The model of recognizing effective compliance and ethics programs as set out in the US Sentencing Guidelines and the US Attorneys Manual has certainly had a dramatic impact on the development of more robust compliance efforts in the US. Elsewhere there have been similar initiatives relating to anti-corruption compliance programs (e.g., in the UK, Italy & Brazil). Yet there are still those who do not have the background in this area to understand the importance of government recognition. Here are some reasons why governments should recognize compliance programs, including giving better treatment to companies that have strong programs.
- Large multinationals employ thousands and even hundreds of thousands of employees around the world. No city with that many people could prevent every one of them from ever doing something wrong. Yet we do not punish the cities for this inability to prevent misconduct. If a company has been diligent in trying to prevent and detect misconduct, it is unfair to punish it for something it could not prevent. Punishment should be based on fault; when management has done its best to prevent violations, what is the point of punishment? There is nothing more to incent.
- It is also unfair to treat a company that actively worked to prevent misconduct the same as one that actively encouraged crime and made no effort to prevent it. When one company dedicates management time and attention and significant resources to preventing and detecting misconduct, and another company is completely indifferent and devotes no attention or resources to the task, they should not be treated the same.
- We need something more than we have now. If simply increasing fines and prison terms were going to prevent corporate crime we would be practically crime-free today (people tend to forget, for example, that Bernie Ebbers of WorldCom fame is serving life in prison under the law as it existed in 2001, even before SOX). Ever increasing penalties can result in the types of disruptions caused by the Arthur Anderson case, in which market concentration in the market for accounting firms was substantially increased and thousands of employees were pushed out of work. There are inherent limits to savaging large organizations in acts of societal revenge – it temporarily feels good but primarily punishes innocent parties and appears to have little or no positive lasting effects. Recruiting companies into the fight against corporate crime is a key element in preventing the enormous harm such crime can cause. The role of government enforcement agencies should not be only to roll up ever-increasing fines and jail terms; it should be to prevent these violations in the first place. Compliance programs are a tool that should be further developed, promoted and recognized.
- Government’s goal should be to prevent the violations in the first place, not simply bring actions after harm has occurred. Whether it is pollution of entire water supplies, or fraud in the marketplace, or impoverishment of underdeveloped countries through corruption, the best enforcement can do is mop up the mess after the harm is done. But effective compliance and ethics programs are tools to prevent the harm before it ever happens. Prevention is superior to enforcement and should be a priority.
- When government does not recognize programs it loses its leverage to get companies to do more. Left on their own, companies tend to fall back on easy steps like boring lectures and legalistic codes. When government makes clear that it credits the tough steps like conducting audits and empowering independent compliance officers, this can get results that upgrade compliance efforts in meaningful ways.
- Recognizing and promoting diligent compliance and ethics programs enables enforcers to leverage their resources. No government can afford to have its enforcement personnel stationed in every business (and no free society would want that level of intrusion). Through effective programs, though, government can, in effect, have a cop on every street corner without the expense.
- When a company considers having a compliance program it is not a simple, yes or no decision made one time by one person. It is a series of decisions made by many people throughout the company on an ongoing basis. The degree of diligence and resources can vary significantly and over time. Every argument that the government gives compliance advocates helps get them more management attention, resources and diligence in the program. But when government says it will not consider programs for any purpose it reduces the incentive to have the program. Plus, there are obstacles and hurdles to effective programs created by the legal system, such as restrictions created by privacy agencies, and exploitation of compliance program materials by adverse litigants and courts. Each of these weighs against having strong programs, so it is important to have countervailing weights to add to the balance.
- Programs are not what they need to be, even with all the enforcement actions taking place. To get programs to be upgraded it takes government leadership. This is best done by government distinguishing how it treats companies based on how good their programs are and publicizing these results.
- Governments routinely reward companies that assist in law enforcement, such as reporting violations and cooperating in investigations. When a company takes diligent steps in its compliance and ethics program it is also helping the government and acting as a good corporate citizen.
- It is in the public interest to have companies take diligent compliance and ethics steps. Among other benefits, it helps spread the message about the law. Rewarding companies provides an additional incentive for companies to do this.
Joe Murphy is Director of Public Policy for the Society of Corporate Compliance and Ethics. Joe wrote the first draft that was circulated for comments, but has benefitted from comments, ideas and language offered by others and now incorporated in this draft.