Serious and sincere efforts to understand and create strategies to deal with the extensive and complex legal dimensions of a growing body of Federal and state legislation has consumed so much time and resources that very few companies have devoted adequate attention to the challenge of creating policies, practices and procedures that actually meet government standards.
These are precarious times.
Corporate vulnerability to criminal prosecution, civil liability, regulatory sanctions, debarment from government contracts and reputation damaging, resource-draining morale destroying public accusations has never been higher. And the trend toward greater regulation and more aggressive and hostile media coverage (including an ever expanding, unregulated and unruly army of bloggers) is likely to continue.
Most corporations are still struggling to develop and implement adequate processes and procedures to deal with current interpretations of the Federal Foreign Corrupt Practices Act, Sarbanes-Oxley and Dodd-Frank as well as continually evolving state variations of these laws.
Serious and sincere efforts to understand and create strategies to deal with the extensive and complex legal dimensions of a growing body of federal and state laws has consumed so much time and resources that almost none of them have devoted adequate attention to the challenge of creating policies, practices and procedures that actually meet government standards.
These standards, articulated most extensively in the U.S. Justice Department?s Principles of Federal Prosecutions of Business Organizations and the 2010 Federal Sentencing Guidelines Manual are profoundly important to every corporation. The standards and guidelines establish minimum requirements of an effective compliance program. This is crucial for many reasons:
1. The ability of corporate lawyers to convince prosecutors that the company had an effective program in place at the time of a violation ? is a major factor prosecutors will use in determining whether the government brings charges against a corporation (as opposed to merely prosecuting the offending individuals).
2. Under the Federal Sentencing Guidelines, demonstrating the existence of a program that meets Federal standards has a huge impact on the range of penalties the company will be subjected to if convicted.
3. Establishing a program that meets or exceeds Federal standards is likely to be a condition imposed by?Federal Agencies regarding efforts to re-instate a company that had been debarred because of past misconduct.
4. It is very likely that state prosecutors and judges will adopt the standards in there own prosecution and sentencing standards.
5. Civil attorneys filing suits against corporations and journalists writing about scandals will use the Federal guidelines as a ?standard of care? to establish liability for the misconduct of corporate employees.
In the end, all the efforts to technically comply with the law will not make any difference unless they actually change the attitudes and conduct that produce or condone misconduct. Often this misconduct is committed by employees who, in the pursuit of corporate goals and a desire to preserve their jobs, deliberately or inadvertently violate the laws and company policy against violating laws. It is these actions that result in criminal prosecution, civil liability and damaging allegations.
The legal value of meeting the Federal standards is very substantial but the burden is on the accused corporation to prove its efforts to detect and prevent intentional and careless violations meet the guidelines established by the Department of Justice.
The simple fact is that traditional ?check the box? on line compliance programs, cursory rules-oriented training efforts and expanded codes of conduct provide no meaningful protection from reputation-damaging, resource-draining and morale-withering attacks and accusations. They may even increase exposure.
I have never seen a single credible study that shows that the traditional ethics programs ? usually consisting of minimal generic (not functionally specific) training, extensive codes of conduct and on-line reviews of policies and code ? has had any discernible impact on increasing detection or reducing misconduct.
A general consensus has emerged among prosecutors, educators and corporate ethics and compliance officers that rules-based compliance programs have little chance of preventing serious misconduct unless they are anchored in core ethical values advocated, modeled and enforced by the corporation. This insight is the basis of work the Josephson Institute of Ethics has done with the Department of Defense to help them move from a rules-based compliance culture to a values-based ethical culture.
The U.S. Justice Department?s Principles of Federal Prosecutions of Business Organizations (Title 9-28.800 Corporate Compliance Programs) explicitly instructs prosecutors to: ?determine whether a corporation?s compliance program is merely a ?paper program? or whether it was designed, implemented, reviewed, and revised, as appropriate, in an effective manner. . . .? This will enable the prosecutor to make an informed decision as to whether the corporation has adopted and implemented a truly effective compliance program that, when consistent with other federal law enforcement policies, may result in a decision to charge only the corporation?s employees and agents or to mitigate charges or sanctions against the corporation.?
Other statements in the document reinforce the vital importance of establishing a truly effective program.
??[T]he critical factors in evaluating any program are whether the program is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees and whether corporate management is enforcing the program or is tacitly encouraging or pressuring employees to engage in misconduct to achieve business objectives.
??The fundamental questions any prosecutor should ask are: Is the corporation?s compliance program well designed? Is the program being applied earnestly and in good faith? Does the corporation?s compliance program work?
?In addition, prosecutors should determine whether the corporation has provided for a staff sufficient to audit, document, analyze, and utilize the results of the corporation?s compliance efforts.
??Prosecutors also should determine whether the corporation?s employees are adequately informed about the compliance program and are convinced of the corporation?s commitment to it.
