Of DISTINGUISHED GENERAL COUNSEL

WORLD RECOGNITION of DISTINGUISHED GENERAL COUNSEL

GUEST OF HONOR: James Savina Senior Vice President, General Counsel & Corporate Secretary, The Kraft Heinz Company

THE SPEAKERS

James Savina Jonathan Katz Gary Kushner Senior Vice President, General Partner, Cravath, Swaine Partner, Hogan Lovells LLP Counsel & Corporate Secretary, & Moore LLP The Kraft Heinz Company

Dean Panos Brian Jorgensen Jamie Cain Partner, Jenner & Block LLP Partner, Jones Day Partner, Sutherland Asbill & Brennan 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 James Savina, General Counsel of Kraft Heinz, with the leading global honor for General Counsel. His address focuses on key issues facing the General Counsel of an international food corporation. The panelists’ additional topics include labor and employment; food industry regulation; M&A; managing risk with derivatives; and complex business litigation.

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

Jim Savina is General Counsel and provided legal judgment to conducting inves- Corporate Secretary for The Kraft Heinz tigations and developed investigation-related Company. He leads the company’s legal processes, strategies, guidelines, and train- function globally, including corporate ing. Jim also worked closely with Avon’s governance and securities, transactions, General Counsel on uniquely sensitive regulatory, compliance, intellectual prop- matters, and helped develop and deploy erty, litigation, and labor and employment. strategic and operational initiatives. Jim played a key role in the merger of Kraft Foods Group, Inc. and H.J. Heinz Company Before Avon, Jim was Senior Counsel and while serving as SVP, Deputy General Director of Claims & Legal Administration Counsel, and Chief Compliance Officer for for Energy Future Holdings Corp. (f/k/a James Savina Kraft, and was appointed to his current role TXU Corp.), a Fortune 250 energy firm in Senior Vice President, General when the merger closed. In his prior role, Dallas, Texas. Jim began his career as a labor Counsel & Corporate Secretary, Jim led the legal teams covering Kraft’s US and employment associate with a global law The Kraft Heinz Company Divisions, Sales, litigation, labor & employ- firm before opening his own law practice. ment, and employee benefits, as well as the legal operations team. As Chief Compliance Jim earned his bachelor’s degree with honors Officer, Jim worked closely with the Board from the University of Texas at Austin and and C-level management to drive a risk-based, his juris doctor cum laude from Southern strategically tailored compliance program that Methodist University School of Law. was fully integrated into the business.

Before Kraft, Jim was with Avon Products, Inc. as its Executive Director, Global Legal Investigations and Operations, where he

Kraft Heinz On July 2, 2015, Kraft Foods Group, Inc. dairy, condiments and sauces, meals, meats, and H.J. Heinz Company merged to form refreshment beverages, coffee, and other The Kraft Heinz Company. While Kraft grocery products throughout the world under Heinz was formed in 2015, both Kraft a host of iconic brands, including Kraft, and Heinz have been pioneers in the food Heinz, Oscar Mayer, Planters, Philadelphia, industry for over 100 years. Velveeta, Cracker Barrel, Lunchables, Maxwell House, Capri Sun, Gevalia, Jell-O, Wattie’s, Kraft Heinz is now the fifth largest food Classico, Grey Poupon, and Ore-Ida. A globally and beverage company in the world, with recognized producer of delicious foods, we over $27 billion in revenues from sales in provide products for all occasions, whether more than 190 countries and territories. at home, in restaurants, or on the go. We have dedicated employees in over 40 countries, and manufacture and market food Our common stock is listed on NASDAQ and beverage products, including cheese and under the ticker symbol KHC.

JACK FRIEDMAN: The Directors Roundtable is a civic group whose goal is to put on the finest programming for Boards of Directors and their advisors globally. We’ve never charged the audience to attend our 800 events in 25 years, and we’re very proud of the program today. The reason Jim Savina was selected to be a Guest of Honor for this program is that his career, his company, and its legal department have an excellent record, and they’ve been through many changes which are instructive.

This series began with Directors telling us that they wanted an elite global forum where companies would have a chance to speak about achievements they are proud of; their commitment to good citizenship; and lessons they can share with other companies, to assist them, too.

Jim and Kraft Heinz have been very gener- ous to make themselves available today. Jim is a graduate of SMU Law School, and I will then have a roundtable discussion. Mark Firestone, the former General Counsel would like to read for the record, including After the program, we will make a full- of Kraft, already talked about the Kraft legal the transcript, a congratulatory communica- color transcript available to about 150,000 department. So after reading those, I’m tion from the Dean. leaders globally. thinking, “I don’t have a heck of a lot to say to begin with. And those two have stolen Dear Jim: Without further ado, I’d like to have our ninety percent of my material! So now I’m distinguished Guest of Honor make his really down to not a whole lot.” The best Congratulations on your award from the opening remarks. I could come up with was leading through Directors Roundtable! You have had such major changes. an extraordinary and distinguished career, JAMES SAVINA: Good morning. Thank and SMU is delighted that you are receiving you for being here. Thanks to Dean and to We have all probably heard that the pace this well-deserved recognition. Thank you Jenner for hosting. Thanks to Jack and team of change will never be slower. And with so much for exemplifying the ideals of for putting it all together. And thanks to all so much change happening, it’s more likely leadership, professionalism, and integrity. of you for being here. than ever that — whether at your own firms We are also proud that you are a graduate of or your clients — you’re probably going to the SMU Dedman School of Law. Obviously, the designation, “World Recog- be touched by a transformational change at My very best wishes, nition of Distinguished General Counsel,” some point. Since my career has been a lit- is a lot to live up to. I hope we deliver some- tle bit of an embarrassment of riches in that Jennifer M. Collins thing that’s at least somewhat interesting. I department, I thought I would try to find Judge James Noel Dean and imagine most of it will come through the some useful nuggets for you, either for your Professor of Law panel. So I will try to be as brief as I can. own careers or as you advise your clients. Congratulations! I was thinking to myself, “What could that I promise I’m not going to bore you with The format of the program will be that Jim something somewhat interesting be?” I went my résumé. But I will use my background will begin with his comments, and then through some transcripts from past Directors to frame the discussion about where I got each Distinguished Panelist, whom I will Roundtable events. Sabine Chalmers from my perspectives. Then I’ll talk a little bit introduce later, will present a special topic ABI already spoke about some of the operat- about Kraft Heinz. And I’ll also try to about which he will speak briefly and we ing principles of a 3G-influenced company. tie some of the learnings for the lawyers

in the room — how you can apply these Year. The article talked about the complex- thoughts in your practice, whether as inside ity and speed of the deal. And Katz down counsel or outside. there knows it first-hand how fast it was — we closed in 100 days. It was amazing. I I guess this is where — since my name’s on learned a ton. the invite — I could be self-indulgent and talk for a long time about my favorite topic: That set the stage for the pace we’re going on me. But I will try to keep it somewhat brief now. We’re integrating, and have integrated, and hit only germane to the topics. at an amazing pace. We’re introducing a new operating model, and changing the Like most lawyers, I started out of private culture in a way that I’ve never seen, at a practice. I was at a big law firm for about pace that I’ve never seen. It’s been amazing four and a half years, then I hung up my to be part of. own shingle. So I went from a big firm to a one-man shop, where I was my own admin, I’ll park a little bit here to talk about Kraft paralegal, IT guy — which takes a lot of time Heinz. For those of you who aren’t familiar, — as well as the lawyer and everything else. we merged in July 2015. We’re co-headquar- It was a very different way to look at the investigation. I was charged with building up tered here and in Pittsburgh. We have about world. As I told my current boss — who is the investigations team and helping the legal 42,000 employees in over 40 countries. We also a partner in 3G, which is known for organization operate more efficiently during sell in about 200 countries and have over zero-based budgeting and ownership men- a very interesting and challenging time for $27 billion in revenues. And as of yester- tality — running a one-man show, that’s the company. It wasn’t just the FCPA — day’s market price, our market cap is $95 ownership mentality! Any penny I didn’t there were also some IT, business model, billion. One of the most interesting things, spend on the business was used to pay my and performance challenges. And there was though, is that, while we’re fully public — rent. In that situation, ownership is not a a management transition when I was there absolutely fully public — 51% of our shares mentality, it’s a reality. — the CEO, CFO, GC, just like it happened are owned by two major blockholders: at TXU. Being there to see how a major com- Berkshire Hathaway and 3G. That owner- After doing that for a couple of years, I pany worked through significant challenges ship profile impacts how we operate, largely had the opportunity to go in-house at a big was a great development opportunity. because of the perspective and mentality of energy company, which was called TXU at these particular investors. Berkshire and 3G the time. It had its roots as a public utility, From there, I got the opportunity to come are long-term investors of their own money, had $11 billion in revenue, was publicly to what was Kraft Foods when it had just who are not looking to flip their invest- traded and over a hundred years old. I spun off from Mondele–z. It was an exciting ments. As we all know, companies generally thought, “Great, what a nice, stable com- time — it was a new company, but it also use long-term incentive programs to align pany to join.” Six months into that job, our had billion-dollar brands and $18 billion management with shareholder interests. In GC calls us into the room and says, “Guess in revenue. Our motto was “Spirit of a addition to our incentive programs, we have what? We’re being taken private.” It’s still startup, soul of a powerhouse.” I didn’t say this shareholder alignment built in because the largest leveraged buy-out in history. And this when I was negotiating, but I thought, members of management and the Board that deal spun everything upside down — “Who could say ‘no’ to that? That’s fantas- are involved with Berkshire and 3G. And what you’d expect: senior management tic! Sign me up!” Off I went to Chicago. they’re representing the interests of huge, changed, the operating model changed, long-term investments those firms have legal work went crazy. It was great for me. Then a few years later — are you seeing a pat- made. So we’re built to look long-term, and I started grabbing everything I could. I was tern here? — right on the heels of another it really finds its way into how we think kind of the “Life cereal Mikey” of the legal management transition at Kraft involving and operate. Very long-term focused. department. If there was no one to do it, both the CEO and CFO — the Heinz and “Hey, give it to Jim, he’ll do it!” I filled vac- 3G guys come calling. It’s been off to the It’s also fun, because I get to have Warren uums. It was fun, and I learned a lot. races ever since. Buffett on my board! I was sitting around the table at my first Board dinner — I’m in A few years later, I had the opportunity to There was an American Lawyer article between Warren Buffett and Marcel Telles, go to Avon Products in New York when about the Kraft Heinz merger the other and with Jorge Paulo Lemann and others at they were in the middle of a big FCPA day. I think it was one of the Deals of the the table — and I was thinking, “I’m sitting

at a table with a hundred billion dollars of One of the most interesting things, though, is that, while net worth.” And since my net worth has parentheses around it, it was a pretty big we’re fully public — absolutely fully public — 51% of our deal! [LAUGHTER] shares are owned by two major blockholders: Berkshire Anyway, that’s my path — big law, small Hathaway and 3G. That ownership profile impacts how we law, big clients, small clients — seeing a operate, largely because of the perspective and mentality of steady-state company at TXU for about five minutes until the LBO, and then seeing a these particular investors. — James Savina lot of companies do a lot of different things. With that, I had some observations that I Obviously, if you’re communicating, it pre- and the “why,” and then seeing if there’s think will probably be less than what you sumes you have something to say. That goes a principle behind it. Oftentimes you find paid for them. to the principle arising from the truth I just what you don’t like is just a tactic. You don’t mentioned. The principle is that, when like how some tactic feels. But if you zoom I’ll start out with a truth. And then I’ll dis- dealing with changes, you have to under- out and look at the principle behind the tac- cuss a principle arising out of it. stand what changes are happening and why. tic, it often leads you to thinking, “Oh, yeah, And you have to truly believe in them. This of course! I get it. That makes total sense.” The truth, which is probably no great sur- is huge, because unless you’re crystal clear And that helps you believe in the change. prise, is that when you are going through a on what is changing and why, you can’t pos- major change, there are going to be people sibly explain it or drive it. So if you’re not An example — it’s a silly one, but I think who don’t want it and will react negatively. clear or something doesn’t make sense — it drives the point home — when we got They just don’t want it to happen because ask! Figure out why. Why is this happening? taken private at TXU, one of the first things change creates uncertainty, and uncertainty What’s the driver behind the change so you that happened is that free Cokes and snacks creates unease. You will find this can create can be 100% clear. For employees, you need were eliminated. People were kind of pissed a bias towards the negative. They know they to be clear so you can answer, “Do I want to off. Because when you do the math, which like what they had, but they don’t know work here?” For leaders, you also need to be everyone did, you realize those drinks and what’s coming. So they view everything neg- clear so you can be a driving force behind snacks weren’t costing much money. So atively, thinking “Well, that’s new, so it must the change. people thought, “This is dumb. ‘They’ be a bad thing.” In other words, during just don’t care about us. See, this is how big changes, some people get grey-colored As I say to executives who have had the mis- they’re going to treat us.” That was one way (sometimes black-colored) glasses instead of fortune of hearing me do executive training, to look at it. But you could also zoom out rose-colored glasses. “Heavy is the head that wears the crown.” and say, “Okay, well, if a company generat- People love being leaders because they ing billions of dollars in revenue is going to Your biggest countermeasure to get people make more money and have greater influ- look at the peanuts they pay for peanuts” through change is to communicate… a lot. ence. Well, leaders do have greater influence — [LAUGHTER] I was proud that I came Think of every which way to communicate and a bigger impact, which means they also up with that one myself — you can: walk the halls; be present; send have more responsibility. That responsibil- emails. And when you’re communicating, it’s ity is magnified ten-fold in times of change. JACK FRIEDMAN: Is that a professional crucial that you’re listening — because a lot of Leaders have a duty to the company to be turn of phrase? people just want to be heard: “What’s going the change agent for the positive. You’re not on? Here are my concerns.” Sometimes what going to be able to single-handedly drive the JAMES SAVINA: Yes, exactly! I don’t have you think is being said is not what’s actu- change. But you can really screw it up if you the sense of humor of some people, so I get ally being heard. So you have to make sure don’t believe in it and do it right. really proud when I come up with a joke! there’s a two-way street. And you have to be brutally honest. If there’s someone who has Once you’re clear on the changes and why, Anyway, if this huge company is going to a really strong view about something that is then you have to really believe in them. It look at what they’re paying for snacks, then not going to be the way things are after the may be that you just inherently think, “Oh, we should all look at that example and ask, change, you can’t bury the monkey and pre- of course, that’s absolutely what I would do “Well, what am I spending money on?” And tend it’s not there. You have to say, “This is and how I would do it.” Other times, it’s if we’re all looking at our spend that closely, the way it’s going to be, opt in or opt out.” harder to believe. What I generally do goes those numbers add up. And when those You can’t do that without communicating. back to needing to understand the “what” numbers add up, we win. We all want to

mostly lawyers here — and from what I under- Five, “finished” beats “perfect.” stand most of this audience is lawyers — is to talk about what all this means for lawyers. Six, don’t get complacent — never stop working to earn trust and respect. For inside lawyers, it’s starting out with the premise that you can’t do your job if you Seven, debate, decide, do — act with speed don’t know your business. You’ve got to and clarity. know your business. And if your business changed dramatically, you’ve got to then Basically, you can’t live up to those princi- re-know your business. Who are the stake- ples, at least the first four, if you don’t know holders? What are their risk tolerances? your business. So, as an inside lawyer, you What’s their perspective? must get to know it.

If you don’t know those things, you can’t Most importantly — and this is one that’s a live up to the seven principles, which I call huge point that’s often missed — is that know- “Savina’s Seven” only because “Savina” ing your business allows you to risk-calibrate starts with “S” and I’m not very creative. your advice. And calibrating is huge, because There could have been eight or nine. But, if you’re out of sync with your business, you win, so of course it makes sense to take away anyway, so I came up with seven principles will not be ineffective, you could actually harm the free snacks. So you can sit and grouse that I think highlight what inside lawyers your business. If you’re from an environment about, “Oh, I don’t get free Cokes.” Or you have to live by to be effective. that had been very aggressive and wanted can realize, “Well, there is a great reason why lawyers to find loopholes and shades of gray, we don’t, so let’s all get behind it.” Like I One, we’re not a think tank — execute. You and then you find yourself in a very conser- said, it’s a silly example. But it’s how I try have to get behind the eyes of who you’re vative environment that doesn’t want to get to always look at it when something feels working with, find out what they need from anywhere near the gray, you’ve got to adjust off during a change. I step back and try to you, and get it done. how you give advice. If you start giving advice see if there a principle behind what feels off based on the old aggressive risk tolerance, and that can lead me to believe and say to myself, Two, be practical, not philosophical. that conflicts with the new conservative risk “Well, of course we all agree with that.” We’re not here to pontificate; we’re here tolerance, you’re going to be out of sync. And to solve problems. being out of sync means you’re not as likely That being said, if you can’t get to a place to be invited in to solve problems going for- where you believe in the change, then you Three, be business problem-solvers, not ward — including when you really need to be. owe it to yourself, your company, and your legal question answerers. You have to think It’s harmful to your company when you’re not team to get out. I mean, at some point if you about where is the business trying to go and invited in when there are key risk decisions realize that you’re just truly not in. So get out. how you can help solve the problem with being made. That’s the holy grail: when really that destination in mind. big stuff is going down, are you there to help The worst thing you can do is try to fake from the very beginning? If you’re not, how it, because — especially as a leader — you’ve Four, think ahead of the business so you can are you possibly doing your job of protecting still got a job to do (and you probably have skate to where the puck is going. Never give your stakeholders and your company?! Too more work to do during a change), and your advice in a vacuum. It can be frustrat- often we over-index on avoiding every risk, driving change as a leader is hard — very ing for your stakeholders, but when they ask and we get all proud that we stopped this hard. You’re not going to be able to fake it. you a question, ask them a million questions risk or that risk on a given day. We think, You are going to be tired. And if you don’t back: “What does this mean? What project or “Aren’t we great?” Well, if we just eroded the have passion and intensity behind it, you’re work stream is it related to? Where’s it going? confidence of our stakeholders, and they’re going to fail. Period. So just get out. How does it fit in the strategy?” This helps not going to avoid going back to us when it you understand the context around the ques- matters, we’re not so great. You can feel you So the big points on change: be clear on the tion. Not only are you going to give better won the battle, but you lost the war. Big time. “what” and “why,” and believe in them. If advice but, oftentimes, you catch things that you get there, you’re in good shape. Those are the stakeholder didn’t. And your stakeholders Shifting to outside counsel, it’s helpful if my not-very-provocative comments on change. will love you all the more when you help with you guys do the same thing. It’s the same I think what might be more useful for the something they weren’t even aware of. lessons. Number one, you’ve got to know

your client’s business. Now, I get that it’s Your biggest countermeasure to get people through change impossible to get behind the eyes of every single client and be the nuanced business is to communicate… a lot. Think of every which way to expert on that client. I get it. And I’m kind communicate you can: walk the halls; be present; send emails. of glad, because that’s what I sell for my in-house team — we are the ones who know And when you’re communicating, it’s crucial that you’re our business better than those outside guys. But for your key clients or clients going listening — because a lot of people just want to be heard: through change, spend the time to under- ‘What’s going on? Here are my concerns.’ — James Savina stand what’s changing, what’s driving them, and once again, shifts in risk tolerance. Once again, learn the company you’re • communicate with them, and all of your working with — make sure you start asking, employees, a lot; Another thing you guys can do during a “How are things different? What do I need • make sure you know what’s going on, and change is think of how you can help with to know?” so you can calibrate. Getting to that you believe in it, so you can push it; more than just the legal work. Obviously, know the company will also help you under- there’s plenty of legal work to be done. But stand if you get different marching orders • in-house lawyers need to buy in or not there are also things you’re better positioned after a big change. It can be frustrating; as employees, and then if you have, start to do. You all are touching a lot more com- you’ve been marching along on a matter, learning your stakeholders — get to know panies than we are. For example, if you’ve and then, “Okay, now we want you to do it what they want and what they don’t want, dealt with a lot of private equity-owned com- this way.” Well, if you know why the course so you can calibrate; and panies, and one of your clients is about to changed, it’ll make a lot more sense. And • outside lawyers, invest the time to study be owned by private equity, you can ask, you won’t think we’re just capricious jerks the business and translate it into your pro- “Can I come in and talk to your team about who are trying to make your life hard. posals, how you can help the company — I what it looks like, what it’s going to mean, think would be time very well spent. what it’s not going to mean?” You can’t ste- Then if you could bake your knowledge of reotype or divulge confidences. But it would the company into your proposals, that would That’s all I’ve got. I will turn it back over be great to have you guys come in and say be fantastic. That’s part of it, too. If your to Jack so you can hear from people who what you can; “I’ve seen this a million proposal shows you know my business, that actually have something useful to say. times. Here’s the kind of things you can warms my heart, because (a) it’s easier to [LAUGHTER] expect, and here’s why it’s okay.” And com- pick through, and (b) that shows, okay, you ing from you as a third party, that would invested and you get it. So you’re more likely JACK FRIEDMAN: Thank you. I wanted be huge. Because when I say it, it can be to get it through the life of the matter. If you to begin with a few questions for Jim. Could dismissed, “You know that’s just Jim talking come in with a proposal that has nothing to you tell us a bit about your legal depart- for Management.” But if you guys come and do with how we operate, then it just shows ment, and are they all in the States? Are say, “No, I’ve seen this, and here’s how it maybe you don’t quite get my company. And they specialized? The number one question works,” that’s huge. that’s not good for either of us. that law firms like, of course, is how do you work with outside firms — they’re fascinated Those are the kinds of things that I would It’s worth it for the clients that you want to by that information! be thinking of as outside counsel. That’s a focus on to invest that effort. big value add for an outside counsel. If you JAMES SAVINA: Yes, especially given that have some perspective, something you can In any event, I’ve been rambling for quite a a lot of them are here, I can say that my do just to make that time of turmoil less while. I appreciate that most of you at least team’s amazing! [LAUGHTER] We really tumultuous, it would be hugely appreciated. looked somewhat interested, although I’m do have a great team! As I’m sure most of sure what was going on in your mind is not your clients are — we’re structured around After a big change, you have to recalibrate listening to me. [LAUGHTER] the business. Our company has a global your advice, too. You also have to understand headquarters and geographic zones. Our when you’re giving advice that the risk tol- The big takeaways are: legal team is set up the same way. We have erance may have changed. And you’d better areas covered at the global-level — corporate know that before you give some advice that’s • big changes are happening, so expect them; secretary, ethics and compliance, M&A. way out of sync and going to make manage- • know that there are going to be people in And we have teams who cover the Zones, ment wonder, “Who’s that crackpot lawyer?” your organization who resist the change; led by Zone General Counsels. The U.S.

Zone is, by far, our largest, and it’s broken down into business units. So our legal team for the U.S. Zone is also broken down to support the units. We have what we call “business unit counsel,” which are commercial lawyers that are assigned to each business unit. These are the day-to-day lawyers for the units to go to as their primary legal contact. We also have function and specialty counsel that handle things such as food law, labor and employment, litigation, IP, etc. So our business and general commercial lawyers can get deeper expertise in specific areas.

