On June 1, 2020, DOJ issued its guidance memorandum “Evaluation of Corporate Compliance Programs” (“Guidance”) that is meant to assist prosecutors in determining whether the corporation’s compliance program was effective at the time of an offense, and effective up to the time of the resolution of the matter, for purposes of calculating the appropriate criminal fine. The Guidance is an update from the last memorandum issued in April 2019. Like its predecessor, this Guidance emphasizes “Tone at the Top” and the responsibility of all members of the organization to contribute an ethical corporate culture. Even if you are familiar with the April 2019 version, this Guidance memorandum is a must-read for compliance and ethics personnel.
This paragraph struck me for the succinctness in describing the role and importance of ethical leadership:
“Beyond compliance structures, policies, and procedures, it is important for a company to create and foster a culture of ethics and compliance with the law at all levels of the company. The effectiveness of a compliance program requires a high-level commitment by company leadership to implement a culture of compliance from the middle and the top. The company’s top leaders – the board of directors and executives – set the tone for the rest of the company. Prosecutors should examine the extent to which senior management have clearly articulated the company’s ethical standards, conveyed and disseminated them in clear and unambiguous terms, and demonstrated rigorous adherence by example. Prosecutors should also examine how middle management, in turn, have reinforced those standards and encouraged employees to abide by them.”
According to a study by the Institute of Leadership & Management:
• 63% of managers have been asked to do something contrary to their own ethical code.
• 43% have been told to behave in direct violation of their organization’s own values statements.
• 9% have been asked to break the law.
I’m not sure if these numbers are right, but if they are, the Guidance should be a wake-up call to all senior management and board directors. It is worth quoting directly from the Guidance critical factors relating to compliance and ethical leadership that the DOJ will be considering, and changes that company management can make:
· “… whether the (compliance) 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.”
· Whether “… there is not only a clear message that misconduct is not tolerated, but also policies and procedures – from appropriate assignments of responsibility, to training programs, to systems of incentives and discipline – that ensure the compliance program is well-integrated into the company’s operations and workforce.”
· “… whether the company has established policies and procedures that incorporate the culture of compliance into its day-to-day operations.
· Whether … “ the steps taken by the company to ensure that policies and procedures have been integrated into the organization, including through periodic training and certification for all directors, officers, relevant employees, and, where appropriate, agents and business partners.”
· Whether… “the company provided tailored training for high-risk and control employees, including training that addresses risks in the area where the misconduct occurred? Have supervisory employees received different or supplementary training?”
· Whether… “managers encouraged employees to act unethically to achieve a business objective, or impeded compliance personnel from effectively implementing their duties?”
· Whether … “the company’s communications convey to its employees that unethical conduct will not be tolerated and will bring swift consequences, regardless of the position or title of the employee who engages in the conduct.”
The Guidance is a valuable resource companies can use to implement changes in compliance and ethical training, and policies and procedures to reduce risk in the event of a criminal investigation.
I sincerely hope that your company can check off all of these ethical compliance factors. It surely takes a commitment at all levels of an organization and effective ethical leadership.