[author: Matt Kelly, Radical Compliance]
The week of September 12 was an important one for corporate compliance professionals. We saw two high-ranking officials at the U.S. Justice Department give back-to-back speeches outlining ambitious plans to transform the prosecution of corporate misconduct.
Rest assured, a company’s culture of compliance – or its lack thereof – will play a starring role in that enforcement regime to come.
Let’s begin with what the Justice Department said. In speeches from Lisa Monaco, deputy attorney general; and Kenneth Polite, assistant attorney general for the Criminal Division, they laid down several markers for what they want to see from companies under criminal investigation.
First and always, voluntary self-disclosure. Any company that steps forward and confesses its misconduct issues will stand a much better chance of avoiding a guilty plea, a compliance monitor, and monetary penalties. To that end, Monaco said, all sections of the Justice Department will adopt written policies for exactly what voluntarily self-disclosure entails.
Faster cooperation. Companies under investigation for misconduct, if they want a more favorable resolution, will need to turn over evidence (especially regarding individual wrongdoers) more quickly. “Speed is of the essence,” Monaco said in her speech. Undue or intentional delays in providing documentary evidence will result in less cooperation credit when the time comes to calculate penalties.
Clawbacks of executive compensation. The Justice Department wants to see corporations not just have policies where they will claw back compensation from executives who earned that money illicitly; the department also wants to see companies exercise those policies, and vigorously.
Monaco listed several other policy shifts as well, such as how prosecutors will consider a company’s prior history of misconduct and when the department will impose compliance monitors.
The three points above, however, matter most because they drive at what the Justice Department really wants to see: a culture of compliance. A company won’t score well on any of those points without a strong culture of compliance.
So, what does all this mean for corporate compliance officers at the practical level? What will your organization need to develop or implement, to demonstrate that compliance culture that prosecutors want to see?
A Culture of Compliance in Practice
First (and as usual), the culture of compliance will need to start with the board. The board will need to convey to the CEO and senior management that ethical behavior is a priority. The board will need to put structures in place to drive that culture, from senior management on down.
Some of those structures aren’t new. For example, the Justice Department’s guidelines for evaluating compliance programs, last updated two years ago, expressly talk about the compliance function having easy, direct access to the board when issues arise. If management hasn’t put such reporting lines in place already, that doesn’t speak well of the culture that prosecutors want to see.
Other structures to drive that culture are new. One obvious example: Monaco’s call for more widespread use of executive compensation clawbacks. If a company doesn’t embrace those ideas, then again: it’s not a good look for the culture of compliance you might claim to have.
Second, the company will need clear policies, and a commitment to them that flows from the company’s ethical values.
For example, the Justice Department wants to see companies turn over evidence implicating individual wrongdoers more quickly. That implies an ability to identify and gather such evidence promptly, and then to make a decision about what to do with it.
Companies should have a process for all that – one that navigates the sometimes tricky world of litigation holds and e-discovery. It should also identify the executives involved in deciding what to disclose, and when.
Without a formal process, you run the risk of making subjective decisions about disclosure on the fly; that’s when the temptation to deviate from ethical behavior can be at its strongest. Developing and documenting procedures to put your culture of compliance into force is the antidote to that threat.
Third, management will need to voice its support for these ideals – and then act upon them.
This is where your corporate culture puts up or shuts up. Whatever promises of ethical standards the management team might make to the workforce, those same leaders will then need to follow through on that commitment.
Again, go back to the compensation clawbacks. Monaco didn’t just say companies will need to have such policies; companies will also need to exercise them. The same is true for turning over evidence quickly and self-disclosing misconduct. The company will need to follow through on those actions, even when that means unpleasant conversations with the Justice Department and other regulators down the road.
The good news is that the Justice Department also says it’s prepared to take numerous painful consequences off the table for companies that can demonstrate a culture of compliance: a presumption against guilty pleas, no compliance monitor, smaller corporate financial penalties.
Those more favorable outcomes, however, depend on the company truly embracing a culture of compliance. The chief compliance officer will play a key role in bringing that culture about.
To learn more about how NAVEX can help your organization design a stronger, more ethical workplace culture: