Best Practices for Fund Managers to Develop an Employee Discipline Framework That Fosters Predictability in the Face of Inconsistent Laws (Part One of Three)

Amidst fierce competition to win investment mandates; heightened reporting and due diligence demands from institutional investors; and the increasingly watchful eye of capable regulators looking for violations of law, many private fund advisers have had no choice but to institutionalize their businesses. While SEC-registered advisers are well-versed on the types of policies included in codes of ethics and compliance manuals, many advisers have chosen to go further by adopting other policy-laden documents, including staff handbooks, codes of conduct, IT manuals and operating procedures. No matter how strong a compliance program is, however, some employees will violate the law or firm policy to gain a business advantage or enrich themselves. When that happens, a key step in correcting the problem is employee discipline. This article, the first in a three-part series, discusses the value of having clear practices around discipline and the challenges of applying discipline uniformly across jurisdictions with varying employment laws. The second article will identify effective techniques advisers can use to gather evidence to support a disciplinary action, including the thorny issues of protecting privilege while building a record. The third article will outline steps advisers can take to promote institutional due process when disciplining an employee. See “Best Practices for Fund Managers to Mitigate Litigation and Regulatory Risk Before Terminating Employees” (Feb. 9, 2017). 

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