws of vocation with or expect, improper payments to undertake businesses face when the Rule of Law has society-wide responsibilities, as well as an or steer the course of the investigation; two, failed, and they make it clear why companies integral part of the ACE global legal culture. there is no transparency in the investigatory like ACE are so committed to promoting process or in subsequent adjudication; three, the Rule of Law across the globe. At ACE, I’m particularly pleased that the United there is no rational basis to assess the poten- we are working actively to do so. Nations, through its Business for the Rule of tial outcomes; and four — and sometimes Law Initiative, has highlighted the ACE Rule most importantly — seeking law enforcement Under the leadership of my predecessor, of Law Fund as a unique example of how a or even civil remedies may expose your busi- Bob Cusumano, and the support of our corporation might become involved in Rule of ness and its employees to potential physical CEO, Evan Greenberg, ACE decided sev- Law efforts. Of 85 companies the U.N. identi- harm. Thus, businesses committed to ethical eral years ago to establish the ACE Rule of fied as having publicly committed to engaging conduct may face difficult choices where the Law Fund, dedicated to enhancing the Rule in Rule of Law activities, ACE was the only Rule of Law is weak. of Law in its most important manifestations one with its own fund dedicated to support- — infrastructure, clarity, independence, and ing Rule of Law projects all over the world. Let me give you a final example. This one access. The fund is supported through vol- involves ACE, and is a matter of public untary donations from ACE lawyers around In turn, ACE has signed on to the U.N. Global record in court filings and the national the world, matched by the company and by Compact, a strategic policy initiative of the press. Don Hawthorne, outside legal coun- ACE’s leading law firm partners, some of U.N. Secretary General, which unites leading sel on this matter, is here with us and will whom are here today. corporations in making public commitments

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to human rights, corruption-free governance, In order for our business to operate predictably, we need the fair labor standards, and environmental sus- tainability. We have also joined the U.N.’s actions of these regulators to be transparent, rational and Business for the Rule of Law Project, which consistent. And we need court systems that effectively and provides guidance to businesses on how they can take voluntary actions to support efficiently resolve disputes involving both the scope of our the Rule of Law in their operations and relationships, serving as a complement policies and liability disputes giving rise to coverage claims. to government action. We’re very excited — Joseph Wayland about all of those projects. Could you tell us a little bit more about JACK FRIEDMAN: Thank you very much In conclusion, let me say that serious com- ACE, in terms of its products, geography, on that. Last night, we had the privilege of mitment to the Rule of Law requires patience or your Legal Department? having dinner with the panelists, and one and faith. Progress is often incremental, at of the areas of discussion was technology. best, and there are frequent reversals. But JOSEPH WAYLAND: Sure. What distin- Could you comment on some of the big we are confident at ACE that the Rule of guishes ACE in the insurance world is our developments that are affecting the industry? Law will spread and ultimately prevail, and diversity of products and our geographic we know that the international business distribution. We have a large commercial JOSEPH WAYLAND: From a General community will have a critical role to play P&C business which was the beginning Counsel’s perspective, there are a couple of in that process. The Rule of Law is good of our business in the 1980s, but we have major industry developments. One is the for business, and not just because it creates diversified into personal lines and added increasingly intense scrutiny we get from the conditions for economic stability and life insurance, principally in Asia. It is this regulators across the globe, involving every- growth; it also creates the conditions for a diversity that makes us really unique. We’re thing from how much capital we keep, and fair and robust civil society, to the benefit of a growth company operating in 54 coun- how much we have to keep; to how we treat our employees and customers everywhere. tries. In terms of how our Legal Department customers, how we operate on a day-to-day basis; who we can merge with and who operates, we’re a matrix company, which I’m proud of ACE’s commitment to strength- we can’t merge with; and whether we are means we have both product line and geo- ening the Rule of Law around the world, and systemically important financial institution. graphic reporting lines. Our attorneys and I am proud of our Global Legal Department’s We spend much more time than we did compliance professionals therefore serve commitment to that effort, as well. five years ago dealing with regulators and many masters, including both business regulatory issues. That is a big part of what people and our own management structure. Thanks very much. I do and what our team does, and it’s very We have about 500 lawyers and compliance important to us. JACK FRIEDMAN: Next, I’m going to people who report to me, which includes introduce our other speakers leading up to professionals in our Government Affairs Looking more broadly at our industry, a roundtable discussion, where everybody Group and a Corporate Affairs Group. there are a number of developments that on the dais will have a chance to interact we are following closely: First, there is with each other. Toward the end, we’ll take With the Chubb acquisition, we will be the increasing amount of capital coming from some questions from the audience. largest P&C publicly owned company in investors outside the industry. These new the world, and you can expect continued players have brought hundreds of millions Our three Distinguished Panelists are growth as we go forward. of dollars in new capital, particularly on the Donald Hawthorne, partner at Axinn, reinsurance side, which puts pressure on Veltrop & Harkrider in New York; Edward JACK FRIEDMAN: Will your headquar- rates. The new players often don’t have a Best at Mayer Brown, who splits his time ters continue to be in New York? long-term perspective on insurance and this between Chicago and everywhere deals are can create distortions in the markets. going on; and Elizabeth Sacksteder of Paul, JOSEPH WAYLAND: We are a Swiss Weiss, Rifkind, Wharton & Garrison, who company, so our headquarters are in Second, data and data analytics are a huge is also in New York. Each one of them will Switzerland, but we have substantial oper- part of what we do — trying to use the data present their own topic. Before we proceed ations in New York City, where I maintain that’s now available to us through the data rev- with their presentations, I wanted to ask a one of my offices; I also have offices in olution, and what it means for our businesses few questions of Joe. Bermuda and Switzerland. and how to use it to compete in the markets.

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JACK FRIEDMAN: Thank you. Our next panel with Elizabeth Sacksteder, who has speaker is Donald Hawthorne, who will had a very distinguished career as a leader introduce his topic. of numerous legal departments, and also is now a partner at Paul, Weiss, where I began DONALD HAWTHORNE: Thanks, my career — where many friends and men- Jack. I’m very honored to be here today to tors continue to practice today. talk about the Rule of Law on behalf of a company and a man, Joe Wayland, who I’d like to talk about two subjects today. have embodied a commitment to that ideal First, I’d like to talk a bit more about the in a way from which every corporation in Rule of Law Fund, which really is some- America can learn and benefit. thing remarkable in practice. I’ve worked with many very fine companies during my During a very successful career at Simpson legal career. There is only one I can recall Thacher, Joe demonstrated that commit- that has expressed a direct commitment to, ment through a remarkable record of pro and requested our support for, the Rule of bono work and providing legal representa- Law, and that is ACE. tion to those in need. Among other things, Joe served on the board of trustees for the The Rule of Law Fund is active in some of Lawyers Committee on Civil Rights under the most significant international efforts the Law. He led a truly momentous litiga- of recent years to establish the Rule of Law. tion against New York State, succeeding, In addition to the projects that Joe men- after many years, in obtaining a ruling that tioned, the fund has supported conferences the State’s school financing system under- supporting efforts to develop new legal insti- JACK FRIEDMAN: Since you are a liti- funded New York City public schools and tutions in Iraq and in Afghanistan. It has gator, could you give us an example of the denied students their constitutional rights. supported an international effort to develop complexity of litigation that a company like That ruling led to an injection of billions of the concept of pro bono legal representation ACE or other companies may face and your dollars into the public school system. throughout South America. own experience and commentary on it?

After Simpson, Joe went on to serve as The fund’s efforts have also taken place in DONALD HAWTHORNE: Sure, I’d be Deputy Assistant Attorney General for the United States. Most of us are proba- happy to do that. I have been privileged to Litigation in the Antitrust Division, and bly aware of the “Kids for Cash” scandal, see ACE’s commitment to the Rule of Law later as Acting Assistant Attorney General in which judges were accepting kickbacks through my own representation of ACE. Joe in charge of that division. Those of us who to sentence juveniles to detention cen- has mentioned the case involving Liberian pay attention to the antitrust world have ters for the most minor of offenses. The insurance claims. I’ve been litigating that seen a newly capable and committed reli- Rule of Law Fund supported the work case for ACE for seven years. A little more ance on litigation from the Federal antitrust of the Juvenile Law Center to pursue the color may help explain what ACE and other agencies as a means of vindicating the pub- wrongdoers and enact reforms through companies have to deal with when they lic interest in the enforcement of antitrust the Interbranch Commission of Juvenile find themselves entangled in circumstances law. It is no coincidence that that reinvigo- Justice to prevent any recurrence of that con- where the Rule of Law applies shakily, if at rated approach dates from the period when duct. In another example, at the University all. The case also provides another illustra- Joe was in charge of antitrust litigation at of Pennsylvania, ACE has supported the tion of ACE’s commitment to the Rule of the Department of Justice. ACE Rule of Law Fellowship, which sup- Law in practice, in a way that I’ll describe. ports UPenn Law graduates to spend a year I’m also honored to be at this podium along working for Human Rights First. First, I will give a few more background with my distinguished fellow panelists. I facts. Way back in 1990, Liberia experienced hadn’t met Eddie Best before yesterday eve- It’s really an extraordinary record of corpo- a horrendous civil war. Property was dam- ning, but I certainly was familiar with his rate citizenship. I’m proud to be part of a aged. A policyholder who had been insured name for years. While I have worked for firm that has supported this cause, and I for P&C liability under a Cigna policy ACE, I have heard people say, time and am proud to have a client that has made brought an action in the Eastern District of again, “Let’s see what Eddie thinks about so many contributions to the Rule of Law Pennsylvania to recover under that policy. In that.” I’m also very pleased to be on the possible, both here in the U.S. and abroad. 1995, the judge in the Eastern District said

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the war risk exclusion in the policy barred by the Eastern District of Pennsylvania. recovery. The Third Circuit affirmed; the This was not an inadvertent mistake; the Supreme Court denied cert. lawyers and the funder knew very well that they could be held in contempt — they even The Liberian policyholders then immedi- budgeted for the U.S. lawyer to pay con- ately went back to Liberia and obtained a tempt sanctions when they were working judgment against Cigna on exactly the same up their cost estimate for the case. But they claim, which, with interest, was worth well simply felt that because they did not live in over a hundred million dollars. Cigna went the U.S., they could ignore the U.S. court’s back to the Eastern District of Pennsylvania orders with impunity. and obtained an anti-suit injunction against the enforcement of that Liberian judgment. The litigation funder and the lawyers also skipped out on their obligation to pay costs Now, you might think that that would be in the Cayman Islands, which is a British- the end of the matter. It was an end of the style loser-pays jurisdiction. As the loser in matter for many years, but then something that litigation, the receiver owed ACE hun- peculiar happened. Two lawyers — one Irish- dreds of thousands of dollars for ACE’s legal Canadian citizen, a resident of the British costs. The lawyer and the funder refused to Virgin Islands, and a U.S. lawyer, resident assume any responsibility for those costs. in Switzerland — thought they saw an oppor- tunity to profit from that enjoined Liberian any obligations of the “estate,” the receiver Now, some litigants may have given up at claim. Now, in the years since the Liberian had entered into agreements with the lawyers this point. The lawyers were situated out- policyholder lost in the Eastern District, ACE about how he would conduct the litigation side the U.S., and they had succeeded in had acquired many of the assets of Cigna’s and under what circumstances he would set- concealing the identity of the litigation property and casualty business, and in con- tle. His costs were paid by the lawyers and funder entirely. But ACE did not give up. It nection with that asset purchase, ACE had the funder; he was indemnified by them. believed that a U.S. court order meant what agreed to indemnify Cigna for losses arising Now, Liberia is a nation that is still strug- it said, and should be respected, regardless from Cigna’s former businesses, including gling to find its footing under the Rule of of where the parties that had knowingly vio- the Liberian business. Law, and the kind of manipulation that the lated it were located. lawyers and funder engaged in here hardly The two lawyers out of the British Virgin helped it to pursue that course. ACE believed that lawyers and funders who Islands and Switzerland came up with a caused a judgment-proof plaintiff, like the plan in which the Insurance Commissioner The lawyers, of course, needed money to receiver, to bring suit in a costs jurisdiction, of Liberia would appoint himself receiver proceed with this scheme. They got that should be liable for costs when their case failed. for Cigna’s former operations in Liberia. through a litigation funding investment of As receiver, he would recognize the Liberian nearly $3 million from a litigation funder ACE also believed that a litigation funder judgments as a legitimate debt of Cigna, and whose identity the lawyers successfully con- should not be able to remain anonymous then, as receiver, he would seek to enforce cealed throughout nearly the entire course and thereby violate U.S. court orders with the Liberian judgments against ACE, wher- of this litigation. impunity and avoid responsibility for litiga- ever ACE assets could be located, claiming tion costs when it abandoned a case that it that they were owed under ACE’s indemni- Now, this scheme they had put together ulti- had funded. So, with the underlying case fication obligation. mately failed. They brought a case against won, we proceeded to pursue the lawyers ACE in the Cayman Islands for what they and the funder for contempt in the Eastern That’s the factual background. Now, in order claimed was then north of $200 million. District of Pennsylvania and for costs in the to proceed with this plan, obviously the law- We got that case dismissed; it is over and Cayman Islands. yers needed the cooperation of the Liberian done with. But the point that I want to Commissioner of Insurance. It is not emphasize here is what ACE did about this. This has been a long battle. The contempt unheard of for receivers to cooperate with lit- action has been ongoing for seven years. igants — that happens — but the evidence in By seeking to enforce those Liberian judg- The biggest challenge was to find out who this record showed that even before he was ments, the lawyers and the litigation funder the litigation funder was; his identity was appointed, even before he had recognized had violated the anti-suit injunction issued hidden behind a Maltese shell corporation;

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anyone who knew his identity refused to …the Rule of Law is seriously weakened when the say his name, even under oath, even when it was quite clear that they knew who he procedures for promulgating the laws and regulations that was. Only after years of discovery, tracing govern individuals or groups are perceived as arbitrary or through a dozen companies and individu- als, were we able, in the fall of 2014, to even nonexistent. — Joseph Wayland learn who he was. He turned out to be a man named Garrett Kelleher, an Irish If that is to happen, litigation funders can- from the field, and then you have to decide, real estate developer who, only a few years not be permitted to hide behind layers of “Who do I believe?” What are the different before, had been developing the Chicago offshore special-purpose vehicles, and their ways you would go about deciding which Spire, a building that was meant to be the attorneys cannot be permitted to conceal way to go in a foreign country? tallest in North America — whose fortunes the identities of litigation funders behind declined precipitously with the financial cri- claims of privilege. JOSEPH WAYLAND: Obviously you sis. Even though we knew who he was, it need local advisors, both legal and non-legal, was no easy matter to serve him. We eventu- ACE has pursued these principles con- who understand local customs and culture, ally found him outside his home in Dublin, sistently and responsibly. I believe that who have access to the decision-makers which spared us the next step of staking out ACE’s litigation efforts here will shape and who understand how decisions actually the Irish soccer club that he owned. debates about litigation funding, the duties get made, as opposed to how they should get of funders, and the obligations of parties made. We also expect our regional and local The two lawyers were equally evasive. We around the world to respect the orders of business leaders to develop relationships with knew who they were, but that did not make U.S. courts. ACE’s willingness to commit government officials and regulatory authori- them much easier to bring to justice. The substantial resources to these matters over ties to facilitate communications about issues U.S. lawyer refused to participate in discovery, many years is, in my view, another very of mutual interest. and even refused to appear for a deposition significant demonstration of ACE’s deep when ordered by the court — a deposition commitment to the Rule of Law. I think that it is sometimes hard for U.S. over which the judge would have presided. regulators to understand that while it’s easy JACK FRIEDMAN: Thank you very to write rules about how one should operate The story is, I hope, drawing to a close. much. I want to follow up with a ques- in these circumstances, it’s much more diffi- Shortly, I will argue a motion in the Eastern tion for the whole panel. One of the big cult to actually apply those rules in the real District of Pennsylvania seeking to hold the issues is how you make the determination world. The example that you posed about two lawyers and the litigation funder in con- of the strategy in a country where political supporting local enforcement could lead to tempt of the court’s anti-suit injunction. personalities or financial interests may be the violation of a number of U.S. rules. interfering with objective judicial processes. Now, I tell this story not just because it is a How do you decide whose judgment on At ACE, we are fundamentally committed good story — I do find it a fun story to tell these matters is good? to the Rule of Law, and that means follow- — but also because it shows another aspect ing the laws and regulations that apply to of ACE’s commitment to the Rule of Law. In one of our programs, a General Counsel the conduct of our business everywhere No lawyer or litigation funder in the U.S. spoke about the problem of intellectual that we operate. But this commitment gives or abroad should assume that it can aid property piracy in Southeast Asia. His peo- rise to difficult circumstances. Companies a party to violate a U.S. court order and ple went to the local head of police and said, operating in some markets can be faced be immune from the consequences merely “We’d like you to investigate.” The head of with situations involving the safety of our because it is located outside the U.S. or police replied, “We would love to do it, but employees and their families as they seek to because it has hidden itself behind layers of we’re a poor country, and we will need extra adhere to a specific law or regulation. For offshore corporate vehicles. Whatever one people to work on the case. If you could example, if you find out about wrongdoing, believes about litigation funding, I think give us enough money to hire them, we merely telling the authorities may expose that most of us will agree that a litigation would be glad to pursue this matter.” people to physical harm. That’s a very tough funder that instigates a claim, and makes dilemma for any business person to have it possible for a judgment-proof party to After the audience and the General Counsel to deal with. You can have guidelines; you pursue it, should be responsible for its stopped laughing regarding this conversa- can have rules; you can have instructions; adversary’s costs in a loser-pays jurisdiction tion, we had a serious discussion about it. you can have people in the U.S. who think when the funded party loses. The key issue is that you get reports back it’s easy to apply Rule of Law principles in

