Many fund managers have no choice but to institutionalize their businesses amidst fierce competition to win investment mandates, heightened demands from institutional investors and increased scrutiny of regulators. While SEC-registered advisers are well versed on policies to include in their codes of ethics and compliance manuals, many advisers have chosen to go further by adopting other policy-laden documents (e.g.
, staff handbooks, codes of conduct, etc.). No matter how strong a compliance program is, however, an employee discipline program is necessary to address employees that violate a firm’s policies or the law to gain a business advantage or enrich themselves. This first article in a three-part series discusses the value of having clear practices around disciplining employees 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 to protect privilege while building a record. The third article
will outline steps advisers can take to promote institutional due process when disciplining an employee. See “OCIE Issues Risk Alert on Advisers’ Oversight of Employees With a History of Disciplinary Events
” (Oct. 1, 2019); and “Best Practices for Fund Managers to Mitigate Litigation and Regulatory Risk Before Terminating Employees
” (Feb. 9, 2017).