It’s an uncomfortable truth. You may be
on a first-name basis with the people
who pose the greatest threat to your company’s security: unethical employees.
“No company is immune from an investigation or prosecution, whether it’s public
or private, big or small,” says Kurt Stitcher,
partner in the Litigation Practice Group at
Levenfeld Pearlstein, LLC. “Whenever any
employee could engage in conduct that
might open you up to criminal or civil liability, you’re vulnerable, and you should
have a compliance program in place.”
Smart Business asked Stitcher why both
public and private companies should
develop corporate compliance programs
to reduce the their exposure to potential
criminal and civil liability.
Why is it crucial to take a proactive approach
to potential ‘white collar’ issues?
The downside of being reactive is too
great to ignore. Government enforcement
activities and criminal penalties for misconduct are on the rise. Even setting aside
convictions and fines, a company accused
of breaking the law may face debarment
from government contracts, whistle-blower actions from its own employees, civil liability from shareholders or allegedly
injured third parties, and severe damage to
its reputation.
The ultimate goal of a compliance program is to detect and prevent wrongdoing.
Ideally, this program will create not only
policies and procedures for deterring misconduct but also a culture of ethical behavior. This culture will then keep conduct
within legal boundaries and impress upon
employees that ethical behavior is in both
the company’s and the individual employee’s best interest.
What types of compliance programs should
companies develop?
Businesses should start with the U.S.
Sentencing Guidelines, which lay out
requirements for what the federal government considers an ‘effective’ system to prevent and detect inappropriate actions. The
Guidelines require written policies and procedures, a senior compliance executive, due care to avoid giving compliance
responsibility to someone with a propensity for misconduct, employee training, internal audit and reporting mechanisms, consistent enforcement of policies, and steps
to prevent the recurrence of any misconduct that does occur. The Guidelines also
encourage a ‘culture of compliance’ by
requiring that board members and senior
management have direct involvement in
compliance issues, and the Guidelines look
at whether the company offers incentives
for ethical behavior, retaliates against
employees for wrongdoing, effectively
audits its program and conducts a ‘risk
assessment’ focused on specific problem
areas in a company’s operations. When the
government looks at the appropriateness
of a company’s compliance program, it
does consider the size of the company,
how its program addresses specific potential problems, the company’s prior conduct, and whether the company complies
with industry regulations or standards.
How should companies implement and
enforce these programs?
Businesses should use internal or external experts to set up a written program that follows the Guidelines. Training should be
interactive, directly relevant to each
employee’s job, and frequent enough to
ensure that all employees are kept up to
date. Also, companies need a reporting
mechanism for possible misconduct. The
most popular method is a hot line, sometimes staffed by a third-party provider, to
protect the employees’ anonymity. With
respect to enforcement, the company
needs written rules about incentives and
punishments. For example, ethical behavior might count on an employee’s annual
review, while misconduct would result in
immediate termination. Employees in positions with a high risk of damaging misconduct should also undergo background
checks.
How might a corporate compliance program
benefit a company in terms of reducing its
potential liability?
The highest goal is to prevent wrongdoing. But even if the program only detects
misconduct, it still benefits the company.
An effective compliance program can play
a positive role in criminal charging decisions and can lead to greatly reduced fines,
even if the company suffers a criminal conviction. If the program uncovers wrongdoing, the company can use that knowledge
to gain favor with the government if it
quickly reports the detected wrongdoing.
The existence of a compliance program
may also prevent the appointment of a government-designated corporate monitor,
who would have substantial control over
how the company conducted its business
for months or years to come. On the civil
side, the program could bolster the company’s defense by showing that the misconduct was against explicit corporate policy
and that the company had taken all reasonable steps to prevent it.
KURT STITCHER is a partner in the Litigation Practice Group at
Chicago’s Levenfeld Pearlstein, LLC, where he heads up the firm’s
White Collar Criminal Defense and Corporate Internal
Investigations Services. Reach him at [email protected] or
(312) 476-7597.