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practice, when it’s not. People’s lives are at earlier, big, well-capitalized, well-financed regard, obviously. You can make it look like stake precisely because the Rule of Law is companies can withstand an adverse out- that person is trying to take advantage in an ineffective in some countries. come in a case, but they need to position unfair way, that’s unfair to all the good and themselves for their long-term success. One honest policyholders or customers of the JACK FRIEDMAN: How does the General factor that goes into decision-making about company who play by the rules. Counsel approach the board or the CEO which cases you pursue, which arguments on the decisions that are not strictly legal? you pursue in a case, what positions you A lot of it is about who you can depict as take, is certainly, “How’s that going to play? acting with integrity and who not. When DONALD HAWTHORNE: The law- How’s it going to play in the press? How is the company has really made a mistake — yer’s role is to assess risk. We don’t it going to play in the court of public opin- even if it has a legal defense — I’d certainly make decisions; we provide the business ion?” As well as, of course, “How is it going think very long and hard before I’d put decision-maker with the information, to play with the judge and jury?” those cases to a jury, even if I think I’ve got knowledge and research or investigation a shot; even if I think I’m legally right. necessary to make a decision. I can lay out There are many situations where the com- to the business leader, “Here’s what will plainant has a compelling story to tell, and JACK FRIEDMAN: What would be happen if you take this action. Here are the the smart thing to do is just to settle the an example of how you humanize a com- risks involved.” Ultimately, it’s the business claim, even if you believe you have no legal pany before a jury, particularly if you’re a leader’s decision as to where on the risk liability, in order to avoid damage to your national institution, which supposedly has scheme he or she wants to make a decision. reputation that may be much more costly in an infinite amount of money? On a decision like the kinds we were talking the long run. about, obviously, the business leader, at the ELIZABETH SACKSTEDER: A com- end of the day, is involved in the decision If you’re going to pursue a claim in court, pany is just people. It’s people showing up process. If it is a serious enough issue, the you have to take positions that are defensi- at work every day and doing a job. One of board may be involved, as well. ble, rational, and intuitive. When it is an the things you consider, in deciding whether insurance company versus an injured per- you can try a case, is, “Who are my fact JACK FRIEDMAN: In terms of litigation, son who thinks they should be paid on a witnesses? Who can I put forward as the how do you deal with the problem of juries claim, it can be very challenging, because face of the company?” There’s serendipity to that may be biased against corporations? the injured person is inherently sympathetic. that. Sometimes you don’t have any partic- Are there situations where it would be bet- You need to think long and hard before you ularly appealing witnesses, and sometimes ter to settle out of court rather than risk the go to verdict on claims like that. But if the you do. I can think of one case, for exam- company’s reputation? injured person is really seeking something ple, that we tried when I was at Citi — Paul, to which they’re not entitled, and you can Weiss happened to be our outside counsel ELIZABETH SACKSTEDER: The court explain why not in a way that will be clear to — where it was basically our banker’s word of public opinion is critically important, a jury or a judge, then your challenge is to against a borrower’s word. The borrower because you have lots of wars to fight humanize the company and make it less of was a private equity guy. You could make beyond any one given case — even a big a David vs. Goliath situation — although it really one person versus another person ticket case is just one case — and as Joe said there is a limit to what you can do in that — who’s lying, who’s telling the truth? That

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perspective did a lot in that circumstance ACE lawyers around the world find projects in their to make it a human story as opposed to the big bank against the guy who was jurisdictions and submit grant requests to support trying to characterize himself as this self- organizations engaged in Rule of Law projects. To date, made man, entrepreneur, customer of the bank. Depending on the facts, that sort of the fund has provided more than half a million dollars to opportunity to convey the human character and human motivations of the actions of projects in Asia, Latin America, Africa, Europe, and the U.S. the company may be easier or more diffi- — Joseph Wayland cult. Institution versus institution cases are inherently much easier to try, for that rea- on credibility. That depends, again, on how ELIZABETH SACKSTEDER: That’s son — because even if it’s a giant company good is the record, and how able is your exactly right. Let’s say you have a $20 mil- against a somewhat less giant company, it’s counsel to stand up and go after the little lion layer, and defense is within limits; if a more level playing field. Although we saw guy without alienating the jury, but being you spend $19 million in defense costs, you in the financial crisis, for example, in the able to undermine their confidence in his don’t have much left to resolve the claim. RMBS [residential mortgage-backed secu- or her credibility. Those are the things that rities] cases: insurance companies, hedge really drive this going forward. JACK FRIEDMAN: So the client wouldn’t funds, pension plans suing the banks, and know until it’s over with, how much they’re it would still end up somehow being David Personally, I may have been on the other going to have to pay, if at all, for the claim? vs. Goliath. I was at a bank at the time side of some of the cases that Elizabeth is and wondered, “When did AIG get to be referring to that have been among institu- ELIZABETH SACKSTEDER: Remember, David? How did that happen?” tions in the financial crisis, so I’m not sure these are defendants, so they don’t really that the insurers got the benefit of the David have an incentive, particularly, to run up DONALD HAWTHORNE: I would vs. Goliath. That’s another discussion. legal bills. Their incentive is to resolve the like to add one or two thoughts to those claim for the lowest possible amount and very excellent observations. One of our JACK FRIEDMAN: Is there a tendency preserve their coverage. functions as outside counsel is to help our on the part of policyholders with limits on clients assess the risks of trying cases in Thank you very litigation to take the attitude of running JACK FRIEDMAN: a very clear way. Certainly everything that much for clarifying that. I’d like to move up the bill to their limits? Can the insur- Elizabeth’s talking about goes into that ahead to our next speaker, Edward — he ance company influence them to prudent calculation. Are we talking about a case goes by “Eddie” — Best at Mayer Brown. between institutions, or are we talking about legal conduct, or maybe accepting a settle- ment? Are there some guidelines or laws a case which is clearly going to look like the EDWARD BEST: Thank you. First, let me in that matter? little guy versus the company? Are we trying welcome everybody to our offices. We are the case in Vermont, where I might not be thrilled to host today. These are, as you can too concerned about the downside, or are ELIZABETH SACKSTEDER: Policies see, relatively new offices. We’re glad to get we trying the case in West Virginia? How are written to put controls in place with some use out of it. If you have problems well will our witnesses be able to represent respect to precisely that issue. This is a long with the air conditioning or the food, it’s and personalize the company? You may topic, actually, because different coverages somebody else’s responsibility! have to tell some pretty tough messages deal with the issue in different ways. One to your client, “I know that you love and example would be, is the cost of defense of In terms of ACE, people have said nice respect and work with your executives on the claim within limits, or in addition to things about you already; I’ll try not to heap a daily basis, but they’re not going to come limits? For many policies, it’s within lim- on that; but it’s been professionally reward- off very well.” You should consider all of its. If you’re eating away at your coverage ing for me, personally, to have worked with these things before you take the case to trial; through the cost of defense, then there is ACE for so long. My relationship with ACE that’s part of the tough decision-making less available to protect you with respect to goes back to when I was a relatively junior that you have to do. your liability. associate. I got a phone call one day saying, “Pack your bags — you’re going to Bermuda; Beyond that, if you’re in a situation where JACK FRIEDMAN: Do litigation costs you’re taking an insurance company public.” you’re litigating against the little guy get subtracted from what you can pay I said, “I don’t know anything about insur- and you’re in trial, the case is going to turn in the settlement? ance.” The partner said, “That’s okay; they

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involved with corporate governance. So I over the last couple of years in corporate guess I’m here to bring us back a little bit governance has been the board’s duty of towards the “director” part of this. oversight and of risks specifically.