I won’t tell you any exact numbers of lawyers I have, but I’ll just tell you it is remark- ably lower than any benchmark. And we’re doing as great a job as we ever have. We recently had a person join from another major food company, and I get almost daily praise from him on the uptick in quality of of firms we work with, the place to play dessert or sweet is high-calorie. I know from the legal department we have. I like to think there is pretty small. A lot of it is how you medical speeches that one of the few things that’s proof that our team is a well-struc- can get closer to doing what my team does diabetics or others on diets can have for des- tured, well-oiled machine — I’ll take credit — not just give advice, but give advice tai- sert is ten-calorie Jell-O. There are almost only for being part of it, but they’re great. lored to Kraft Heinz. That’s huge. It takes a zero other choices. Maybe the Jell-O people big investment. But to me, that’s the num- should make an all-out promotion to restau- JACK FRIEDMAN: Besides the actual ber one thing I look for. So I would say rants and movie theatres, and tell them, legal product or service that the outside firms the best things for firms to message back “This ten-calorie Jell-O appeals to a large do, what are some of the policy communica- to me goes back to my rambling comments percent of the population and has almost tions you want to have back from them? before — show me that you understand my no competition.” [LAUGHTER] business. That is, to me, the biggest differ- JAMES SAVINA: From me to them, or entiator by far. Now we’re going to move on to the them to me? Distinguished Speakers, who I’m going to JACK FRIEDMAN: Is Kraft Heinz introduce. JACK FRIEDMAN: As you prefer. Do you entirely in the food business with the like to have them explain the who, what, and incredible number of “brands people love”? They are Gary Kushner of Hogan Lovells; where of what they’re doing for you? Dean Panos of Jenner & Block, Brian JAMES SAVINA: It’s a food and beverage Jorgensen of Jones Day; Jonathan Katz of JAMES SAVINA: Interesting question. It’s company. We do food, and we do drinks Cravath, Swaine & Moore; and Jamie Cain table stakes to come in and say, “We have — Kool-Aid, Country Time, Gevalia coffee. of Sutherland. smart lawyers. We’re helping you here, or It started out with J.L. Kraft selling cheese, we can help in such-and-such ways. We’re and cheese is still our biggest segment. But Without further ado, I’d like to invite Gary staffed to do this or that type of work.” But we do more than cheese and are a broader to make his opening remarks. when you start going through the list of dif- food and beverage company. ferentiators, it’s like Strategy 101: are you GARY KUSHNER: Thank you. I have to going to tell me you’re cheaper and a better JACK FRIEDMAN: I want to recom- say, for the record, as a food lawyer, there value, or are you going to tell me you’re dif- mend a marketing opportunity to your is no such thing as a bad food; there are ferentiated and just better? If you’re going company! [LAUGHTER] It has to do with bad diets. I’m fascinated by Jack’s apparent to tell me you’re better, that’s where I ask, Jell-O. When I’ve gone to movie theatres, obsession with the snacks that are sold in “How are you better?” And given the caliber restaurants and delis, I notice that every movie theaters; I really didn’t know that you

Law Department is unique, and it’s really lines that FDA regulates, and all meat and a law firm — a multifaceted, multidisciplinary poultry, which is under the jurisdiction of law firm within a company. To your credit, the USDA Food Safety Inspection Service, Jim, and to Kim’s credit, and predecessors, for which HACCP became a mandatory and to the folks in that department, I want program in 1994. to commend you, and I’m glad to be here to help honor Jim. With FSMA, the law is changing so that what we have always called “HACCP” has As I said, I’m going to talk about probably now been turned into a new kind of regu- the largest and the most significant devel- latory program; the HACCP principles are opment in the regulation of food, certainly the basis for the Food Safety Modernization since 1938, when the Federal Food, Drug, Act, but of course, once you let legislators and Cosmetic Act was first passed, which and regulators get ahold of a scientific pro- is the law that gives the FDA, the Food & gram, it’s necessarily going to change, and Drug Administration, its statutory authority more is going to be prescriptive than it his- to regulate food. Food has always been reg- torically has been. ulated quite strictly, but things are about to become even more pervasive with a new law Now, instead of having written HACCP that was passed just in January, 2011, called plans, or in addition to HACCP plans that the Food Safety Modernization Act, known companies have had for years, companies will have to have written food safety plans were such a foodie, Jack! [LAUGHTER] But now as FSMA, because in Washington, you that are going to be quite elaborate, and I also heard that Jack takes his fitness a bit have to have acronyms; it’s illegal not to. seriously. In fact, recently, I heard that he they’re going to be accessible to FDA inspec- went into a health club in Los Angeles — a The food industry has always been commit- tors. The FDA has historically had very, very very fancy one — because he wanted to get ted to food safety — some companies more so limited records access, but very soon, FDA in better shape in the hopes of being more than others, some companies more sophis- is going to be able to look at just about appealing to some of the younger women, ticated than others — especially since the all kinds of records. This will certainly be and there was a very attractive female trainer 1960s, when a concept called the “Hazard a culture change, not just for the regulated standing behind the desk. He said, “Let me Analysis Critical Control Points” food safety industry, and especially for some compa- ask you; which machine should I use that system (also known as HACCP — acronyms nies that have not historically employed would impress you the most?” She looked again) was developed voluntarily by the food the kind of food safety programs that they at him and thought for a minute, and she industry to keep food safe and essentially are now going to be required to have, but said, “ATM.” sterile for astronauts going into these little it’s going to be a culture change for FDA space capsules in these big old spacesuits; and for its inspectors, who historically have Well, other than Anne Beckman, my good the last thing you wanted was for them to come into plants once every several years, friend sitting here at the Kraft Heinz table, who suffer food-borne illness. The food industry maybe, and looked around to see if they’re has heard of the Food Safety Modernization developed a system where a food manufac- clean, and raised some questions and Act? All right, I’ve got several new victims. turer identifies all potential hazards that can then walked down, maybe identified some occur in the production, processing, and observations, sanitation-related particularly. I’m going to talk about that today, but first distribution of the product, and then con- Now, the inspector is going to be looking I want to say how honored I am to be here ducts hazard analysis to determine which of more at records and looking at things that on this panel. I’ve worked with several of those hazards is reasonably likely to occur they really don’t necessarily understand, or these folks over the years, and it’s great to in the absence of special controls; and then understand in varying degrees. We’re in for be in their company, but it’s especially great adopts critical controls, that are monitored, a real train ride. to be able to help honor Jim for his extraor- measured, and validated to make sure they’re dinary accomplishments and his leadership working, and that are verified to make sure I mentioned that the Food Safety Modern- of the Kraft Heinz Law Department. I will that the company is following its plan. ization Act was passed in 1991; it became also say that he was a bit modest about the law in 1991; and that was after several years law department at Kraft Heinz. I’ve had the That’s been voluntarily employed for many, of haggling in Congress, but it was actually privilege of working with the company for many years, but it has not been mandatory after several sessions of Congress that it was several decades. I think that the Kraft Heinz with the exception of a couple of product enacted. There was bipartisan support for the

legislation; the major food companies wanted The principle is that, when dealing with changes, you have to to make sure that their suppliers were being responsible and effective, wanted to make understand what changes are happening and why. And you sure that smaller companies were doing what have to truly believe in them. This is huge, because unless they need to do to make sure food is as safe as can be. After all, there had been some very you’re crystal clear on what is changing and why, you can’t notable food safety-related illness outbreaks; you just read the paper, listen to radio, or possibly explain it or drive it. — James Savina watch TV, and you’ll see a number of them reported. That’s not good for anybody — it’s adverse health consequences or death, and the sale of product once it’s in commerce. not good for the consumer, and it’s not good the company refuses to recall it, FDA can Under certain circumstances, FDA will be initiate a recall and then will charge the man- for the companies that manufacture food able to detain that product, prohibiting its ufacturer back for the costs of that recall. that have a reputation that is important, distribution and sale. Again, USDA’s had and they want to make sure that food is safe that responsibility for years. FDA is now mandated to inspect more for their customers. frequently based upon the risks that are So far, FDA has issued five final rules to presented by a particular facility. The Passing this bipartisan legislation is implement the law. Preventive controls are new regulations address those risks and one of the few things Congress actually what I consider to be the heart of FSMA, how facilities are going to be targeted for accomplished in the last several years, because those are the requirements that increased inspections. All food companies and it directed FDA to promulgate regu- are most modeled after HACCP, where now have to register with FDA on a bian- lations — many, many regulations — and you have to identify potential hazards; sift nual basis, and FDA will have the authority, issue guidance documents to implement through them; find out which ones need in some circumstances, to suspend registra- the new law. For the past five years, FDA to be further controlled by controls that tion if it believes a company is producing are measured and monitored. The preven- has been involved in rulemaking, hosted and shipping adulterated foods. public meetings and solicited input from tive controls rule is very, very significant. It’s the heart of the statute. There are also all stakeholders, as a result of which the That’s important, because suspending regulations governing preventive controls agency has adopted several regulations I’ll inspection effectively shuts the company for animal food, produce safety, foreign mention in a minute. Under the new law, down. USDA has always had that supplier verification programs to make every food company has new responsibil- authority for plants under its jurisdiction. sure that the supplier of ingredients from ities; actually, anyone who has a facility As I mentioned, USDA regulates meat both domestic and foreign suppliers, are registered with FDA is now subject to the and poultry products under continuous following food safety requirements that food safety requirements. inspection, and this goes back almost to 1906, when Upton Sinclair wrote a book are applicable to facilities here in the U.S. There are new controls over imported foods about your fine city and the conditions in There are accreditations of third-party audi- as well. There have been some recalls of those slaughterhouses that led to the first tors for that purpose. foods that have been directly attributable to Meat Inspection Act. It’s been amended ingredients that have come in from other over the years, but there is continuous There are two more regulations that are countries. In fact, there was a real scandal inspection; inspectors are in the facilities soon going to be published, one probably about food safety requirements in China if you’re making meat and poultry. So it’s within the next several weeks. It’s a food in products shipped here that led to major always been a very pervasive regulatory defense requirement to control or to pre- recalls and subsequent recalls of products scheme, and if FSIS [USDA’s Food Safety vent intentional adulteration of foods; and containing the harmful ingredients. and Inspection Service] decides to pull one on sanitary transportation of food, inspectors from the plant, the plant may which will affect everyone, including anyone The FDA also now has broader enforce- not produce or ship products; essentially, in the food distribution chain. ment powers and inspection powers, and the company is put out of business. It’s there are some new fees that will be imposed very, very serious; and now, FDA is going Businesses, large companies — like Kraft upon food manufacturers, particularly if to have similar authority — not quite Heinz — will have to come into compli- a re-inspection is required of a plant that the same, but similar authority — for all ance with the preventive control rules by FDA considered to be subpar in terms of FDA-regulated food plants. I mentioned this coming September. There’s an extra its sanitation controls. And if a product has mandatory recall authority, and some year of compliance for smaller companies reasonable probability of causing serious limited authority to prevent the shipment or with fewer than 500 full-time employees.

The bottom line is that there is no exemp- regulations, a person who is qualified as tion from these regulations for smaller a Preventive Controls-Qualified Individual companies; in fact, to some extent, smaller must oversee the development of those food companies were a bit of the target of the safety plans. If you don’t have somebody in legislation. They are just given extra time the company who is trained and certified as to come into compliance. Any company the Preventive Controls-Qualified Individual, that’s not already preparing to be in com- you need to get somebody trained, or you pliance by September is late. Even if a need to hire someone. plant is operating under HACCP, that may or may not be adequate to satisfy the new JACK FRIEDMAN: Who would they food safety requirements. report to?

We are looking at some major changes in GARY KUSHNER: That depends. It food law. There will be disputes with com- could be the person who is Director of panies, between companies and inspectors, Quality, or Quality and Food Safety, or who will challenge the hazard analyses in perhaps through the Legal Department. It companies and how have you decided what depends a lot on the company’s own struc- is a hazard and what isn’t a hazard, and ture and how it feels it most effectively can whether you validated your controls to make control those things. sure that, in fact, they are going to prevent a hazard from getting into food. There will Ultimately, the CEO can be held account- be these kinds of disputes; they’ll go on for able — there is a strict liability statute. If very broad records access. The first thing a company violates the law by shipping years. But especially in the early days, when the inspector is going to do is to look at this culture change is first taking place, the ceiling and then they’ll look at the walls, adulterated food, FDA can go after the com- the food industry is going to be under the they’re going to look at the floor, and then pany, the Quality Control Director, plant microscope — and I have to say, with social they’re going to look at records. You need managers, and even the CEO of the com- media, it doesn’t take long for a company’s to keep records of your hazard analyses; of pany — and they will. reputation to become tarnished. So there’s your compliance with your controls; of any a lot at stake. deviation from your plan. You have to have JACK FRIEDMAN: It sounds serious validation documents to make sure that, if you don’t get it right. Would most com- I will stop right now. I’ll be glad to answer in fact, your program’s going to work. All panies hire someone to give an objective any questions. Thank you for your atten- this has to be in the records. You also have outside opinion? tion. I appreciate being here today. to have corrective actions outlined in the event that you have a deficiency under your GARY KUSHNER: The question is do you JACK FRIEDMAN: I want to ask Gary plan. It is very important that the records hire an outside auditor or firm to come in what are immediate steps that top manage- are clear and succinct; if you take corrective and take a look at your programs to tell you ment of companies that are affected should action on a deviation, and you don’t write whether, in fact, you’re in compliance. Some be doing now? it down, as far as FDA’s concerned, you companies don’t have to do that because they didn’t do it; it didn’t happen. Those records feel competent in their own auditors; but it’s GARY KUSHNER: Well, basically, compa- are going to become critically important; always a good idea to consider bringing in a nies have to do hazard analyses that identify, FDA’s going to be looking at them. qualified individual to do that. Frankly, FDA for all the products they’re producing, what does not technically have full records access hazards — microbiological, physical, chemi- So the first thing is, get your house in order. yet, so now would be a good time to do that, cal, radiological hazards — could occur in and do it under privilege. the production of those foods. They need What should be done also depends upon to identify those; they need to do analyses what resources the company already has. JACK FRIEDMAN: Thank you very much. of which of those hazards need special con- Many companies have the right resources; Next is Dean Panos of Jenner & Block. trols; and then they need to implement those they just have to make sure that people who controls. All of this needs to be recorded, are going to be held responsible know they’re DEAN PANOS: Good morning, every- because as I mentioned at the beginning going to be held responsible. In the case of one. Thank you all for being here. I know of my comments, FDA will now have preventive controls, for example, under the we’ve got outside lawyers and in-house

lawyers, and all the outside lawyers are dying more art to this, for sure. As lawyers, we use to talk about zero-base budgeting with you, our judgment in identifying and addressing Jim [LAUGHTER] — one of our favorite issues of concern. subjects! But I’d like to tailor more of my remarks to many of the folks in this room Now, the first issue for outside, or certainly who are in-house, and what has increasingly for in-house lawyers, is, who is my client? become a duty of legal departments and Who do I represent? Those of us who are those who run legal departments — in-house outside lawyers, that’s a lot easier for us to lawyers — to investigate potential prob- answer usually; we have engagement agree- lems, wrongdoing, and hopefully get ahead ments. We know who, really, our clients are of them before they become a problem, and for those of us who sometimes repre- because it’s now part of the world. You see sent a board or an audit committee, we get in a lot of public crises where oftentimes, and understand who our duties of loyalty the law department was in the center of it, are to, but all of us — particularly those sit- at least in terms of perhaps knowing about it ting up here — we all have firm counsel that or missing signs and red flags along the way. can help us navigate if it becomes a little So I want to talk about that. Jim, to be clear, dicey as to who specifically is our client. I’m not suggesting, although you might get this from my remarks — I see Sylvia and But in-house lawyers, oftentimes, you might Anne and Kat here, and other people — I’m be a business unit lawyer, as Jim addressed not suggesting that they turn around and go here, and you might spend all your day and every day advising a particular business unit to the Data Center this afternoon and start maybe it’s not your HAACP plans may be downloading and copying hard drives and or a president of a business unit or a brand important, but they’re not more important launching investigations, but there are cer- of some sort. It’s easy to get caught up in the in the minds of some people as some other tain things that, over the course of having idea that that particular unit is your client, or things. Silos of information — we all know done investigations, having responded to that president is who you report to, to give in big organizations that’s a big issue. Then investigators coming in, that we’ve observed, legal advice — where, in fact, as we all know, there are the decision and action by com- and are probably good things for legal the client of the in-house lawyer is still the cor- mittees — all of you operate in meetings. I departments to keep in mind. poration, and you have to keep that in mind. know all of you guys have your calendars Even though you may be doing daily work with people, places and meetings that you I’m going to discuss briefly some of the and providing daily legal advice, your duty of need to go to, and you sit in conference problems I’ve seen as a result of either fail- loyalty is to the corporation, and your advice rooms and decisions are made. Oftentimes, ing to conduct investigations or responding has to be the best advice to the corporation, those can actually, at times, stifle the work to government investigations. The unique even if it’s against the business unit’s better that you need to do or to look at, because role that you, as in-house lawyers, play, interests, which often can be problematic. We you’re waiting for a committee or a deci- both in the eyes of your colleagues and all know that compensation or bonuses and sion to be made, as opposed to taking in the eyes of regulators or prosecutors; things of that sort are sometimes tied into per- it on your own. the responsibilities of in-house lawyers to formance at business unit level, so it gets a appropriately identify and then respond little dicey as to who, as the in-house lawyer, The in-house lawyer does sit in this unique to problems before they become major; and you truly represent, and who’s your client. position; you are viewed by your colleagues as a few lessons learned along the way. those who are responsible for identifying the I want to talk about when does the duty legal problems and the risks, and addressing This is more art than science. Gary to investigate arise, or what should you do? those. As I said, your representation is not Kushner deals in a world of very strict Obviously, everything’s on a case-by-case limited to engagement agreements; it’s regulations, but even then, there are judg- example. In most corporations, there is not not limited to a particular area that you ment calls within those regulations, but the intentional suppression of information; it practice in. You cannot bury your head in decision of an in-house law department or is much, much more subtle than that. It’s the sand if you’re the labor lawyer or an an individual lawyer to — and Bob, you’ve usually the result of some sort of indiffer- employment lawyer of the company and you dealt with this over the years many times ence to an issue; a lack of ownership; or get some information, and perhaps there’s — whether to launch an investigation or to people just didn’t take responsibility to look a securities fraud issue or something of that look into something, and there’s a little bit at something. There’s a failure to prioritize; sort and you can’t sit back and say, “Well,

I do labor; that’s not really my thing.” You The worst thing you can do is try to fake it, because — especially are in the best position, oftentimes, as to whether, to identify the problem and con- as a leader — you’ve still got a job to do (and you probably have duct an investigation, if it’s warranted. more work to do during a change), and driving change as a Now, why lawyers? Why are lawyers involved leader is hard — very hard. You’re not going to be able to fake it. in this? Well, number one is, we are trained to ask probing questions; that’s what we all You are going to be tired. — James Savina went to school to learn. We’re trained to be skeptical. As my wife will tell you, that’s a They also understand that you are problem unit, “We need to look into this — you can’t solvers, and you can identify risks, and it’s trait that I share, and that I’m pretty good do this,” and of course any time you do expected of you that you will take some that, you’re risking a relationship issue with at! We are trained to assess credibility. action to prevent a problem. the business unit, and you may be risking We’re trained to analyze and decipher com- financial performance of that business unit. plicated facts. Perhaps more importantly In fact, the Rules of Professional Conduct But you do have to understand that your to your colleagues in the business units 1.13(b) provides that an attorney who learns job, at times, requires that. who aren’t lawyers, we have a pretty good an employee or corporate client is acting and understanding, based on our experience intends to act in violation of a duty to the I want to talk a little bit about the culture and and legal precedents that we know, to get a corporation, or engage in some illegal conduct issues that go on in legal departments that sense of how regulators or, worse, prosecu- which may be imputed to the corporation, you have to be aware of. What do we refer to tors, might react to certain facts or certain must proceed in the best interests of the cor- people who raise problems? Whistleblowers! circumstances within your organization, if poration. Now, what does “Must proceed It’s a pejorative term, right? They are whistle they were to learn about them. That’s the in the best interests” mean? Well, it probably blowers! That’s not a great way to be referred value that you all bring to your companies, means, in the eyes of the prosecutors, that you to, but sometimes the whistleblowers are where you can use that judgment and expe- would at least start inquiring and investigat- actually providing information that is import- rience, and explain to them that, well, this ing, and raising issues if it needs to be done. ant and should be listened to. is an issue, and this is how regulators are going to look at it, or this is how a federal Lawyers often — and this is hard when What is communicated to the chief legal prosecutor might look at it. you’re within a corporation, particularly — officer and/or top business units? We may need to take a step back and see the big talked about this earlier — Jim tells us that You are, to be sure, viewed by federal regu- picture, and not focus on individual legal he never advises people, “Don’t write any- lators and prosecutors as the gatekeepers of issues. You might be the lawyer handling a thing down.” He wants to be clear that he’s your corporation. Regulators, many of them, piece of litigation, and over the years, you not advising anybody to suppress informa- are lawyers; prosecutors, of course, are law- might see, here’s a one-off; here’s another tion. But here’s where your judgment comes yers. They look at you as people with special similar litigation; and from time to time, you into play; what do you communicate, how expertise and knowledge. In my experience, get a similar type claim that is resolved, and do you communicate it? You need to use whenever there’s been a serious problem, you might view your role there as to try and your best judgment in how you do that. You and issues that dealt with that I’ve worked get the best result for each one of those par- don’t want to send the CFO an email that with Gary Kushner on a couple of major ticular cases and try to settle them or litigate repeats an allegation of some major prob- recalls for other food companies than Kraft them to the best conclusion possible on a lem without having fully thought it through, Heinz — they routinely ask, “What did the one-off basis, but you might be missing the investigated it, and actually discussed with lawyers at the company know?” All the way bigger picture of taking a step back and see- other people as to what the implications are up to the General Counsel. “What did they ing, “Why is this problem occurring every of putting that in writing in what you said. do to investigate these issues? What did they few months, or is there something else But you’ve got to strike the balance between do, or not do, to address the problems?” going on here that could lead to a bigger raising issues that should be raised versus Then, more importantly, “Who did they problem?” They expect that you are going causing complete disruption of the organi- advise of the problem? Did it stay in a silo, to look for patterns and look for things that zation by investigating matters that aren’t a or did it go all the way up to the General may signal a bigger problem down the road. serious concern; that’s a judgment issue. Counsel, and did the General Counsel take You’ve got to understand what the proper it to somebody else?” They do particularly There is an unhappy tension here, though, forum is to raise issues so as to not create look at the in-house lawyers, because they as all of the folks who do this for a living disruption, and you’ve got to figure out how understand the unique position you sit in. know, which is you’re telling your business we best protect the attorney-client privilege