?Compliance programs should be designed to detect the particular types of misconduct most likely to occur in a particular corporation?s line of business.?
Basic Elements of ?an Effective Compliance-Plus Values-Based Ethical Business Culture Program
Building on several decades of experience designing and administering vulnerability assessments and comprehensive strategies to restore or strengthen the ethical culture of Fortune 500 companies and major government agencies, the Josephson Institute of Ethics has created a model for creating an exemplary ethics and compliance culture. This model provides the framework for a new cluster of integrated services providing state-of-the-art tools and strategies to help companies increase public and employee trust and insulate themselves from reputation-damaging and resource-draining litigation and controversy.
We are not suggesting that a?company?cannot create a sustainable exemplary ethical culture without the assistance of the Institute, but we do contend this is not a process that a company can credibly handle alone. For one thing, the effort must start with an independent comprehensive audit with respect to: 1) the current culture of the company and 2) the content, scope and effectiveness of its efforts to detect or prevent misconduct.
Assessing the Company?s Ethical Culture.?How does one assess the ethical?culture?of an organization? The Josephson Institute?s model assessment is designed to develop data regarding: 1) workforce and executive knowledge of and commitment to legal, policy and values-based requirements; 2) the level of confidence the workforce has that the leaders of the corporation want, expect and personally model ethical behavior; 3) the frequency and nature of illegal, unethical or questionable conduct; and 4) the opinions of employees re: the operational values at the respondent?s work location and the company as a whole.
This information will yield reliable data on which to base a description of the company?s current culture.
Assessing the design, implementation and impact of all the compoents of the company?s ethics and compliance strategy.?Government?standards of?minimal?effectiveness explicitly require examination of three aspects of a company?s values and compliance efforts:
- Is the program well designed?
- Is the program being applied earnestly and in good faith?
- Does it work?
These three questions should provide the structure of the assessment: design (content),?implementation?and effectiveness (impact). The Josephson Institute?s model identifies nine focal points that correlate to government standards of effectiveness:
- Seminal Documents?(such as a mission and/or vision statement; a statement of philosophy, guiding principles, values or core beliefs; a Credo; or any combination of these) ? review documents and websites to determine if they consistently and effectively articulate core ethical values;
- Standards of Conduct?- review to determine if the standards clear (easy to understand), practical (realistic to apply), comprehensive (they cover all know risk areas), credible (employees believe the company wants and expects them to comply) and relevant (functionally specific;
- Written Policies and Employee Manuals to determine if they are clear, easily accessible, consistent and integrated;
- Company Communications to determine if they remind internal and external stakeholders that its business decisions and relationships are governed by its values;
- Policies and Practices Governing Personnel Decisions ?- review?to determine if the company? employs systems and strategies designed to assure that it acquires, retains and develops people with the competency and character to advance the organization?s mission and objectives in a manner that honors ethical values; that the people who represent the organization in implementing its human resource policies and practices conscientiously model ethical values, and that implementation assures application of the company?s values in all aspects of the HR process (from hiring to termination).
- Reporting Channel?-?determine if the company provides employees and external stakeholders with a safe (trusted) easily accessible channel to report suspected improper actions of any Board member, executive, manager, supervisor, employee or business partner of the organization and whether employees know about, have confidence in and use the reporting channel.
- Training Materials- review?to determine if they are prominently grounded in the company?s values and whether all suggested answers to discussion questions are consistent with the organization?s values, standards of conduct and policies;
- Training Activities?-?assess each of the following aspects of the company?s training activities regarding ethics and compliance:?a) Content design,?b) Delivery method,?c) Duration,?d) Selection, training and evaluation of instructors,?e) Consistency of implementation,?f) Level of participation,?g) Effectiveness (impact on attitudes and behavior);
- Risk Assessments?- determine if the company has an effective method of assessing risks including periodic all-employee surveys to determine the level of knowledge and compliance with laws, policies and organizational values and identify risks and vulnerabilities of illegal or unethical conduct.
This assessment of each of these components of the program should yield a ?comprehensive set of findings and recommendations presented to leadership for action.
These recommendations invariably require the company to fortify its policies, practices and procedures so that they at least satisfy the government standards. Often this requires revision of current materials and the creation of new materials and training strategies.
To learn more about the JI approach call Rich Jarc at 310 846-4800?
Tagged as: Dodd-Frank, effectice compliance programs, Federal Principles of Prosecution of Businesses, Federal Sentencing Guideline, federal standards for ethics programs, Foriegn Couurpt Practices Act, Sarbanes-Oxley
Source: http://josephsoninstitute.org/business/blog/2012/02/article-check-the-box-compliance-programs-wont-meet-new-federal-standards-for-an-effective-ethics-and-compliance-program/
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