We’ve all been talking about the Rule of The first question is, where does this come Law so far. Where does the Rule of Law from? We all know that directors have come into corporate governance? I’d say, fiduciary duties; we’ve heard the word “fidu- listening to Joe talk about how ACE and ciary,” before. One of those fiduciary duties multinational companies expect third par- is the duty of care, and in a case back in ties, especially countries and the political 1996, Caremark, the Delaware courts dealt components of them, to operate by the Rule with the idea of when do directors violate of Law, the other side of the coin is that it their duty of care in relation to oversight? In is expected of public companies and other the Caremark case, the company had been companies that they follow the Rule of Law, paying physicians for referrals. They paid as well. The way we think about that, we out about $250 million to settle the charges don’t really call it the “Rule of Law”; I think that were brought against them by the gov- we probably would call that “corporate gov- ernment, and then shareholders brought ernance.” Corporate governance, I would a derivative claim against the directors. It say, is like the Rule of Law for corporations. said, “The company just paid out $250 mil- lion, which is really due to us; you guys were don’t know anything about going public!” That’s my, hopefully successful, way of get- asleep at the switch. Therefore, it should It’s now been about 25 years since ACE went ting the Rule of Law topic into corporate really come out of your pockets.” They sued public. They’ve learned an awful lot about governance today. in a derivative action in Delaware, and the being a public company and corporate gover- court there said, “Directors can only be lia- nance, and I’ve learned, hopefully, a little bit You’ll see there’s a PowerPoint up there; I ble for failure of oversight where there is about insurance. It’s been personally reward- won’t go through the PowerPoint; I guess sustained or systemic failure of the board to ing to work with four General Counsels. As corporate guys do PowerPoints a lot more exercise oversight, such as an utter failure or Joe mentioned, he’s relatively new on the than litigators do briefs. But I’m not going attempt to assure a reasonable information scene. Each of them has been a litigator. It’s to go through that. Let me just start with a and reporting system exists.” been interesting for a corporate lawyer to see couple of introductory remarks about the a litigator come in to a public company and board’s risk oversight function. As we all know, in Delaware, directors learn about corporate governance and doing have, under Business Judgment Rule, that deals. Joe’s done a great job in a very short We’ve been talking about ACE and the directors are not held personally liable if time, learning about some of those things insurance industry. If you think about it, they have acted with care. The court there that he wouldn’t have had any exposure to. the quintessential company dealing with said, “You really have to have a systemic Of course, having only been around for risk is the insurance company, right? That’s failure. You’d really have to have been not a couple of years and now all of a sudden their business. Banks also deal with risk, of just asleep at the switch, but you’d have to doing the Chubb acquisition, that’s really people who are paying their loans and other have been not even in the same room as getting thrown into the fire. It’s been a great debts. But insurance companies are in the the switch.” relationship, and we look forward to a long business of taking on risk, so therefore, you one. As Joe said, ACE is still a growth com- would think that an insurance company, Another case came up that also helped pany, so I would advise everybody to keep and the board of an insurance company, clarify this. We had the financial crisis. reading the newspaper for things about ACE. would be best positioned to evaluate risk. Elizabeth mentioned a couple of times, Citi. One of the other major cases in this area There are three litigators on the panel; I’m Unfortunately, over time — and I won’t was a case brought against Citigroup, where a corporate guy. One question would be, necessarily mention a very large insurance Citigroup had taken on a lot of risk; they “What am I doing here?” I would say, when company that’s been mentioned here a had written mortgages. Citigroup wound I first got the phone call, “This is called couple of times — they took on an awful up writing off billions of dollars of mort- ‘The Directors Roundtable,’ so I guess my lot more risk than they actually knew. gages; and there was a derivative action, and first question is, ‘Why are all these litiga- Somebody very large came in and bailed again, the directors of Citigroup were sued, tors up here?’” I normally think of directors them out. Really, one of the major topics and there, they were held not to be liable,

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because there wasn’t this utter failure to have in place systems. There were systems in place. They just didn’t work.

That’s the legal framework of what we’re talking about in terms of fiduciary duties. A director has a personal financial stake in making sure he does a good job. There are other sources of the duty of oversight. The New York Stock Exchange actually requires the audit committee of a public company that’s on the Exchange to look at risk. Interestingly, we’ve been talking about insur- ance companies; the National Association of Insurance Commissioners, in their Model Disclosure Act, now requires that insur- ance companies disclose to the regulators Cyber security is a very different risk. Cyber defend them against claims that they were the processes by which the board, its com- security is that somebody comes in and looting Holocaust accounts; things like that. mittees, and senior management ensure an actually hacks your business; they break Should you take that on, because that’s appropriate level of oversight to the critical into your systems. They can steal personal going to expose you to reputational risks? risk areas impacting the insurance business. information, which then turns into a pri- You’ve got it now in regulations; you’ve got vacy risk; or they can actually take over the So for some things you would say, really, it in fiduciary duty aspects; so this has really operation of your business. They could how important are these risks? Let me just become a very important topic for directors. theoretically wipe out all your records. So give you a couple of examples: financial they didn’t steal the records; they just wiped reporting risk and fraud. Everybody’s heard What type of risks are we talking about? We out your records. We saw what happened of the FCPA [Foreign Corrupt Practices Act]. mentioned insurance companies; they take on to Sony recently, when the North Korean Siemens, a large German company, paid out underwriting risks. You don’t really expect the dictator decided he wasn’t happy with some- $800 million in fines in 2008 — the single directors to be getting involved in underwrit- thing. They just caused trouble for Sony. largest fine ever paid for an FCPA violation. ing decisions; that just doesn’t make sense. By the way, FCPA violations don’t neces- The types of risks that we think about at the Environmental risk is important for a com- sarily have anything to do with whether or board level are financial reporting risk and pany. Legal and compliance risk, as Joe not you’ve actually bribed somebody. We fraud — are your financial statements correct? was talking about — ACE has 500 lawyers can all agree that bribing is bad, but most Credit risk; liquidity risk; operational risk; and compliance people around the world. FCPA settlements aren’t about actually brib- investment risk, especially with an insurance I thought I read somewhere recently, J.P. ing somebody; the FCPA has recordkeeping company whose main assets are investments — Morgan has something like 25,000 com- requirements in it, and most settlements do you have an investment policy? pliance people. That’s a small city that is actually go to the recordkeeping aspect of it. just doing compliance. There is also tax So, recordkeeping is also important. A couple of the other ones that are now risk. Very importantly — and people don’t fairly new and very important: privacy and really think about this — is reputational We all know how bad cyber security can be. cyber security risks. These are two new risks risk. Even if what you’re doing is absolutely The easy one, unfortunately the poster boy, that probably didn’t even exist in anybody’s legal, should you be doing it? And “should is Target. In 2013, they got hacked; it ulti- minds five years ago. Privacy risk regards you be doing it” — is it the right thing to mately cost them $162 million out of pocket, information on people’s personal infor- do for your stockholders or whatever con- but their revenue also went way down for a mation, sometimes on laptops, and Social stituents, but also what is that going to do period of time, where people didn’t want to Security numbers. Health records can be to the company’s reputation? The easiest use their credit cards at Target. lost — and sometimes that is just a matter of one is, for a law firm, for example, when somebody leaving a laptop somewhere, or we take on a client, is the client going to There are also environmental risks. We all accidentally sending an email to the wrong pay? Does the client have other issues that know about the spill in the Gulf. About three place. That’s a privacy risk. You think about we wouldn’t want to take on? Let’s say that months ago, British Petroleum agreed to pay HIPAA and things like that. the client asks us to sue an orphanage; to $21 billion in settlement. I don’t know, Joe,

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if this happened when you were at the Justice ACE has signed on to the U.N. Global Compact, a strategic Department; there was a cartel case brought against auto parts suppliers for violation of policy initiative of the U.N. Secretary General, which unites antitrust rules. Twenty-two companies pled leading corporations in making public commitments to human guilty and agreed to pay over $2 billion, and about 25 people actually went to jail. rights, corruption-free governance, fair labor standards, and

Finally, in 2006, GlaxoSmithKline paid environmental sustainability. — Joseph Wayland $3.4 billion to the IRS over a transfer Even for a non-insurance company, if I have pricing issue. If the board isn’t looking If it was an airplane that hit the building risk limits, what happens when that goes at tax risk, the board really ought to look at that caused it to blow up, I might have bad? How can I mitigate those risks, or deal tax risk. Taxes are a significant issue, as insured the airline and I might have insured with those risks? Going back to Target — well, for boards to think about. the government that allowed the terrorists to get on the airplane. The quintessential cyber security — one of the things that all law firms now are very busy on is helping clients We’ve talked about how boards should be enterprise risk management example was have in place emergency plans so that if you looking at risk. Who should be doing it? 9/11, where there were massive losses that get hacked, you know what to do. You may Boards are very busy; they only meet on an people never understood were correlated, have to report it to a government agency; occasional basis. Most companies now have because somebody looked at the property insurance companies may have to report it to risk committees; or it may be handled by side and somebody looked at the casualty the regulators. How quickly do you get it out the audit committee. The New York Stock side and somebody looked at the life side, but nobody ever looked at everything. to people? Another fun one is, ACE operates Exchange requires the audit committee to be in 54 jurisdictions outside the U.S. and 50 involved in it. Some have the full board doing My suggestion: identify your risks, find out states within the U.S.; some require that you it, but somebody should be doing it. If you report the hack within two days of it happen- go on the public web pages, investor relations where they are, and find out where they over- lap. Also, importantly, make sure you have a ing. Sometimes you don’t even know that it’s pages of large Fortune 500 companies, you happened. You have to have plans in place; system in place to identify new risks. Would will see many that have adopted charters for you can’t wait until it happens. If there’s an anybody have identified cyber security as a risk committees and have risk committees, or environmental spill, you can’t call somebody risk ten years ago? When did somebody start that function is within another committee. up and ask, “Now what do I do?” figuring out that that’s actually a risk? Once we figure out what our risks are; we have to Finally, let me mention very quickly — what’s Responsibility is an area where ACE actually figure out how to measure it. Insurance com- the board supposed to do? You’re supposed is fabulous, including the tone at the top. panies are great at that. Insurance companies to be in charge of risk. What does that We’re a company that understands risk; we actually mean? It’s oversight. It’s very clear; look at things like frequency, how likely is it take risk; but we take it responsibly, and we directors don’t actually show up every day at going to happen, how often might it happen, look at what we’re doing. It’s got to be the the company’s office and sit in an office and and severity — what’s it going to cost me? It’s tone at the top, and risk management has say, “Bring me the records so I can figure out only going to cost me a dollar — I don’t know to go through the entire company; you can’t what to do.” The actions that we expect of that I’m so worried about it. But if it’s going have people just closing their eyes to it. directors are, number one, identify the risks. to cost me $100 million, I’m more worried What are your risks? When we spoke last about it. How often is it going to happen? Do you have an enterprise risk officer? Ten night, one of the things that people didn’t Then, again, look at how to measure changes years ago, I’d be surprised if any company understand was enterprise risk manage- over time. had a chief risk officer. Now I’d be sur- ment. Even for insurance companies, people prised if companies don’t, certainly in the understand, “Okay, I wrote a property policy. Now that you’ve measured it, you’ve got to financial institution area. If the building blows up, I have to pay for decide, well, what’s my risk tolerance? You the building.” If the building blows up and have to have limits. Insurance companies Communication is very important. As a there was somebody inside, then that’s a life take risks; they don’t avoid risk. In fact, board member, you want to make sure that policy; I might have to pay on the life. If it their business is taking risks. How much you understand what’s going on; you receive turns out that that was an office building, risk am I taking, and am I being adequately regular reports; you have access to infor- well, there were a whole bunch of businesses compensated for it? You have to understand mation. That’s one of the most important that were inside that building, and I might what your risk tolerance is, and what hap- things, as a board member, is that you know have to then pay for business interruption. pens if you exceed those tolerances. what’s going on and that you have the access

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to information. If something goes wrong, application of the Rule of Law in our partic- how is it being reported? How quickly can it ular case. We spend a lot of time thinking get up to the decision-makers? How quickly about how we can conform with all the can the board understand it if it’s important? guidelines we set up ourselves. So when we advocate on behalf of the application of the Finally, one thing that came out of the finan- Rule of Law, we seek to advocate from a cial crisis is compensation policies. Directors position of strength and integrity. need to look at the company’s compensation policies to decide whether they are increasing To give a concrete example related to our risk or not increasing risk. The easiest way to merger, we’ve had to get approvals from explain that would be, for example, are you a half dozen countries and a number of paying people a bonus based on revenue? The states, and a number of the questions that more revenue we have, the more your bonus we have received have been about matters is. It should be profitability. Are you incentiv- which we think are completely unrelated to izing people to go out and create revenue that the assessment of whether the two compa- might not be profitable? Are you giving people nies should merge. Like, “We understand the wrong incentives for compensation? That’s you have a problem with compliance in one of the items that companies are required ‘X’ country. Tell us why we should let you to actually look at and disclose. Look at your merge, because we think maybe your cor- compensation policies; it’s not just your opera- porate governance isn’t fully up to snuff.” are calculated to appease that public out- tional policies — it’s also compensation. These things matter. rage rather than necessarily to strengthen the safety and soundness of our financial Hopefully I’ve given people a lot to think JACK FRIEDMAN: Liz, I want to give system and financial institutions. about. I think we’re going to hear a little bit you a chance to comment on these topics more about risk and risk management later, and make your opening remarks. Not only the regulated entities, but the reg- but that’s it from a corporate side. ulators themselves, it’s fair to point out, are ELIZABETH SACKSTEDER: Thank in some sense the victims of this politiciza- JOSEPH WAYLAND: Let me make one you, Jack. What I’d like to reflect on is tion, because part of the outrage that the comment to be more explicit about the not circumstances reflecting the complete public has voiced has been, “Where were connection between the Rule of Law and absence of Rule of Law that we see in parts the regulators? The wheels were coming off corporate governance, and adherence to of the developing world, as Joe and Don the bus; where were they? Why were they corporate governance standards. have been talking about, but imperfections asleep at the switch?” as Eddie said. — as I would characterize them — in the When we expect regulators and others to Rule of Law in developed markets, and So no regulator now can afford to be per- give us due process and not be arbitrary in specifically in the current regulatory envi- ceived as missing a trick or as being less their decisions, it is a two-way street. We ronment for financial services. tough than a sister regulator, because at the must be credible, we must show our own top of the house, regulators are appointed commitment to the Rule of Law through In the wake of the financial crisis, we are by elected officials. They cannot help our own actions. Regulators know us. They operating in a regulatory environment that but be responsive to the political mood know what kind of company we are, and is as politicized as it ever has been. That’s of the times. as I mentioned earlier, under most regula- because real people suffered in the recession; tory regimes, regulators have extraordinarily they lost their jobs; they lost their homes; One consequence of this political pressure broad discretion on how they treat a com- they lost their retirement savings; and they that I view as unhealthy has been a diver- pany. In applying that discretion, regulators got mad. That angry body politic has very sion of regulatory attention from prudential know our reputation for adhering to cor- loudly and continuously demanded action regulation to enforcement. Regulators are porate government standards they take from legislatures and regulators to punish not rewarded in the public sphere for the into account any reports about compliance what they perceive as the source of their unglamorous day-to-day work of onsite issues, or misconduct by employees around hardship, the mythical place that we call exams, nor for dialogue with regulated enti- the world. Thus, it is very important for “Wall Street.” On a human level, that anger ties about rulemaking and policy issues, us to pay attention to the issues that Eddie is absolutely understandable. But the result which only subjects the regulators to claims identified; it is directly connected to the has been laws, rules, and enforcement that about regulatory capture.

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What brings regulators media attention, misconduct is a core component of the Rule public praise, and opportunities for career of Law. Cheaters need to be caught and advancement, are big fines and other punished; no responsible head of an ethi- punitive actions. Best of all is criminal pros- cal company would contend that we should ecution of financial institutions. do away with robust enforcement. But the enforcers need to be held accountable, too. Among the ill effects of this heightened empha- Their charge is to uphold the Rule of Law, sis on dramatic enforcement is the erosion of not to be a law unto themselves. trust, openness, and candor between the regu- lator and the regulated. That, in turn, degrades When enforcement conversations cease to the quality of rulemaking and inhibits the regu- be about the merits and become purely latory front line, which is the onsite exam. demands for headline-grabbing penalties, the consequence is not better compliance Another consequence is regulatory pile-on. In but more cynicism about the arbitrary appli- an environment where no regulator can afford cation of unspoken rules. Enforcement that to look soft, all have to be at the table demand- feels arbitrary and unmoored from clear ing their piece of the action. For companies rules also diverts the time and attention of like ACE, with operations both throughout senior management and boards from mak- the U.S. and throughout the world, that ing their institutions stronger, to running pile-on often means that any sense of propor- it defensively. Instead of focusing on inno- tion between the offense and the punishment vation or customer service or efficiency or is lost. It’s not only 50 sovereign states and managing the kinds of risks Eddie talked The result is prolonged, duplicative, incon- multiple federal agencies, but sister regulators sistent and disproportionate enforcement in about, including critical emerging risks like all over the world, may all want to get in on some cases. The emphasis on enforcement cyber security, the focus becomes trying to the act with respect to a single offense. at the expense of prudential regulation also guess what routine business practices will leads to de facto rulemaking through under- become the next regulatory cause célèbre. This pile-on phenomenon highlights what takings and settlements rather than through will be a key challenge ahead for both reg- the ordinary rulemaking process which is Moreover, from a political perspective, ulators and globally regulated companies supposed to entail an open comment this unbridled enforcement is ultimately — the lack of any formal mechanisms for period and opportunity for judicial review. doomed to failure. From the perspective of coordination among regulators. The fact is the proverbial man on the street, punish- that our global political infrastructure is far In effect, one entity’s compromise, which ment means you go to jail. From that point less developed in this regard, far less inter- may have been motivated by idiosyncratic of view, enforcement that does not destroy connected, than our global economy. That concerns, becomes the baseline for expected the offending entity is a mere slap on the said, traditional prudential regulators have industry behavior, without any input from wrist, no matter how eye-popping the fine, taken constructive steps to act in concert. A other industry players or the other pro- no matter whether the company pleads good example, domestically, is the National tections of administrative law. Entities are guilty to a crime. If the company can turn Association of Insurance Commissioners. punished based on hindsight for failure to the lights on the next day, the public’s thirst Not perfect, perhaps, but a heck of a lot comply with rules that they didn’t know for punishment will not be slaked. But if better than no coordination mechanism at existed, and those ex post rules are crafted enforcement really were to result in the dis- all. An international example might be the based on one company’s facts rather than a orderly failure of the systemically important Basel Committee on Banking Supervision. holistic industry view. financial institution, the consequences for innocent parties would be far, far worse But there’s fundamentally no analog on the One might respond, consistent with Eddie’s than any harm inflicted by the underlying enforcement side. While the U.S. and emphasis on corporate governance, that a offense. So the game for regulators becomes the U.K. have recently attempted some responsibility for this heightened enforce- to appear willing to kill off too-big-to-fail greater coordination, there is little evidence ment should rest ultimately with industry institutions without actually doing so. of such efforts elsewhere, and profound dif- players themselves. Surely there should ferences among legal systems would make be accountability for the dishonesty and Where does this leave us? We have a lot of any such efforts challenging, even if there irresponsibility that some of these investi- regulation, and a lot of regulatory enforce- were a will to undertake them. gations have unearthed. Accountability for ment, but we don’t really operate under the