so that what you do raise, and when you safety issues and product liability issues, start doing investigation, you can cloak as because that’s their reputation; that’s what much as you can in privilege, as well. they do; and you need to create an environment where information that pertains to Here are just a couple points of things that those risks are communicated and reviewed I’ve noticed are my Saving Seven — I think throughout the legal department. it might be eight, I don’t know — of things that we’ve seen over the years when conduct- Those are just a couple of thoughts for those ing investigations in finding what happens, of you who are working in these environ- where the problems occurred within the orga- ments. You need to have an environment nization or within the legal department, that in the legal department that would foster could have gotten addressed earlier. There’s a getting ahead of issues before they become cultural issue in every organization, so what’s major problems. your culture? It’s leadership — do they foster an environment that people feel comfort- JACK FRIEDMAN: One of the greatest able raising issues; encourage people to take challenges for General Counsel is com- responsibility for resolving those issues? Does municating legal considerations and what the legal department have any guidelines on a law means with executives, who may be how issues get raised and where they get well-intended but have a different way of raised? Are you set up in a way to avoid silos? thinking about things. Could you discuss Information silos and structural silos pre- need to be intimately involved in the risk what you recommend counsel learn about vent all sorts of important information from assessment. We often bring in scientists, par- to communicate with top management? being shared and bigger issues being handled ticularly in our units, our businesses, who appropriately. Do you have cross-disciplinary are the expert on the food issues, let’s say. JAMES SAVINA: The way I think about teams? I know Kraft does, in many respects We all know — and all of us outside lawyers it — and my team is probably rolling their — particularly when you guys deal in your cri- have worked with experts and in-house law- eyes; they’ve heard this a million times sis management or food safety issues, you do yers — what do scientists want to do when times — but you have to remember, when have a wonderful group of people who have you raise a problem with them? They want to the business is trying to make a decision, all sorts of expertise in different issues. You’ve conduct tests! More tests! They want to keep you’re looking at a whole spectrum of con- got to have cross-disciplinary teams. conducting tests, and they want to prove siderations, risks, drivers, opportunities, themselves wrong and prove the corporation costs. Legal is one of them. You’re dealing Do you have a clear chain of command, right. So you’ve got to be real careful that you with — and oftentimes, those are all very in terms of solving problems? Once you’ve don’t get bogged down in all of that, in doing quantifiable, and they know they can put identified it, has somebody been desig- what you need to do. a number around everything. When you’re nated, or a group of people designated, to being asked for your piece, you have to solve it? The motto “everyone is responsi- In-house departments need some incentive to remember, it goes back to get behind their ble” is not all that helpful to you. Because evaluate people, in-house counsel, to empha- eyes; how are you helping them answer the if everyone’s responsible, that often means size that they reward for identifying risk and question as well as you can — and that often no one is responsible. You need to have a monitoring them and then taking charge of derives to trying to give them, as concrete clear chain of command. There are prob- them, and then train and encourage the law- as possible, what are the consequences, lems with delegating to committees; there’s yers to see the big picture throughout. and how likely are they; what does it really problems with decisions by consensus, par- mean to them and to the business, whether ticularly unanimous consensus — waiting The Lehman Brothers example — the law- it means we need to operate differently, the for root cause investigations as a means of yers all did their job in many, many respects, likelihood things will happen, the magni- delay; you’ve got to navigate through that so in their own individual silos. But you can tude. Quite frankly, what I find is you end that you’re not waiting for a committee to take a step back and say they kept missing up taking a little of your own risk, which get together to do everything. the big picture along the way. is something lawyers don’t do, and that’s part of one of my many rants, is that — You need attention and decisiveness. That’s You need to identify, lastly, the biggest we take risks all the time — big risks. You one of the things that Jim had mentioned risks to the company — which, obviously, invest a ton of money in R&D; you invest in dealing with risk management. Lawyers for a company like Kraft Heinz, are food a ton of money in marketing; you do a lot

model, you’re going to save a hundred thou- JACK FRIEDMAN: How does your law sand bucks. But just to be clear, that means department determine its budget? nine times out of ten, nothing happens. One time out of ten, it’s a million bucks. A JAMES SAVINA: Different companies lot of times I hear “a hundred thousand,” do it different ways, and it all comes down and then when it blows up the financials, it to justifying and being able to have data blows bonuses, things went wrongly, “Well, behind why you need the money. The big- I thought it was a hundred-thousand-dollar gest thing is once again ROI. If I can say, issue!” No. This was a million-dollar issue. “Here is what I can deliver for this type of It happened: you went to Vegas, and you spend vs. that type of spend, and why,” with lost, you crapped out. You have to be very data behind it. I know that’s not good news clear — did they hear what you said, but for outside counsel — for work you’re going that doesn’t absolve you from the duty to to do, or know you’re going to do, and that give an answer, because that’s part of what you have enough volume to support, outside you have to do. counsel are just cheaper; there’s a higher ROI, hands down. Usually it’s the CFO You quantify it — like, how big is this risk? and the numbers guys are running it, but Then you get down to, so there is some it just comes down to, can you demonstrate risk, but this is a billion-dollar risk; given the value for the dollars you’re spending, this one percent chance, that we can do and why you’re choosing to spend them, something, mitigate it down to nine hun- knowing that the problem with legal is that dred million, that’s still something you’re we’re a massive contingency, because I can’t of stuff; and it fails. And a lot of times not going to do. Yes, you have to walk tell you how many lawsuits I’m going to get. there’s a brand manager or a business through. Just be prepared, and it’s almost person behind that, and it failed. Things elementary — if you just get behind what I can give you a trend analysis, I can give don’t always go right. When it comes to the person is asking, and why, and walk you the best guess, but ultimately, if some- lawyers, a lot of times you give advice of, through, “How would you want to under- thing happens, something happens, and “Well, I want to make sure there’s no way stand that,” and ninety-nine times out of a you never know when that something hap- my advice is ever going to be wrong and I hundred, if you actually get them to under- pens. It’s a matter of how do you articulate could be questioned. I just think that’s a stand where your answer is coming from, that and, more importantly, making sure the wrong way to do it. Everyone else is tak- it’s great. The problem, when I find my law- business is aware of that. What you don’t ing a risk every day; the business is taking yers don’t break through, it’s because we’re want to do is come back every December a risk every day.” Yes, you might be 95% so worried about not being wrong or not and say, “Here’s five million bucks I didn’t sure you can give an answer, but, “I’m not committing to anything close to an answer, use.” Because there’s no reward for that; it’s giving it, because if I’m 5% wrong, they’ll that they hear, “Well, there’s a probability like, “Wait a minute, I could have used that say I wasn’t right.” Get over it! So to me, of a risk of a something that might happen for marketing; I could have used it for this.” “Give me an answer.” That’s when the busi- somewhere, somehow; don’t do it.” You want to say, “How do I make sure I ness wants an answer. How well can you can spend just what I need, but have a con- give the answer? Remember the way I look That’s not an answer! If you can back tingency,” in the back of your head, at least at it is if you’re doing a financial model, down, remember they’re have a problem to plant some seeds that there may be more what would that input be? If you can quan- solve — that’s why you’re involved — and and how are we going to deal with it if it tify it, great; if you can’t, at least explain do your job of using your expertise, your comes, and then try your best. Don’t do some of the impacts. But then also, a little ability to analyze and break it down as best stupid stuff, because if there’s a big contin- bit of the art behind the science is you have you can. Then oftentimes, when you have gency and you need more money, if they to be very clear that they heard what you to take a risk that you’ll be wrong, and this can point to the five things you’ve done said. Something that I learned from a for- is something I learned a long time ago, and with their money that are really dumb, then mer colleague — so let’s say we do this all if you’re right most of the time, you’re great! you’re not going to get anymore. Whereas, if the time, you risk rate, and it happens more It’s okay to be wrong sometimes. It had you show, “Look, I cut this; we’re really lean often than I’d like to say. So you say, “Okay, damned sure better be wrong sometimes here; and that guy never sleeps, because there’s a million-dollar issue. Ten percent than to never give answers and always give a we’re not using outside counsel; I really chance it’s going to happen.” So, for your bunch of lawyer B.S. need it,” then, okay, you’ll have a better

argument. I always say it’s kind of crazy that professor at Boston University, and prior to we’re bred for advocacy, and just so we’re assuming office, he wrote a book called The clear there’s nothing mathematical about Fissured Workplace / Why Work Became So budgeting; it’s just advocacy. Bad for So Many, and What Can Be Done to Improve It. I’m so happy that our Wage & JACK FRIEDMAN: Thank you. I can Hour Administrator is really looking out for only imagine what law firms have to go employers, right? through to justify their budget. They’re not even inside the system — they’re outside the We knew what we were getting into, when- system, trying to justify to the client. ever he took office a couple of years ago. In the book, he argues that large companies, Our next speaker will be Brian Jorgensen large corporations, have over time, done away of Jones Day. with direct responsibility or hiring direct people responsible for their products and BRIAN JORGENSEN: Thank you. I, services, and instead outsourced that work too, am honored to be here. It’s very inspi- to smaller companies. I’m not talking about rational to hear Jim’s path from where he outsourcing to India or other foreign coun- began to where he is now. There is one tries — outsourced it to companies within the gap in his path that he failed to mention, United States — smaller companies, fierce that I think is a very important thing to One particular area that I’d like to focus competition between those companies, and know about Jim. Sometime shortly after he on today is the joint employer area. Both that has led to depressed wages. It’s led to stopped working at his first firm, he became agencies — the NLRB and the Department (according to Dr. Weil) less benefits, fewer very interested in Brazilian jiu-jitsu, and he of Labor — have issued guidance in the benefits for workers; in some cases, unsafe was a wrestler in high school, and so he last several months on that issue, that has working conditions; and so he’s, frankly, on was always telling me how awesome he was significantly broadened the definition of a a mission to really focus on that issue. at Brazilian jiu-jitsu, and how I should go joint employer, what “joint employment” is. wrestle him. I was thinking, “There is no This is important because many employers In January of this year, he issued an inter- way I’m going to do that!” [LAUGHTER] have some form of independent contractor pretation of, it’s called an “Administrator’s But I’ve heard people refer to him as a bull- relationship, or they’re using temp agencies Interpretation,” regarding joint employment. dog, and he certainly is, and that’s some or they’re using staffing agencies, or perhaps It’s expressly stated in that Administrator’s insight into how Jim thinks. If he doesn’t their corporate structure is such that they Interpretation that the DOL’s view of joint like it, he’s going to go after you and wrestle have a series of affiliated companies or affil- employment is broader than the common you and make you submit! [LAUGHTER] iated entities and subsidiaries, all operating law. So these concepts in the common law under one enterprise — a franchise model, that have been in place for many years, and I would like to talk today about the for example. All of these arrangements are in cases that really focus on control and the Department of Labor and the National subject right now to very intense scrutiny amount of control that an employer exer- Labor Relations Board. These are two by these two agencies. That’s important cises over the day-to-day activities of a agencies that have been very active over because the guidance that they’ve issued — particular worker — while important — and the course of the last several years, very it’s not just the government that is going to if an employer is actually exercising that aggressive in attempting to expand workers’ be looking at these arrangements; it’s also control, it likely would lead to a finding of a rights. They’re not doing it in a moderate the plaintiffs’ lawyers and the unions that joint employment relationship. way; they’re not tinkering with language and are riding the coattails of the guidance regulations; they are — make no mistake that these agencies are issuing. That’s not the only factor. In fact, if there about it — making wholesale changes, dra- are situations where an employer may not be matic changes, to regulations, to precedents, To some degree, this isn’t really an unex- necessarily exercising control over the terms to guidance, that have been in place for pected development, this expansive look and conditions, or at least, a lot of control decades. It has a fairly significant impact on at joint employment; this is particularly over the terms and conditions of a particu- employers, and it’s going to have an impact true at the Department of Labor, where lar worker, other factors come into play. In on employers certainly for the remainder of two years ago, David Weil was sworn fact, the test, according to the Department this year — in the last year of the Obama in as the Administrator of the Wage & of Labor, is called the “Economic Realities Administration — and into the future. Hour Division. He is a former economics Test.” What that means is, and what the

