A clear trend in legislation is the imposition of personal responsibility on directors and officers for offenses committed by the corporation and its employees. Thus, the new administrative enforcement rules of the Securities Authority ("the Authority") establish a high personal responsibility of officers in this field, and many of our clients have approached us, as those involved in formulating internal enforcement plans in the field of securities and antitrust, by examining the corporation's activities. And its unique characteristics, please clarify an internal enforcement plan as a remedy against this personal liability. The criteria presented by the Authority in April, 2011, help to understand when the Authority will recognize an internal corporate enforcement plan.
An internal enforcement plan is a voluntary mechanism, which a corporation adopts and implements on an ongoing basis to ensure compliance of the corporation and its individuals with securities law provisions. An effective enforcement plan, which provides protection or consideration for its existence, means that the corporation is obligated to prevent violations of the law and deal with violations and violators by appropriate means, and the authority may refrain from taking administrative or criminal enforcement measures against the corporation and its officers. Individuals in the corporation, who have to reduce the risk of violations in the field of securities law.
The criteria that will be examined by the Authority when it comes to discussing and deciding whether there is an effective enforcement plan in the corporation, which is integrated into a proper corporate regime, consist of several stages. In the first stage, the corporation's board of directors, which serves as the entity responsible for ensuring that the corporation formulates, adopts and implements an internal enforcement plan, must ensure that the plan addresses the potential risks of violating securities law, given its operating environment and market, and its organizational structure. In the field, the Authority's guidelines and lessons learned from past failures - that is, the board of directors must consult with experts in the field of corporations and securities in order to formulate such a plan. In the second stage, the corporation must formulate an internal procedure appropriate to the company's structure and unique characteristics, and in particular to the nature, type and degree of risks in the field of securities law to which it is exposed. Thus, these procedures are intended to regulate the issues relevant to the corporation in the field of securities law, as raised by the legal advisers in the process of identifying the risks in the corporation, and will deal with, among other things, regulating the board, management, internal enforcement in the corporation, its powers and procedures. And the treatment of failures and violations. In addition, these procedures are designed to prevent the use of inside information and fraudulent offenses and manipulation, as well as to ensure that ongoing, accurate and complete reporting is provided to the Authority and the public.
Subsequently, the corporation must take steps to ensure that external service providers, as well as the internal players in the corporation - such as controlling shareholders, officers and employees - are familiar with and committed to the plan, including anchoring the plan in vendor agreements, disciplinary regulations or employment agreements. Furthermore, the operation of the program should be monitored and periodically checked whether it should be updated and adapted to the internal and external changes to the corporation.
It is important to reiterate that a non-professional enforcement plan, well tailored to the corporation and enforced and regularly updated in accordance with legal advice from experts in the field will not achieve its purpose, neither in terms of offense prevention nor in terms of personal liability protection of directors and officers.
Published in Afik News 076 25.05.2011