Winter 2016 18 WORLD RECOGNITION of DISTINGUISHED GENERAL COUNSEL

and Chubb — but we’ve seen massive deals. JACK FRIEDMAN: Your firm will take We’ve seen a lot of inversions or companies on an occasional client for less than a bil- in the U.S. being taken over by non- lion dollars? U.S. companies, partially for tax reasons. Unfortunately, the Treasury Department is EDWARD BEST: A billion-dollar deal trying to stop it by rule rather than chang- or a billion-dollar fee? [LAUGHTER] We ing the legislation that is leading everybody always tell people, there’s no such thing as to leave. It seems to me — again, going back a small deal; the question is what the fee is! to what Liz said — if you think about it a [LAUGHTER] little bit more intelligently and fix the prob- lem, rather than try to fix what people are JACK FRIEDMAN: We had a Goldman doing to solve it, M&A activity is going to Sachs speaker talk about M&A in a prior be very busy, certainly in a number of sec- event. I told the audience that instead of tors. Energy is — obviously the price of oil asking the speaker to cut out a few zeroes in Rule of Law to the extent we pretend we do. is very low — some people say it’s a great the case example, I wanted her to be spon- As Joe observed, even more than in most opportunity for M&A because you could taneous and use the numbers and the real industries, in the financial services sector, pick up assets cheap; other people say, “I world that she operates with. The audience we cannot operate without rules. To func- don’t have the money to spend,” or “When can cut out whatever zeroes apply to your tion fairly and efficiently, markets require is that asset going to become more valu- situation. We invite the audience to make rules, and they require legal mechanisms to able?” I don’t know, so I’m not sure what’s that adjustment here as well. enforce the rules. Contrary to their popu- going to happen with energy. lar image, banks, asset managers, insurers EDWARD BEST: I have one example. It and other financial services companies are I feel markets are wonderful; they go up was just reported — it was the first time in his- not opposed to regulation. To the contrary, and they go down; nobody ever knows. tory — by a competitor of ours, but a law firm we desperately need regulation — sensible They open for a little while; they close. But represented companies in over a trillion dol- regulation — to create a level playing field with the M&A boom busy and the IPO lars of acquisitions in a year. That is massive. governed by common rules. market being choppy, a lot of private equity firms that have historically fed companies JACK FRIEDMAN: I’d like to invite any But regulation driven by political pressure into the IPO market have been selling questions from the audience. is inherently backward-looking, unstable them rather than IPOing them, so we’ll see and unpredictable. It serves the emotional what 2016 starts. I’ve got a couple at the [AUDIENCE MEMBER:] I’d like to get needs of the vox populi but not the very beginning, and hopefully the markets your perspective on board oversight risk. complexity of an ever more interconnected will be okay. Where I personally have experience is as a global financial system. public company director, private company I, personally and as a firm, we do a lot more director, and mutual fund director, in asset JACK FRIEDMAN: Thank you very in the debt market than the equity markets. management, insurance, and reinsurance. much. I would like to ask Eddie one ques- Wonderfully, the interest rates have been I’ve seen quite a variation in which board tion, and then I will open it up to the very low for a very long time. They’re begin- committees share the oversight of risk. On audience for questions that you may have. ning to creep up, but people have been one, we have an underwriter committee, for Eddie, since you work in a transactional funding. We’ve seen a record — every time example, in addition to an audit committee; area, do you have any comments about we hit a monthly record in issuances, the another one, we have a client’s regulatory 2016 and the current M&A environment next month seems to be another big one. I committee. Basically your comment about for investors? remember when I first started out, we did a risk committees I completely appreciate, $100 million deal, and I said, “Wow, that’s but as directors, we spend more and more EDWARD BEST: Well, I’d say the best way a lot of money!” Somebody looked at me time on cyber, compliance, and regulatory to be wealthy in 2016 is to start that way! and said, “Oh, please, a hundred million matters. It’s keeps increasing. I suppose an [LAUGHTER] dollars? That’s nothing.” I think my first observation I would make is that the advi- billion-dollar deal was 15 years later, and sors to the boards often overwhelm us with The markets are very different regionally, but now anything under a billion dollars seems litigation reports, compliance, and regula- the M&A market has been booming. Huge to be, “Oh, that’s not even worth look- tory reports that aren’t, perhaps, the most M&A deals were going — obviously ACE ing at.” The debt market has become huge. user-friendly in providing the directors what

Winter 2016 19 WORLD RECOGNITION of DISTINGUISHED GENERAL COUNSEL

they need to know. This is an open-ended way, the audit committee is supposed to does the company have the people in place question, but as advisors to boards, how do have at least one financial or audit expert to be doing what they’re supposed to be you approach to help us, as directors, give on the committee. doing? Are you comfortable with who they the proper oversight? are, and do they know what they’re doing? JOSEPH WAYLAND: We have a very Do you know what they’re doing? The JOSEPH WAYLAND: I’ll start and talk sophisticated board of very knowledgeable reports you get back shouldn’t be on every about the way we deal with risk at ACE at and experienced financial people, includ- piece of litigation, for example, if you’re the board level. We have a Risk & Finance ing CFOs, people who run financially dealing with litigation risk; it should be Committee which oversees our risk enter- sophisticated businesses, people who are who is in charge and what are the things I prise oversight. We also have an Audit very conscious of risk management issues; need to know — let them tell you that. Committee, which also deals with risk, cer- they’re very active in their oversight of the tainly in the sense that any of the financial risk management function at ACE. In terms of expertise, it’s a tough one, matters that the Audit Committee oversees because as we develop new risks — cyber obviously involve risk to the corporation. The JACK FRIEDMAN: Thank you very much. security and privacy risks — it’s hard to say committees actually meet together jointly on that anybody has a lot of experience in that. at least a yearly and sometimes more frequent EDWARD BEST: Let me just add a cou- Interestingly, the controller of the currency basis, to review common issues of risk. ple of things to that. You raised a couple for banks requires banks now or bank hold- of great questions in terms of how boards ing companies to have risk committees, and Looking at it from the inside, one of the most deal with things, and Joe said something I’d one of the requirements is that at least one important functions of the board is to ensure like to highlight, which is the duty of the member of the committee have experience that the people in the corporation who are board is oversight; the duty of the board is dealing with risk management. If you’re in doing risk management, from the CEO to the not to manage risk. From that standpoint, the risk management business, you’re going Chief Risk Officer and subordinates, know I was surprised — you mentioned there was to have an awful lot of opportunities to sit what they’re doing, have a plan, and provide an underwriting committee of a board, and on boards, because there aren’t a lot people a comprehensive review of what they’re doing, I’m not quite sure what the underwriting that know risk management, and certainly and make it clear to the board that they are committee did, because if it’s an insurance not cyber security risk and privacy risk. It’s a taking their job seriously and that they have company, the underwriting gets done by little tough to necessarily have somebody that properly identified the risks. underwriters and actuaries and people who knows that. I would suggest that you go to know that. Maybe it’s the underwriting com- places — I’ll put in a plug for this and other At ACE, we have a risk map that actually mittee that sets guidelines for the amount of similar organizations — if you’ve got people identifies, in a pretty graphic and clear way, risk to take on, but again, the board’s duty on committees, make sure they’re doing con- the risks that have been identified, how is clearly oversight, not day-to-day manage- tinuing education in those areas, so that even we’re dealing with them, and how we expect ment. From that standpoint, remember the if they didn’t grow up having those qualifica- them to play out in the corporation’s finan- duty is oversight. tions, they can develop those qualifications. cial results over the year. Have people come in and talk to the board If you’re getting too much information, about these things, whether it’s general or JACK FRIEDMAN: Do you have certain then you’re probably not overseeing; you’re specific, and continue to educate yourselves. members of the board who are especially probably getting too deep into the weeds. Don’t be afraid, also, to identify people, oriented toward risk analysis? In the same As Joe said, since it’s oversight, it’s really: even. We delegate down to the committee