Department of Labor looks at: is the worker examples, and we can expect more of this economically dependent on the alleged activity for at least this election year, and joint employer? What factors are consid- we’ll see what happens in November. ered in that analysis include things like, is the work that the worker is doing rote in Thank you. nature, or is it low-skilled? Is the work long in duration? Obviously, if it’s longer in dura- JACK FRIEDMAN: Thank you very tion, the more economically dependent the much. By the way, the speakers today are worker is going to be on the alleged joint from Chicago, Dallas, New York, and employer. Is the work performed on the Washington. We have quite a national employer’s premises? That’s another factor panel here. Jim had the shortest commute, that would indicate economic dependence. but since he had to go through Chicago traffic in the morning, it was the longest All these factors are very important for trip. It could have taken three or four hours employers to be considering and to be to get here this morning! [LAUGHTER] looking at with respect to staffing agencies, with respect to even companies like Our next speaker is Jonathan Katz of Cravath. janitorial services, which were specifically mentioned and identified in a footnote in JONATHAN KATZ: Good morning, everyone. It’s great to be here, like the other the Administrator’s Interpretation, to make Why is all of this important for an employer? that risk assessment, to determine whether It cuts across many different industries. It’s panelists have said, and I just want to reit- or not any change needs to be made important because, number one, if you’re erate: congratulations to Jim and, really, to in that relationship. found to be a joint employer, it would con- the whole Kraft Heinz Legal Department, fer joint and several liability on you for on a great and well-deserved honor. A few months prior, in August of 2015, violations of the National Labor Relations the National Labor Relations Board did Act, the Fair Labor Standards Act, and per- Like Jim said, I was very involved in the something similar — in fact, probably more haps other statutes, as well, where plaintiffs’ transaction to put Kraft and Heinz together dramatic than the Department of Labor lawyers are getting creative and taking bits and it was a hundred-day sprint, where I got — in the Browning-Ferris decision. In that and pieces from the guidance that these two to know a lot of the management team, and case, the National Labor Relations Board agencies have issued. then following the closing, got to meet a lot basically reversed 30 years of precedent on of the legal team. It’s been a real pleasure to the joint employer issue, and again, focus- It’s important because, number two, it may work with all of you. ing on control, in that control aspect. For require an employer, now, to negotiate, the last 30 years, the test has been — before collectively bargain with a group of Today, I’m going to talk a little bit about the National Labor Relations Board — has employees, or now-deemed employees, who one of the most important responsibili- required, in essence, the employer to actu- aren’t even on the employer’s payroll. They ties of both the internal and external legal ally exercise direct control over the terms never would have had to do that, or at least advisors, which is protecting stakeholders. and conditions of the worker. This deci- they wouldn’t have had to do that for the When you go all the way to the top of the sion moves away from that, and says the last 30 years, because of the new guidance food chain at a company, one of the most employer doesn’t have to actually exercise that the NLRB has issued. important things is to protect the board of the control. What’s important is whether or directors and their reputations. not the employer has the right to control, Then, number three — along the same lines and reserves the right to control. You can — these employers may be required to allow One of the areas where companies some- imagine all the arguments that unions and union activity on their premises, where they times generate reputational issues is in the plaintiffs are making, and in fact, companies otherwise, or previously, would not have area of executive compensation. literally are under attack, many companies had to do that — activities such as picketing are under attack in a variety of industries, and boycotting and the like. At this part of the year, the spring season, based on this very theory, where their busi- companies are filing their proxy statements ness model, in and of itself, the company is These are very important developments, and people are getting a glimpse of what the defending the right to continue to do busi- and this is just one example of the activism executives have been paid during the year. The ness in the way that it’s structured. of these two agencies. There’s a lot more press loves to write about this kind of stuff.

In fact, just yesterday, when I got into ‘X’ dollars and this is why, and these are Chicago, I thought, a day out of the office, how our programs work and why he or she it’s going to be a relaxing day; I have three got paid that amount.” little kids — I was going to maybe take a nap! [LAUGHTER] I turned on the TV, CNBC, The next area that gets a lot of press is that and there was breaking news that an energy any M&A transaction where the share- company that’s not a client of ours, had holders get a right to vote on the deal, they their stock price drop 90% during the year also get a similar non-binding vote on the because of energy prices, but the CEO’s compensation that could be received by compensation went up 75%. the executives in the deal. This is where you tend to see very, very large numbers. It’s not Every time that happens, when the num- that everyone will receive those amounts, bers come out and there’s not really any but they could, if certain events, such as explanation or context, the directors may termination after the transaction occurs. suffer a reputational hit. As you all know, a lot of companies have preeminent directors This is, again, an area where there’s a lot on their boards; you can take Kraft Heinz of public interest; there’s a lot of press; and Shareholder Services — so that’s a company as an example. if you lose this vote, the directors get very that gives recommendations to institutional upset that there was some harm done to shareholders, like the big mutual fund com- It’s very important and incumbent upon their reputation. internal and external lawyers to do their panies, on how they should vote in these utmost to protect their reputations. This again all comes out of the Dodd-Frank votes. I noticed that in the fourth quarter, Act. Like I said, as well, these votes are not especially, of last year, they got a bit more A lot of the current rules about executive binding in any way; it’s just the sense of the aggressive in recommending against these compensation and why it gets so much shareholders on these amounts and these votes. That put a lot of boards of directors press, comes out of the Dodd-Frank payments. In an M&A transaction, there is on the defensive. Act. The Dodd-Frank Act came after the always a separate vote on the deal itself, and financial crisis, and while the crisis was the vote on the compensation generally has You could see from this slide that their really spurred by lax mortgage lending, no impact on the deal vote. recommendations do carry a good deal of a lot of the rules that we got related to weight, but they’re not always dispositive. executive compensation. Now when you put these two things You can get a negative recommendation together, most people ask, “Why do we from a proxy advisory firm, but still win the There are really two times where share- need to care about this?” and when I call vote. We’ve been involved in some of those holders and others get a real good look up my M&A colleagues and I say, “There’s situations, where you manage to overcome a at the compensation process. The first is this deal; you should be aware that this negative recommendation, and the board is that every year, most companies submit company, because of the programs that they often very happy about that. a resolution to their shareholders to vote have, is at risk of losing their vote,” there on the appropriateness of the compensa- will often be silence, or they’ll just hang up Not to get into too much detail on why tion that the management team was paid the phone and say, “It doesn’t matter.” sometimes there are negative recommen- during the last year. It’s a non-binding, advi- dations, but some things that are viewed sory vote; it has no binding authority on The reason that it matters is that no one as negative pay practices are, for example, the company; but it’s a bad thing when the is going to be happy if a director feels when the company pays taxes for the execu- company loses that vote, because it makes that way — management’s not going to tive; that’s something that people generally the directors look bad. be happy; the board certainly will not be don’t view favorably. Another thing is when happy; and anyone down the chain is not there’s large amounts of what are called That’s one area where we work very hard, going to be happy. It’s not going to play out “single trigger payments” that get paid just when the disclosure documents go out well for anyone. because there is a transaction, and don’t every year, to really use them, like Jim said, depend on future service or anything else — as persuasive and explanatory documents. Here’s a chart that shows that the proxy it’s just, a deal happens, someone got $25 These documents are not just “This person advisory firms — I don’t know if everyone million — the advisory services don’t look made ‘X’ dollars”; it’s “This person made in the room is familiar with Institutional favorably on that.

The other thing is that you just sometimes Fourth, derivatives are highly regulated, par- see numbers that are so large that people ticularly in the wake of the Dodd-Frank Act. just have an extremely negative reaction. If you see a CEO that’s going to walk away Finally, if you’re in management, if you’re from the deal with $100 million, some- on a board of directors or upper manage- times shareholders aren’t happy; they don’t ment, you have an obligation to make sure think that’s appropriate. In many cases, the that you have appropriate policies in place numbers are not that large. to manage your risk, and that you, as the board or management, are managing those What do you do when you get a negative periodically and making sure that the poli- recommendation, or shareholders are upset cies are working. about payments that might be made in connection with a transaction? As I noted Talking about what is in the news. What’s earlier, the prevailing wisdom over the interesting about this slide — I know you guys years has been that none of this matters; looked at it for a long time [LAUGHTER] the disclosure documents should just have — but if you look in the upper right-hand a list of names and amounts that people corner, you’ll see that this is from 1994. could receive, and you check the box that It’s funny, because I think people saw this you complied with the SEC rule, and who these issues matter is not correct. It really and thought, “Oh, it’s because of what hap- cares? The outcome does not matter. But I does matter to important constituents. pened in the financial crisis in 2008.” This do not think that is the right way to look at If you’re involved in deals, make sure that came out at the time when a number of the issue. People take this very personally, you’re putting your best foot forward, being companies were suffering some pretty major especially boards. They want the commu- persuasive, and protecting your constituents. deriv losses. Derivs were relatively new, nity and the business press and people they at least in their current form. Procter & interact with in the business community to Thank you. Gamble, you might recall, lost $186 million trust that they are good fiduciaries. What I on a transaction that it had with Bankers do in my practice — and I think it is becom- JACK FRIEDMAN: We welcome our Trust, which was later acquired by Deutsche ing a little more common, although not all final speaker, Jamie Cain of Sutherland. Bank, in connection with an interest rate firms do this — is to treat the disclosure hedging transaction. Procter & Gamble’s documents more as persuasive documents, JAMIE CAIN: Basically, I also wanted position was that they were misled, and in and tell the shareholders why they should to congratulate Jim on his award, and it’s fact, they were successful when they litigated vote “yes,” or why this was appropriate. very well-suited that I’m able to talk today, the case in Cincinnati, Ohio, before a jury, because Jim has not only had to deal with which happened to be in their home town. There are situations where you don’t do the issues that I’m going to talk about in that, and then you get caught on the wrong his current job, but also at other jobs, which A derivative is basically a financial trans- foot, and you get a negative vote, or your has prepared him in a lot of ways for these action that derives its value from an vote looks very bad. What you can do then things better than most General Counsels underlying asset, a liability, a commodity, a is go on a full-out outreach blitz with share- that we’ve had the opportunity to work with. rate or index. Things that people normally holders; file additional materials or mail think are derivatives are futures, which are out additional materials, lobbying for the There are going to be takeaways from this. traded on exchanges; contractual forwards; vote. What we also found is that some of One is that derivatives are in the news. swaps, where cash flows are exchanged, and the major institutions — the big mutual They’ve been in the news before; they’re in options which could be exchanged, traded fund companies that hold very large blocks the news today; and you can anticipate that or not. But derivatives can be found in a of stock in all the S&P 500 companies — they’re going to be in the news in the future. lot of other things. They could be in your are willing to get on the phone with the supply contracts; they could be in your loan company and hear them out on why they The second thing is that derivatives are documents, for example. should not follow an “against” recommen- everywhere. We’ll talk a little bit about that. dation from a proxy service. This gets me to why do they exist, and why Third, derivatives do manage risk — try to derivatives are everywhere. Well, anywhere The bottom line in all of this is that the limit and control certain risks — but they you’ve got interest rates, you could have a historical prevailing wisdom that none of also involve taking on other types of risk. derivative. This could include people in this

