Compliance programs Featured

8:00pm EDT April 25, 2008

Most people know that companies can be fined for acts of their employees. Did you know executives and directors could be imprisoned for acts of employees of their company? With the increased criminalization of laws, the risk of going to jail and being fined has dramatically increased over the last 10 years. However, there is a way for them to avoid prison, fines and community service for employees’ business malfeasance. They can implement an effective ethics and compliance (E&C) program and make sure that all their employees are aware of its existence, the laws that govern their business and the significance of complying with applicable laws.

Smart Business talked to Mark Jones of Porter & Hedges LLP to learn how businesses that are exposed to possible criminal liabilities by their employees — and that is almost every business and organization — can develop such programs and why they should do so.

How does an E&C program protect executives and directors?

Executives and directors should want to insulate themselves from being indicted for employees’ criminal acts. An E&C program set up in conformance with federal sentencing guidelines helps them do that. The guidelines provide certain things employers can do to avoid being prosecuted for employees’ criminal acts, which is critical in today’s business environment. Governments are criminalizing more laws nowadays, and executives and directors go to prison more often for business-related crimes than they did in the past.

Do judges use E&C programs to determine whether a business is a ‘good citizen’ when considering indictment?

Yes. There are seven principal points in the federal sentencing guidelines that employers have to address. A judge will evaluate an employer’s attention to the guidelines to determine whether it is a ‘good citizen.’ The degree to which the employer adheres to the guidelines and the complexity of its E&C program can influence a judge’s willingness to indict it, its officers and directors when an employee commits a crime.

Who is ultimately responsible for implementing an employer’s E&C program?

The responsibility lies at the top of the organization. The board of directors and senior management should have an effective E&C program in place to assure that the company is acting in the appropriate manner. It is also their responsibility to provide training for employees to ensure that they are familiar with laws in various areas, set up a ‘hot line’ to let them know if there are problems and appoint an individual who has credibility within the organization and in whom employees have confidence to monitor and report ethical issues and concerns and deal with them in an appropriate manner.

Who should be involved in setting up an E&C program?

The implementation starts at the top with the CEO and other senior management and directors who demonstrate their commitment to the program and who will monitor its progress. The makeup of the rest of the development team depends on the employer’s size and type of business.

Some of the typical people who might be involved in the implementation of an E&C program are the general counsel, human resources leadership, business unit leadership and outside counsel who is experienced in setting up and facilitating the implementation of comprehensive programs for employers as well as establishing protocols for monitoring the effectiveness of the program by executives and directors. The involvement of senior management and experienced outside counsel can make the programs more effective from the onset and speed up the learning curve for employers and employees.

Should smaller companies create E&C programs?

Regardless of size and type, every employer should have an E&C program in place. The extent and scope of the program depend on the size of the company and the industry in which it operates and the regulatory nature of its business. Economic crimes can occur in businesses ranging from sole proprietorships to multinational conglomerates, and judges look at them seriously in today’s corporate environment no matter who commits them. So, smaller companies should take the same steps as larger ones to protect their key personnel, although their programs can be scaled-down versions that are tailored to their specific needs.

There is no such thing as a generic E&C program, since each employer operates in a different environment. But, all businesses have to adhere to the same guidelines if they want to avoid potential prosecution, especially if they are engaged in business internationally, working in sensitive business areas, such as waste, water or environmental industries, or industries with significant political elements.

MARK JONES is a partner with Porter & Hedges LLP and has been involved in the establishment of numerous E&C programs for varying sizes of companies and industries. Reach him at (713) 226-6639 or