Winter 2016 20 WORLD RECOGNITION of DISTINGUISHED GENERAL COUNSEL

level; don’t be afraid to delegate down to the when you’re doing a large merger, that you manager, a privacy manager, a cyber secu- individual level, where you can say that on a will get more paper than you normally do. rity manager? How do these functions relate specific committee one person is in charge of That’s appropriate when you’re taking steps to what traditionally has been the General a certain area. We’ll all read it, but he will be or when you’re approving something. But Counsel’s office of a legal department? a little bit more knowledgeable; or she will on a general basis, it’s having the important be our expert on that. Find the people with information, not having all the information, JOSEPH WAYLAND: On the risk man- the time and the expertise, and don’t worry because if it’s really important on page 999 agement function, it would be malpractice for about delegating. Make sure they report and you never got there, then you haven’t me to be anywhere near it in terms of sole-re- back, but don’t worry about delegation. really done your job. sponsibility. I participate in an enterprise risk management committee of the firm, ELIZABETH SACKSTEDER: If I could ELIZABETH SACKSTEDER: Exactly. but I don’t have an insurance background. just add one further thought. Boards feeling And one of the most interesting things to overwhelmed by the volume of information JACK FRIEDMAN: In the 25 years that me, in joining the insurance company, was that they get, and not always feeling that we’ve had the Directors Roundtable, every the complexity of understanding our finan- they receive it in the most accessible form, year starts out with more interesting pos- cial accounting. Let me contrast ACE with is very common. One thing that’s surprised sible director-oriented programming ideas an industrial business like GE. You might me in dealing with boards is how reluctant than you could ever imagine. Other ques- not have any understanding of how to make they seem to be to provide that feedback tions, anyone else? Yes, sir. a jet engine, but it isn’t that hard to grasp to management. I’m sure it happens very the basics of figuring out whether GE can effectively in some companies, but in oth- [AUDIENCE MEMBER:] I’d like to take make any money on jet engines. You add up ers, it doesn’t seem to happen, really, at all, it down below the board level and ask about the costs: labor, materials, facilities, capital; so that the problem persists. I’m not aware corporate staffing structure. The question is and you compare that to how much some- of any reason — Eddie will correct me if I’m for Joe, and if he answers the question, then one pays you for the engine. But insurance wrong — why a board can’t tell management, we’ll see if anybody dares to disagree with is a different animal. We take in premium “Look, every month we meet, and you give him. [LAUGHTER] payments today, invest it, and then pay out me these big, fat decks. Honestly, they’re claims over a potentially very long time not useful. Here’s what we think we need. In the 20 years that I was a General period. So how do you know whether you Make it so.” Part of the board’s oversight Counsel, I always kept the compliance offi- are making any money? You have to make responsibility is to make sure it’s getting the cer as a separate function from me as the complex actuarial calculations about expected information it needs. If it’s getting a lot of General Counsel. I kept myself from serv- claims and you have to set reserves for those irrelevant information or not useful infor- ing as a board member of my company, just claims and then make adjustments based on mation, that’s impeding the process and to keep the business function and the legal real world experience. Getting this right is a it’s completely legitimate oversight to say, function separate. very important part of risk management at “Don’t do it this way; do it differently.” an insurance company. Do you agree with that? Maybe that’s EDWARD BEST: It’s definitely very clear because I was a litigator before I became We have an Enterprise Risk Management that boards need to be fully informed, but I a General Counsel? I always thought of Committee; we have an Officer of Risk agree with Liz that “fully informed” doesn’t myself as the enterprise risk manager. How Management, who is an actuarial, actually. mean that I have three feet of papers in front do you feel about your function as the We have a very substantial staff — hundreds of me. There may be times, for example, General Counsel vis-à-vis an enterprise risk of people — that are actually involved in risk

Winter 2016 21 WORLD RECOGNITION of DISTINGUISHED GENERAL COUNSEL

management. I’m part of that process, but significant investigations or other matters [AUDIENCE MEMBER:] This is a I don’t and I would never pretend to be that present significant legal or reputational business question. We’ve mentioned cyber leading that process. risk, because lawyers have the substantive security and privacy. Is ACE, or Chubb, legal knowledge and analytical skills neces- maturing in cyber security, and what is On compliance, we have a Global sary to handle these circumstances. the situation there? Prices have been very Compliance Officer who reports to me. high, coverage very low. It’s a new area, we We have a separate Compliance function ELIZABETH SACKSTEDER: Just as an understand that, but I think there’s a lot of and a separate Legal function. They do observation to follow up on that: when I relevance to boards of directors. function together to the extent that there are moved from the insurance industry to the lawyers who help the Compliance people banking industry, I was surprised to find that JOSEPH WAYLAND: Yes, we do sell understand what the legal risks are, and the norm in banking is that Compliance does cyber-insurance. We’ve been a leader in it. the Compliance people design programs to not report into Legal, whereas in insurance, It turns out to be a relatively robust mar- make sure that we don’t run afoul of those it tends to be the opposite. “Why is that?” ket in the U.S. and less so outside the risks. When there are matters that require is the question. The answer, as best I can U.S., which may have to do with liability a serious investigation, the lawyers usually tell, is that bank regulators, in general, and assessment and the fact that the kinds of take the lead, often with the assistance of particularly outside the United States, don’t liability you might face in the U.S. because compliance professionals, auditors and our view Legal as a control function, whereas of statutorily imposed fines or class action fraud investigators. liability. One of the problems in the mar- they view Compliance as a true control func- ket is assessing risk without a substantial tion, just like Risk, for example. They view We recently created a Chief Privacy Officer claims history. That is a big part of our the lawyers as advocates for the business, position — which is separate from our IT underwriting function — how we measure and they’re part of the so-called first line of experts, who make sure that our cyber walls and price that risk. defense. They’re not part of the second line aren’t breached or figure out what to do of defense, whereas Compliance is, and the when they are breached. The Chief Privacy JACK FRIEDMAN: I have one last ques- Officer is really trying to understand what regulators like to see that differentiation. tion for Joe. In the five minutes a month the legal obligations are of the company with that you have free for your personal life, respect to protecting data, and is responsi- It does have the disadvantage that Joe identi- what do you like to do? ble for leading our response to breaches to fied, to have that structure, which is Legal and minimize legal and reputational risk. That Compliance really are very closely aligned. JOSEPH WAYLAND: I have three sons CPO reports to our Global Compliance Legal, if it’s doing its job, is providing who are still college and high school age. Officer, who then reports to me. very important insight, strategic judgment, Between what I do at work and the demands and support to the Compliance function; of family time, there isn’t much other free Globally, we have Compliance Officers in and likewise, Compliance is the front line for time. I very much enjoy my family time. each region. I’ve always had them report seeing where breakage happens that needs to to the General Counsels. There’s a good feed back to Legal for action and correction. JACK FRIEDMAN: I want to thank the debate in the industry, and actually in the There’s probably not one right answer; there audience for coming. I want to thank our government enforcement agencies, about are pros and cons for either structure. Distinguished Panelists for sharing their whether Compliance should report to Legal. expertise, and our Guest of Honor for I think legal should have oversight over the JACK FRIEDMAN: We will take one spending time with us today and honoring compliance function at least in dealing with more question from the audience. us with his presence. Thank you very much.

