Strengthening Corporate Ethics Programs
February 5th, 2010 - 28 Comments
A recent article in The Wall Street Journal headlined “Plan Would Soften White-Collar Fines” makes it sound as if the U.S. Sentencing Commission is getting soft on crime. “Corporations facing criminal prosecution could face reduced penalties if they meet standards for tackling white-collar crime at their companies, under changes proposed by the U.S. Sentencing Commission,” the Journal article reads.
However, according to Smeal’s Linda Treviño, this approach has been in existence for nearly 20 years and the commission is simply recommending some tweaks that will strengthen the existing sentencing guidelines for organizations:
In 1991, Congress passed the federal sentencing guidelines for organizations with the goal of encouraging corporations to prevent, identify, and report criminal behavior among their employees. To incentivize the corporations, the guidelines mitigate sentences for organizations that institute “effective compliance and ethics programs” containing seven vital elements. To qualify, the programs must (1) establish standards to prevent criminal conduct; (2) assign a high-level individual to oversee compliance; (3) exercise due care when assigning responsibilities to individuals; (4) communicate the standards and procedures to employee; (5) put in place effective monitoring, auditing, and reporting mechanisms; (6) enforce the standards through discipline; and (7) respond appropriately after a breach of the standards.
It’s because of these guidelines that so many corporations today have ethics and compliance programs and officers overseeing them. Professional organizations now serve these officers and whole industries have grown up around providing companies with support for development of codes of conduct, training and misconduct reporting, and investigation efforts. Unfortunately, research (mine and others) has shown that compliance programs really don’t change behavior unless the corporate culture changes to make ethical actions a focal point. Too many companies were complying with these guidelines in a “check the box”manner without really making ethics and integrity an integral part of their operations.
As a result, in 2004, the U.S. Sentencing Commission amended the guidelines to require an emphasis on creating a culture that supports ethics and compliance. The amendments also required that more responsibility for the program be assumed by boards and senior executives. These amendments led to important changes such as regular reports to the board about the ethics and compliance program.
Now, the commission is again proposing strengthening the guidelines. First, the new recommendations require compliance officers to have direct access to the board of directors. Although many compliance officers report directly to the CEO, some still report to chief legal counsels, who have an obvious conflict of interest when it comes to reporting criminal behavior at their firms. Giving compliance officers a direct line of communication with the board should give them more power and freedom to do their jobs effectively.
Second, the new recommendations would require that companies “quickly” report misconduct to authorities. Companies will not get credit if they wait until they’re about to be “caught.” They must quickly report the problem and cooperate with authorities. Companies will likely be scurrying to figure out just what “quickly” means because they don’t want to end up reporting behavior that is actually legal before they have had an opportunity to fully investigate.
Overall, if these changes are adopted, they should toughen the sentencing guidelines and, by extension, continue the trend toward strengthening corporate ethics programs around the country.
Tags: Business Ethics, Business Law, Management, Organizations, Trevino
This entry was posted on Friday, February 5th, 2010 at 4:41 pm and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.28 Responses to “Strengthening Corporate Ethics Programs”
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