room. If you’ve got a mortgage, and you had a There’s the good and the bad and the ugly. right — let’s say you got a floating rate initially, Yes, you’re managing these risks in some and then you have the right to switch to a ways, and if you’re lucky, like Southwest fixed-rate mortgage, that involves a derivative. Airlines, and you bet the right way, you’re If you have a right to prepay your mortgage, going to look like a hero. Of course, Warren that involves a derivative. You’ve got a lease, Buffett is famous for saying that these are and you basically have the right to buy your financial instruments of mass destruction. car at a specified price in the future, that Just as a quick aside, during the time of the involves a derivative. These are all derivatives, Dodd-Frank Act’s being negotiated, Warren and they are embedded in those contracts. Buffett’s company was fighting pretty hard about having certain transactions not Companies use derivatives. If you’re borrow- included within the scope of any regulation ing money or lending money, you are likely of swaps. At the time, he had about $8 bil- thinking about, or are using, derivatives to lion worth of equity puts on the S&P 500, hedge your interest rate risk. If you’re a com- meaning he was selling people the right to pany like Kraft, who is operating around the come back to him if the S&P 500 dropped, world, and you’ve got the company’s prod- and he was willing to bet up to $8 billion ucts that are being bought in local currencies on that point. Notwithstanding Warren in Brazil, Europe, Africa, Asia, and you’re Buffett’s statements, he and all of his com- financing that with U.S. dollars or euros, panies use derivatives every day. you’re going to be using derivatives to hedge paying them stopped making payments to your foreign currency risk. If you’re using What’s the problem with derivatives? A lot them because they were in default, and yet commodities in your business — and that of people say when you’re basically con- they were required to make payments on the doesn’t just mean, let’s say, using wheat to trolling one risk, you’re taking on another; other side, in part just to meet their margin make cookies or milk to make cheese — it it’s like the risk is just getting moved calls. That caused them to go down. could also involve how the packaging gets around. When you enter into a derivatives made. What are the products used to make transaction, these are the risks that you’re You need to be thinking about all of these the resins? If you’re making paper towels, taking on. You’re taking on the risk that risks that you’re taking on when you’re con- how do you hedge your paper pulp costs? the market could go up or down in a way trolling another risk. that you didn’t anticipate. The person that One of the things we talked about last night is giving you the protection may not pay Major losses...you’ve probably read about a was a major soft drink beverage company; you back; that’s the credit risk. There’s legal lot of these in the paper — Enron, Long- of course, it hedges corn prices, because it risk. Is it going to be enforceable? Now, Term Capital, AIG, Lehman Brothers, of uses corn syrup in making its products; but you’ve got compliance risk; with the Dodd- course. All these are things that a board it also is one of the largest users of diesel Frank Act and all the regulations that are and management needs to be thinking fuel, because it has trucks that drive all over involved, you could end up being in vio- about when taking on a hedging or risk the country and drop off its products. lation of the law. There’s tax risk. A lot of management program. people say, “You always anticipated that you A major amusement park in Florida, on were going to make money on the trans- The bottom line is, there’s no such thing as an annual basis, uses $50 to $100 million action, but you didn’t anticipate that you a perfect hedge, except in a Japanese garden! worth of natural gas to fund all the rides were going to have to leave a tip.” You’ve What that really is saying is, if you’re in its parks. They’re hedging their risk, got to think about tax. Back office, in addi- limiting your downside risk, or let’s say the because they’re selling tickets at a fixed price tion to the compliance issues I mentioned, fact that you’re using input — as I said, you using derivatives. this is where problems happen when the use a grain or something in producing your rogue trader gets out there, like happened finished bread or your biscuits or whatever, Southwest Airlines, as we all know, was with Société Générale, and you lose $6 bil- and you basically want to lock in the price, very successful at using derivatives so that it lion. Then there is liquidity risk. A lot of so when you go to the grocery store, your could sell its tickets at lower prices, because people say that’s what caused Lehman to go customers know that the price is going to it limited the big bump that took place down, because they had to post margin to be a fixed price. They’re not expecting it when energy prices were going through the their counterparties, and they didn’t have to go up or down. When you do that, you roof back in 2008. enough of it. At one point, people that were may be getting up the chance that the price

may have your transactions report in the fashion in your securities disclosure doc- market; you may not want people to know uments. In fact, back in 1994, companies how you’re hedging your risks. were hit pretty hard by the fact that they weren’t disclosing the derivatives risks that There may be position limits on certain of they were taking on appropriately. Being the the transactions you’re running into. Right big girl in the markets is what I was talking now, there are agricultural position limits about in terms of how your actions could that have been in effect for a long time, but be perceived to have been doing something they are expanding those position limits — that was untoward and inappropriate. this hasn’t been finalized — to cover things like energy products and metal products. If I’ll just close with what’s near and dear to you’re a soft drink manufacturer and you’re Jack’s heart, what boards of directors are using aluminum or some metal in your doing. This is true with a lot of things — products, these position limits could impact even what Gary was talking about before you. Plus, the existing limits already impact — you need to have policies in place that are how much you can hold in a certain com- intended to set guard rails on how you modity. It may be you’re hedging your risk, are going to be managing your risk using but your movements in the market could derivatives. Those policies have to be have very, very dramatic effects. There’s new reviewed periodically. They have to allocate could go down. That’s like with Southwest authority in the commodities laws that’s akin responsibility. What I’ve provided in the Airlines; they were lucky — prices were going to what’s in the securities laws regarding slides was derived from something the G30 up. But if prices were going down, and they anti-fraud liability, and it includes reckless put together back in the mid-’90s along had paid premiums for that protection, behavior, and not just fraudulent behavior. with some of the bank regulators, in terms and American Airlines and United started of how people should use derivatives. Major selling their plane tickets for a lot cheaper There’s one case that’s being litigated, that’s money center banks, a lot of financial com- because they hadn’t locked in the price of near and dear — there are other people panies, developed guidelines for policies their fuel costs, you could look pretty stupid. in this room involved in this very issue! that are in place now. If you’re a public You need to be thinking about that, as well. You need to be thinking about, when you company, something like CalPERS as one do these transactions, not only how it’s of your investors, they require you to have Lots of laws are involved here. Of all these addressing the risks that I mentioned on a derivatives use policy. If you go on their laws, the one that is often forgotten is the the prior slide, but also how you make sure website, they’ll show you exactly what the “other” category. It’s not just the United that what you’re doing is in compliance policy should have in it, and so you need to States that has laws, but Europe has laws; with the laws, and you’re not in some way be taking this very seriously. Asia has laws, South American countries adversely impacting the market. have laws. You need to be thinking about With that, I’ll conclude, and there are The law also has special provisions in there materials there, and you hopefully had a how your business is working in other for commercial companies, which are called good chance to look at the slides earlier, countries, and how the transactions you’re “end users,” and it actually mandates board so I don’t have to spend too much time on doing might also involve compliance with review of transactions on an annual basis them! [LAUGHTER] foreign laws, as well as U.S. laws. to make sure that the transactions that are being done shouldn’t have to be cleared. JACK FRIEDMAN: Thank you! I Dodd-Frank, of course, increased the That’s consistent with what companies want to ask about risk management. In amount of laws. It really imposed on peo- should be doing, anyway. the investigation area, what can be a risk ple who use derivatives certain things that management issue? they didn’t have to worry about before, I mentioned the CFTC [Commodity like recordkeeping. It also imposed on the Futures Trading Commission] anti-fraud DEAN PANOS: Well, again, it depends people that they transact with, your counter- authority already, but there are penalties on what the potential issue might be. The parties that are taking on the risk for you, for violating the laws under the commodi- risk to the company of not doing an investi- obligations that then push back risks on to ties laws. There are also securities laws that gation is that they, number one, don’t learn you, even though you’re not directly required could get involved to the extent that you’re the true facts until a problem is much larger. to comply with certain of these things. You disclosing what you’re doing in an improper Then the investigation, you lose control

of the investigation because the problem before there is a settlement on any of these JACK FRIEDMAN: It goes to show that became larger and now you’ve brought in matters going forward, there has to be a no matter how competent your people are, regulators or prosecutors or something like look at what individuals were involved and it doesn’t mean you have control or knowl- that. So that’s one of the risks. how they were responsible. There will not edge of everything that’s going on at your be a settlement unless individual liability is institution. Brian, you can answer the same The other risk is if it’s something that you fully assessed to make sure whether or not question about risk management issues in know is going to come out — let’s say it’s for somebody should be tagged with a fine or a both the employment and executive com- a food company, a major recall. There are violation. That’s being taken very seriously. pensation areas. injuries or serious illnesses and deaths that are a result, the federal regulators and the The other thing, too, is something that hap- BRIAN JORGENSEN: Generally speak- prosecution are going to look into that, and pened to J.P. Morgan or London Whale; it ing, there are some areas where the company the risk of not having conducted your own wasn’t, at the end of the day, whether or not just has to fight, where the entire business investigation to get ahead of that, or why they shouldn’t have taken on that level of model is being attacked by a government didn’t you take action sooner — I mean, in agency or by a plaintiffs’ firm in a large liability; $6 billion is a lot of money — but, every food recall or issue that I’ve ever been class action. Either they stay in business as it turns out, it wasn’t that much money involved in, there’s always a question of when and they fight and they win, or they go out for J.P. Morgan. The reputation risk or did you know it, when did you take action, of business, or they completely restructure damage that happened to J.P. Morgan was and how did you draw the fence around their workforce. There are those sorts of that it wasn’t clear that people knew that what food was good versus what food was issues for a company that there is only so bad. In my experience, the in-house lawyers this guy was doing those sorts of transac- much you can do to manage risk. But there get interviewed by the government. tions. When they went in and investigated, are other areas, such as using an indepen- upper management was unaware exactly of dent contractor/joint employment, where JAMIE CAIN: The other thing, too, is what was going on. Notwithstanding that at the Department of Labor’s goal is to raise the Department of Justice came out with the end of the day, they said it was appropri- the wages of all employees. So if you’re using another memo, the Yates memo, basically ate, given the nature of their business and staffing agencies or temp agencies in certain indicating that when a company does somehow the transactions were conducted. “We areas of your workforce, maybe there’s some thing wrong — and I think we’re focusing made a bad move and we lost,” was what strategies that you can employ to keep labor largely on the financial sector — the Yates really hurt their reputation, because people costs at the same level while not using those Memo says, basically, we’ve got to look at thought J.P. Morgan was the best-run bank — it’s strategic — or exposing the company the individuals involved. Any investigation and they were on top of it. to liability and government investigation.

JONATHAN KATZ: In the comp area, You’ve got to know your business. And if your business we have SEC rules and stock exchange rules that require the compensation committee changed dramatically, you’ve got to then re‑know your business. of every public company to periodically go Who are the stakeholders? What are their risk tolerances? through a risk assessment, to look at their compensation program and to make sure What’s their perspective? — James Savina that they’re not heavily weighted towards any one particular performance metric that might lead management to, for example, JACK FRIEDMAN: Thank you. I have JACK FRIEDMAN: We wish to thank borrow too much money or to engage in one last question for Jim, which is a ques- Jim and the Distinguished Panelists for making this a wonderfully educational pro- activity that would expose the company to tion I ask at each program. In the five gram. Thank you very much. excessive risk. Our clients typically do that minutes a month that you have free what in the first quarter of each year and involve do you like to do with your time? their independent compensation consul- tant. They look at exactly how their program JAMES SAVINA: If I had time, I would is structured and make sure that it doesn’t probably sleep! [LAUGHTER] That’s the incentivize management to go after one exciting life. You wonder why my wife calls particular strategy or another in a way that me the “fun sponge.” I really don’t have a lot would expose the company to excessive risk. of fun. [LAUGHTER] I would love to sleep!

Jonathan Katz is a partner in Cravath’s • Starwood Hotels in its pending $12 bil- Executive Compensation and Benefits lion sale to Marriott International; Department. His practice focuses primarily • Cameron International in its pending on advising clients on the executive com- $15 billion sale to Schlumberger and in pensation and employee benefit aspects of the creation of the OneSubsea joint ven- complex mergers and acquisitions, spinoffs, ture with Schlumberger; corporate joint ventures, and private equity transactions. Mr. Katz also regularly advises • Johnson & Johnson in its acquisition of clients on the design, negotiation and Novira Therapeutics; implementation of employment agreements • Time Warner in the spinoffs of Time and incentive compensation programs. Jonathan Katz Inc. and Time Warner Cable; • UTi Worldwide in its $1.35 billion sale Partner Mr. Katz’s clients have included 3G to DSV; Capital, The Kraft Heinz Company, Mylan, Starwood Hotels, Cameron International, • NCR in its strategic partnership with Johnson & Johnson, Time Warner, IBM, Blackstone, including an $820 million NCR, BDT Capital Partners, Ashland, equity investment in NCR by Blackstone; Cincinnati Bell, and Alere. • IBM in numerous transactions, including the acquisitions of Kenexa, Tealeaf, Mr. Katz’s recent transactions include Worklight and Cúram; and representing: • Universal Health Services in its $500 • H.J. Heinz Company in its $60 billion million acquisition of Ascend Health. merger with Kraft Foods Group to create The Kraft Heinz Company; Mr. Katz was born in Philadelphia, Pennsylvania. He received a B.S. from • Mylan in its pending $9.9 billion offer Cornell University in 2003, a J.D. summa for Meda, its proposal to acquire Perrigo cum laude from Cardozo School of Law in in a transaction valued at approximately 2007, where he was Notes Editor of the $35 billion and its $5.6 billion inversion Cardozo Law Review, and an LL.M. from acquisition of Abbott Laboratories’ non- New York University School of Law in 2013. U.S. developed markets specialty and He joined Cravath in 2007 and became a branded generics business; partner in 2016. • Alere in its pending $8 billion sale to Abbott Laboratories;

Cravath, Swaine & Cravath is widely recognized as one of the pre- problems. Cravath’s broad-based corporate eminent law firms in the world. Throughout practice encompasses securities, M&A, Moore LLP its history, Cravath has been the firm of choice commercial banking, SEC compliance and for corporations, including financial institu- disclosure, governance and board advisory, tions, their senior management and boards tax and executive compensation, environment of directors, with respect to their most chal- and real estate matters. Cravath’s litigators lenging legal issues, most significant business handle antitrust, bankruptcy, intellectual transactions and most critical disputes. Every property, M&A, securities, and general com- client, whether large or small, new to the firm mercial matters, as well as government and or long-standing, receives the full attention internal investigations. As trial lawyers, they of an experienced, multidisciplinary team have broad courtroom experience in high- dedicated to helping devise and implement stakes, complex litigation and arbitrations, practical and creative solutions to complicated from initial proceedings through appeals.