Winter 2016 22 WORLD RECOGNITION of DISTINGUISHED GENERAL COUNSEL

Don Hawthorne’s practice focuses on Professor of Law at the Benjamin N. Cardozo litigation involving complex fi nancial instru- School of Law, where for many years he ments, credit crisis litigation, antitrust taught courses on the regulation of electronic litigation and counseling, and international media covering legal issues concerning disputes. He frequently represents insurers, broadcast and cable media, the Internet and hedge funds, and private equity fi rms, and telephony. From 1991 until 1992 he was a represents both plaintiffs and defendants. law clerk to the Honorable H. Lee Sarokin of the District of New Jersey. And from 1986 Don was previously with Debevoise & until 1988, he was an associate with Booz, Plimpton. Prior to that, Don was Director of Allen & Hamilton in New York. Donald Hawthorne the e-Commerce Strategy Group at KPMG Consulting, Inc. From 1992 until 2000, Don Professional Activities Partner, Axinn, Veltrop & was an associate and then Counsel with • American Bar Association Harkrider LLP Paul, Weiss, Rifkind, Wharton & Garrison. • Association of the Bar of the City Don has served as an Adjunct Associate of New York

Axinn, Veltrop & attorneys have handled some of the largest key witnesses and excluded expert testimony Harkrider LLP and most challenging matters in recent years, at trial. Axinn also recently prevailed in a including matters for Google, MasterCard, patent jury trial worth millions of dollars on “A fi rm to turn to when all seems hopeless.” Thermo Fisher Scientifi c, and SunGard, behalf of Johnson & Johnson. That is the way Chambers USA describes among others. In addition, Axinn lawyers Axinn. Established in the late 1990s by law- have also litigated six merger challenges Complex Litigation yers from premier Wall Street fi rms with a against the government, and Axinn lawyers Axinn lawyers try cases. Our lawyers have common vision of excellence, Axinn has were retained to act as lead counsel in the successfully tried numerous jury and non- since been joined by more than 60 lawyers largest merger ever challenged by the DOJ. jury cases throughout the country. With who share that vision. Axinn is devoted to every single lawyer litigating and trying cases, providing the highest quality of service in Intellectual Property the fi rm’s size rivals that of most large fi rm three practice areas: antitrust, intellectual Axinn’s IP trial practice is composed of sea- property, and other high-stakes litigation. soned trial lawyers, not discovery litigators. litigation departments. In addition, Axinn The fi rm routinely serves as lead trial counsel has extensive class action experience ranging Antitrust in patent and trade secret actions, and has an from consumer class actions in New Mexico Axinn has an outstanding worldwide extensive record of successfully trying high- to security class actions in New York. Axinn’s reputation in all aspects of antitrust and stakes IP cases. In one recent instance, the senior partners have decades of experience competition law, including mergers, crimi- fi rm tried a multi-billion dollar patent action and are recognized by the American College nal/cartel investigations, and litigation. Our that settled after Axinn lawyers impeached of Trial Lawyers and Chambers.

Winter 2016 23 WORLD RECOGNITION of DISTINGUISHED GENERAL COUNSEL

Edward Best joined Mayer Brown in 1986 General Corporate Practice and steadily built a successful capital mar- Advising companies regarding Securities kets and corporate law practice. Today, he is Act and Exchange Act compliance, NYSE co-leader of the fi rm’s Capital Markets and and NASDAQ compliance, corporate gov- Financial Institutions groups and serves ernance, and Sarbanes-Oxley Act matters. on Mayer Brown’s Partnership Board. He is widely recognized as one of the nation’s Chambers USA noted that “Edward Best’s leading capital markets attorneys. Eddie’s ‘extremely quick mind’ makes him a popular experience includes: fi gure among lawyers and clients alike. ‘He is never stumped by a question....’” Eddie has Capital Markets been described as “Aptly named, as he’s one Edward Best Representing issuers and underwriters in of the best in town,” and as “A ‘stand-out debt Partner, Mayer Brown LLP connection with public and Rule 144A and equity’ lawyer.” Legal500 recommended offerings of debt, equity, convertible, and Eddie in “Capital Markets – Debt Advice to hybrid securities in the U.S. and Europe; Issuers” and “Capital Markets – High-Yield continuously offered debt and equity pro- – Advice to Managers,” noting that Eddie grams; liability management transactions, is “chief amongst [Mayer Brown’s excellent including equity and debt self-tenders, partners].” Eddie is also listed in Who’s Who exchange offers, and consent solicitations; Legal, Best Lawyers in America for Securities particular emphasis on offerings by fi nan- Law, the Guide to the World’s Leading Capital cial institutions, including banks, insurance Market Lawyers, The International Who’s Who companies, brokers, and specialty fi nance of Capital Markets Lawyers (2007), and the companies, and cross-border offerings. International Who’s Who of Business Lawyers (2008). In addition, he has been named Mergers and Acquisitions among the “Leading Lawyers” in Illinois Counseling buyers, sellers, and fi nancial in the categories of Corporate Finance intermediaries in connection with public and Law, Mergers and Acquisitions Law, and private acquisitions, joint ventures, divestitures, Securities and Venture Finance Law. mergers, tender offers, and proxy contests.

Mayer Brown LLP litigation and dispute resolution; antitrust sense. Diversity and inclusion broadens our and competition; U.S. Supreme Court and knowledge and skills, heightens our aware- Mayer Brown is a global legal services pro- appellate matters; employment and benefi ts; ness of and sensitivity to cultural issues, vider advising clients across the Americas, environmental; fi nancial services regulatory and empowers us to respond to the chal- Asia and Europe. Our geographic strength and enforcement; government and global lenges of serving a clientele that spans the means we can offer local market knowledge trade; intellectual property; real estate; tax; globe. Diversity and inclusion are hallmarks combined with global reach. restructuring, bankruptcy and insolvency; of Mayer Brown heritage and will be key and wealth management. drivers of our future success. We are noted for our commitment to cli- ent service and our ability to assist clients We have a signifi cant presence in the Mayer Brown handles many of the most with their most complex and demanding Americas, Asia, and Europe, with more than important cases and transactions for the legal and business challenges worldwide. 250 Chambers-ranked lawyers worldwide. We largest companies in the world, and we We serve many of the world’s largest com- are regularly ranked among the leading law consider our diversity efforts critical to the panies, including a signifi cant proportion fi rms in the Americas, Asia, and Europe by level of service we provide to our clients. of the Fortune 100, FTSE 100, DAX, and all of the main reviewing bodies. Clients recognize diversity and inclusion Hang Seng Index companies, and more as indispensable drivers of success in our than half of the world’s largest banks. We Mayer Brown is committed to diversity and multicultural world. To remain a world-class provide legal services in areas such as bank- inclusion because it is the right thing to law practice, we must continue our push ing and fi nance; corporate and securities; do and because it makes sound business forward in these vital areas.

Winter 2016 24 WORLD RECOGNITION of DISTINGUISHED GENERAL COUNSEL

A partner in the Litigation Department, She was responsible for a 60-lawyer litiga- Elizabeth M. Sacksteder focuses her practice tion group, all litigation and pre-litigation on complex litigation and regulatory matters. counseling involving the holding company and the group’s property-casualty, life, Experience and asset accumulation businesses, and Ms. Sacksteder is the former Deputy supervision of the Reinsurance Law and General Counsel and Global Head of Investment Law groups. Before joining Litigation and Regulatory Investigations The Hartford, Ms. Sacksteder was a litiga- at Citigroup Inc., where she managed a tion partner in private practice representing 250-person worldwide litigation and inves- clients in fi nancial services, telecommunica- tigative team and advised Citigroup and tions, manufacturing, entertainment, and Elizabeth Sacksteder its Board on every aspect of their litigation other industries. Partner, Paul, Weiss, Rifkind, and regulatory exposures. During her ten- Wharton & Garrison LLP ure at Citigroup, Ms. Sacksteder supervised Ms. Sacksteder is a recipient of the Arthur multibillion-dollar litigations and high-stakes Liman Public Interest Award from the Legal regulatory and criminal investigations, many Action Center (2012) and the Human involving multiple jurisdictions. Prior to Relations Award from the New York Lawyers joining Citigroup, Ms. Sacksteder was the Division of the Anti-Defamation League Deputy General Counsel and Director of (2013). Ms. Sacksteder serves as a Member Litigation at The Hartford Financial Services of the Board of the Legal Action Center Group, Inc., where she was second in com- (2013–present). She was the Coordinating mand in a 400-person Law Department. Articles Editor of the Yale Law Journal.

Paul, Weiss, Rifkind, world, as well as clients in need of pro bono We have long maintained a commitment to Wharton & Garrison LLP assistance. Our Firm is headquartered in diversity and public service, and our efforts New York City, with offi ces in Washington, to recruit and retain a diverse workforce D.C., Wilmington, London, Tokyo, Hong have been recognized through rankings at Kong, Beijing, and Toronto. the top of surveys addressing the hiring and Paul, Weiss (www.paulweiss.com) is a fi rm retention of minority lawyers. Paul, Weiss of more than 900 lawyers with diverse While Paul, Weiss is widely recognized as lawyers have an unwavering dedication to backgrounds, personalities, ideas, and inter- having leading litigation and corporate capa- representing those in need. From individual ests, who collaboratively provide innovative bilities, our Firm is equally strong in the areas representations to precedent-setting litiga- solutions to our clients’ most critical and of bankruptcy and corporate reorganization, tion in the Supreme Court, our lawyers’ complex legal and business challenges. We employee benefi ts and executive compensa- pro bono work has contributed to signifi cant represent the largest publicly and privately tion, fi nance, intellectual property, personal outcomes that affect both individuals and held corporations and investors in the representation, real estate, and tax law. society as a whole.

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