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 firstname.lastname@example.org or (312) 476-7597.