CSLG - Compliance Systems Legal Group. CSLG provides corporate compliance and practical business ethics services and products to a wide variety of organizations.
"You cannot get to first base with a prosecutor without having a compliance program, and having one may land you a home run."
- Then-US Attorney Michael Baylson, Eastern District of Pennsylvania
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Benefits of Compliance Programs
Over the course of the past decade, various legal reforms have provided real incentives to companies in all types of businesses to develop and implement compliance/ethics programs.
Among these benefits are avoiding:
- Fines under the U.S. Corporate Sentencing Guidelines.
The Guidelines provide, in certain instances, for very large fines for organizations convicted of federal offenses. (For example, Hoffman-LaRoche was fined $500 million under the Guidelines in 1999 for an antitrust offense. Daiwa Bank was fined $340 million in 1996 for banking-related crimes.) However, a company that had an effective compliance program at the time of its offense may qualify for a substantially reduced penalty.
- U.S. prosecution of the company for an employee's offense.
In its pathbreaking 1999 policy statement Federal Prosecution of Corporations (reaffirmed in 2003), the Department of Justice instructed its prosecutors to consider certain factors in determining whether to prosecute a company for an employee's or agent's offense. Among these factors is the efficacy of the company's compliance program.
- Sanctions in non-U.S. settings.
Increasingly, compliance/ethics programs are being considered in assessing corporate liability and responsibility in non-U.S. settings. For example, standards similar to the U.S. federal sentencing guidelines have been adopted by the "King II" governance principles in South Africa, are visible in Italian anti-bribery legislation and are now required in varying degrees in other jurisdictions, such as India (codes of conduct). In addition, corporate voluntary disclosure - which is enabled by having an effective compliance program - is strongly favored in setting liability under the competition laws of jurisdictions such as the EU.
- Court-Ordered Supervision.
Under the Corporate Sentencing Guidelines, an organizational defendant can be sentenced to probation with court-ordered supervision, including having a monitor oversee and report publicly to the court on the company's compliance efforts.
- Prosecution or regulatory enforcement action under state law.
Beyond the advantages in federal criminal and regulatory matters, companies with effective compliance/ethics programs obtain more favorable treatment during investigations and cases brought by the states.
- Civil liability or punitive damages for employment-related, whistleblower and other alleged violations.
The Supreme Court has held that compliance efforts may be a shield from liability for companies in certain harassment cases. The Court has also held that such efforts may be a defense to punitive damages in a broad range of discrimination cases.
- Personal liability for the board of directors.
In September 1996, the Court of Chancery of Delaware issued an opinion warning that directors who fail to assure that adequate compliance measures are in place can face individual liability for breach of the fiduciary duty of care. In re Caremark International Inc. Derivative Litigation.
- Being a victim of employee, customer or supplier fraud and other misconduct.
Losses due to employee misconduct, such as unauthorized trading, have rivaled the largest fines and penalties imposed by government. Losses from customer and supplier misconduct can also be staggering. But the same mechanisms that are the core of effective compliance programs also serve double duty to help prevent and detect misconduct where the company is the target. Helplines, audits, mystery shoppers and exit interviews are just some of the techniques we have helped clients develop that also fight such fraud.
In recent years we have seen more companies asking about the compliance/ethics program efforts of their potential suppliers and other business partners, making the existence of an effective program a potential sales tool for reaching blue chip companies.
Of course, beyond these incentives the greatest benefit of having an effective compliance/ethics program is preventing wrongdoing in the first instance. And protecting against wrongdoing - as well as being able to demonstrate those compliance efforts - protects a mission-critical corporate asset: the company's reputation.