Gary Jay Kushner has been a food industry Gary also represents food companies, includ- lawyer for more than 35 years. He represents ing manufacturers, distributors, and retailers trade associations and corporations before in matters involving regulatory compliance. government agencies, Congressional com- He advises them on labeling and advertising mittees, and the courts in a variety of matters. regulation; counsels them in product recalls, Gary has particular experience with the devel- seizures, detention, government inspections, opment, interpretation, and enforcement of and related actions; and represents them in laws and regulations governing food produc- enforcement actions before government agen- tion, processing, and distribution throughout cies and law enforcement bodies. the United States and internationally. He also serves as General Counsel to a number Before joining Hogan & Hartson, Gary Gary Kushner of national associations. served as Vice President and General Partner Counsel for the American Meat Institute, As counsel to trade associations and com- where he directed the organization’s legal, panies involved in the public policy arena, regulatory, and legislative activities. Before Gary analyzes legislation introduced in first entering the private practice of law, he Congress and state legislatures, as well served as Staff Counsel for Scientific Affairs as regulations proposed by the U.S. at the Grocery Manufacturers of America. Department of Agriculture, the Food and He began his legal career as a law clerk to Drug Administration, and other federal and The Honorable John R. Hess in the Superior state government agencies. He routinely Court for the District of Columbia. evaluates their impact on the food industry from farm to table, and prepares amend- Gary is a frequent lecturer and regularly con- ments, testimony, and comments on such tributes to numerous trade publications. initiatives. He anticipates how laws and regulations might be changed to facilitate the marketing of food products.

Hogan Lovells LLP gets your job done. Hogan Lovells offers perspective to be your global partner. We extensive experience and insights gained believe that when knowledge travels, oppor- Change is happening faster than ever, and from working in some of the world’s most tunities arise. to stay ahead, you need to anticipate what’s complex legal environments and markets for next. Legal challenges come from all direc- corporations, financial institutions and gov- Our team has a wide range of backgrounds. tions. We understand and work together ernments. We help you identify and mitigate Diversity of backgrounds and experience with you to solve the toughest legal issues risk and make the most of opportunities. delivers a broader perspective. Perspectives in major industries and commercial centers Our 2,500 lawyers on six continents pro- which ultimately make for more rounded around the world. Whether you’re expand- vide practical legal solutions wherever your thinking and better answers for you. ing into new markets, considering capital work takes you. from new sources, or dealing with increas- Giving back to communities and society is ingly complex regulation or disputes, we can A fast-changing and inter-connected world fundamental to good business. And, it’s help. Whether change brings opportunity, requires fresh thinking combined with part of our core. We are advocates of justice, risk, or disruption, be ready by working proven experience. That’s what we pro- equality, and opportunity. Everyone at Hogan with Hogan Lovells. vide. Progress starts with ideas. And while Lovells is asked to volunteer at least 25 hours imagination helps at every level, our legal a year as part of their normal work duties. Straight talking. Understanding and solutions are aligned with your business Around the world, our people are making a solving the problem before it becomes one. strategy. Our experience in cross-border and difference through pro bono activities, com- Delivering clear and practical advice that emerging economies gives us the market munity investment, and social justice.

Dean N. Panos is a litigator. Fortune 500 and Audit Committees have also sought his companies and other public and private com- counsel on a variety of internal investigations panies seek his representation in a wide variety involving financial and accounting fraud, of complex commercial litigation in state and mismanagement and employee wrongdoing. federal courts across the United States. He Mr. Panos frequently represents clients in has served as lead trial counsel on numerous criminal grand jury investigations, as well as jury and bench trials, and argued several cases corporations and executives in SEC investi- before the United States Court of Appeals for gations or claims. He has served as Acting the Seventh Circuit. Mr. Panos is nationally Inspector General for governmental and recognized in representing several of the larg- other public agencies conducting investiga- est food and beverage and consumer product tions into vendor and employee fraud. Dean Panos manufacturers in class action and complex Partner commercial litigation. He has also served as Mr. Panos is AV Peer Review Rated, lead on several consumer and food product Martindale-Hubbell’s highest peer recogni- recalls. Mr. Panos has also served as trial tion for ethical standards and legal ability. counsel to a major airline in connection with He is the Chair of the Products Liability and two commercial aviation accidents. Mass Tort Defense Practice and a member of the Complex Commercial Litigation, Class Mr. Panos has represented numerous large Action, and Real Estate and Construction manufacturers and private equity firms in Litigation Practices. He is also a member of claims for breach of fiduciary duty, breach the firm’s Policy Committee and the Real of contract, fraud, and misrepresentation Estate Finance Litigation and Workout Task in connection with corporate mergers and Force. Mr. Panos has tried to verdict several acquisitions. Corporate Boards of Directors felony cases for pro bono clients.

Jenner & Block LLP a calling to serve clients, the profession most sensitive and consequential matters. and the community. No matter what legal Our clients range from the top ranks of the challenge is presented, our powerful combi- Fortune 500, large privately held corpora- nation of experience, professionalism and tions and financial services institutions to teamwork helps clients achieve their goals. emerging companies, family-run businesses and individuals. Founded in 1914, Jenner & Block is a law Jenner & Block is defined by the excep- firm of international reach, with more than A commitment to public service is part of tional results we produce, the values we 500 lawyers. Our firm has been widely rec- the DNA of our firm. We are known for share, the clients we serve and most impor- ognized for producing outstanding results our long tradition of pro bono advocacy, as tantly, our lawyers. Jenner & Block lawyers in corporate transactions and securing sig- well as service to the bar and to our com- consistently deliver excellence in the most nificant litigation victories from the trial munities. The American Lawyer magazine complex and demanding legal matters, both level through the United States Supreme has ranked Jenner & Block as the Number litigation and transactions. They do not Court. Companies and individuals around One pro bono firm in the United States consider the practice of law a job, but rather the world trust Jenner & Block with their seven times, most recently in 2015.

Brian Jorgensen represents corporate cli- In addition, Brian spends considerable ents in complex labor and employment time working with clients on preventative litigation, including class action and measures, including reviewing employment multiplaintiff employment discrimination policies, advising on compliance with wage lawsuits, wage and hour class and collec- and hour laws, counseling on disciplinary tive actions, and trade secrets and restrictive actions and investigations, and conducting covenant matters. His experience includes employment practices reviews. defending employers in arbitrations, government agency proceedings, and state Brian leads the Labor & Employment and federal courts throughout the United Practice in the Dallas offi ce. He is a fre- States in cases involving federal and state quent speaker and author on labor and Brian Jorgensen anti discrimination laws, the Fair Labor employment topics. He also serves on the Partner Standards Act, state wage and hour laws, board of Healing Hands Ministries and is and a variety of state law wrongful discharge, a member of the Labor & Employment sec- statutory, contract, and tort claims. Brian tions of the Texas State Bar Association and also represents clients who are undergoing the Dallas Bar Association. Offi ce of Federal Contract Compliance Programs (OFCCP) audits and regularly provides advice regarding compliance with affi rmative action laws.

Jones Day years.” Jones Day has also ranked in the Top entity. We see ourselves as a global legal 10 every year since 2000 in the Corporate institution based on a set of principles to All law fi rms seek to serve clients effec- Board Member/FTI Consulting annual sur- which a large number of men and women tively. Some do it more consistently than vey of the best corporate law fi rms. These can commit — principles that have a social others. Jones Day ranked highly in the BTI are just two indications that our focus on purpose and permanence, that transcend Consulting Group’s 2014 “Client Service serving our clients’ needs, and not on the individual interests. While this may well A-Team” ranking, which identifi es the top 30 fi nancial metrics that are so commonly used be a more sociological description than you law fi rms for client service through a national today to measure law fi rm performance, is would see on most law fi rm websites, and survey of corporate counsel. “Blazing the trail recognized by our clients, who reward us no doubt is subject to a skeptical reaction for superior client service delivery, Jones Day with more opportunities to help them meet from many when they fi rst read or hear earns Best of the Best status in nine key activ- their interests. it, we believe it accurately describes one ities, including Understanding the Client’s important aspect of what makes Jones Day Business and Helping to Advise on Business Jones Day is organized as a true partner- the client service organization that it is. Issues — where Jones Day has earned top ship, and it operates as such; we are not an honors for an impressive nine consecutive LLP or LLC or some other quasi-corporate

With more than three decades of experience, for interest rate, foreign exchange, equity and Jamie Cain has guided insurers, banks, commodity, credit default, and equity trans- securities and commodities firms, and actions and related collateral arrangements. funds through significant transactions that He represents a wide range of global clients, transform their businesses, including public typically on the buy side, including major and private securities offerings and mergers public companies, financial institutions, pub- and acquisitions. He regularly works with lic and private funds, government sponsored U.S. and foreign companies to interpret enterprises, and foreign governments, in doc- and comply with the myriad of securities, umenting those transactions and advising on commodities, insurance, and banking laws internal and regulatory compliance. that apply to these transactions. Jamie Cain Jamie also advises insurers, banks and Partner A frequent speaker at industry conferences, broker-dealers in connection with cross-in- Jamie is recognized for his knowledge of the dustry acquisitions and in the distribution Dodd-Frank Act and the regulation and use of of their respective products, both domesti- derivatives, including those instruments used cally and internationally.

Sutherland Asbill & we are known for our business savvy and range of focus areas, allowing Sutherland Brennan LLP industry intelligence, providing creative attorneys to serve a diverse client base and custom solutions for each of our cli- that ranges from small and medium-sized ents. Industry and business experience start-up businesses to a significant number makes the difference for our clients. of Fortune 100 companies. Sutherland Asbill & Brennan LLP is an international law firm known for solving For more than 80 years, Sutherland has built Our legal practice is built on delivering challenging business problems and resolv- on the high standards of its founders with a partner-level attention and unfaltering dedi- ing sophisticated legal issues for many of commitment to integrity and to the highest cation to client service. Our clients can rely the world’s largest companies. quality of services for its clients. Founded on our lawyers to be approachable, respon- in 1924, the firm handles matters through- sive, and efficient. This approach attracts We help the Fortune 100, industry leaders, out the United States and worldwide. Seven clients faced with issues and opportunities sector innovators and business entrepre- major practice areas — corporate, energy and that demand a deep understanding of busi- neurs solve their biggest challenges and environmental, financial services, intellec- ness, specific industry knowledge, and the reach their business goals. Dedicated to tual property, litigation, real estate, and tax ability to manage complex matters across unfaltering excellence in client service, — provide the framework for an extensive state and national borders.