Ethics and Compliance Part 2-The Financial Benefits, Sentencing Guidelines, and Pillars

By: Christine V. Williams on 12/20/2017

Ethics and Compliance: Part 2 in a Series by Outlook Law, LLC- Financial Benefits, Sentencing Guidelines, and Pillars

 

In Part 2 of the Ethics and Compliance Series, the following topics are addressed: (1) the financial benefits of an ethical culture; (2) the sentencing guidelines and mitigation benefits of a strong ethics program-including small organizations; and (3) understanding and defining the pillars of your organization.

Why an Ethical Culture Makes Good Business Sense

Researchers have shown a direct tangible link between the financial performance of a corporation and the alignment of the corporation’s culture with the employees’ values and the goals of the company.  Many companies fail to bridge the gap between the aspirational values of the employees and aligning it with the company’s culture.  What are some practical tips for starting to explore if your company has a gap and starting to bridge it?

  • Integrity is not just honesty but consistency that employees can count on. If a company sets forth values, the managers are often on the front lines and the key question may be do those managers carry that message in their actions consistently?
  • Early alerts to potential problems may be attainable through front line communication from employees and making sure that the relationships are present, so those employees feel comfortable coming forward not just to report bad conduct, but to alert to potential problems coming down the road.
  • Connectivity through commitment to the organization. If employees feel valued and that what they say or report may be taken seriously and valued, they are more likely to report it.  These front-line employees hear the Tone from the Top, which is translated to the Mood of the Supervisor, to them.  The more the message flows and is reinforced from the top to the supervisors to the front lines, the more productivity a company will see with these connections.
    • Example: At Outlook Law, there are weekly office meetings in which the goal is 100 percent attendance (if not, a catch-up session can be arranged and is encouraged). Just as some companies have a safety moment before each meeting, we have compliance time; whether it is on a legal issue and the reasoning behind the rule or legal ethics in general.  The goal is that every person, every week, learns a bit more about a compliance issue and has a chance to speak, which they do, and it is valued.

Why an Ethical Culture is Important for Mitigation Value-Compliance Programs

Sometimes things just go wrong and a company finds itself in hot water because of a bad actor when the company itself may be ethical and doing the right things.  The U.S. Sentencing Guidelines Manual §8B2.1 (Nov. 2016) (please note this is the amended and current version) takes into account an effective compliance programs when determining a company’s culpability for sentencing (and fines) for bad actions.  The following is an excerpt from the guidelines, with a full link to the guidelines at the end of the end of this piece (beware-it is 638 pages.  For our purposes we will be mainly referring to pages 535-538 marked on the bottom of the page).

(a) To have an effective compliance and ethics program, for purposes of subsection (f) of §8C2.5 (Culpability Score) and subsection (b)(1) of §8D1.4 (Recommended Conditions of Probation ― Organizations), an organization shall—

(1) exercise due diligence to prevent and detect criminal conduct;

and

(2) otherwise promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law.  Such compliance and ethics program shall be reasonably designed, implemented, and enforced so that the program is generally effective in preventing and detecting criminal conduct. The failure to prevent or detect the instant offense does not necessarily mean that the program is not generally effective in preventing and detecting criminal conduct.

Small Organizations-U.S. Sentencing Guidelines

Small organizations shall demonstrate the same degree of commitment to ethical conduct and compliance with the law as large organizations. However, a small organization may meet the requirements of this guideline with less formality and fewer resources than would be expected of large organizations. In appropriate circumstances, reliance on existing resources and simple systems can demonstrate a degree of commitment that, for a large organization, would only be demonstrated through more formally planned and implemented systems.  Examples of the informality and use of fewer resources with which a small organization may meet the requirements of this guideline include the following: (I) the governing authority’s discharge of its responsibility for oversight of the compliance and ethics program by directly managing the organization’s compliance and ethics efforts; (II) training employees through informal staff meetings, and monitoring through regular “walk-arounds” or continuous observation while managing the organization; (III) using available personnel, rather than employing separate staff, to carry out the compliance and ethics program; and (IV) modeling its own compliance and ethics program on existing, well-regarded compliance and ethics programs and best practices of other similar organizations.  Sentencing Guidelines

Pillars

Ethisphere and others have developed “pillars” of the compliance program a/k/a the basics on which something strong is built.  Some of these pillars may apply to your company, while others should be adjusted.  Here are some of the basic concepts, and you may recognize some of this from the first part of this piece:

  • Perceptions of the Function of the Program (will my voice be heard/is it valued and acted upon)
  • Observing and Reporting-does this happen and how
  • Awareness of the Program and Resources-how well is your program communicated and what resources are employees aware
  • Organizational Action for Bad Acts-how are bad acts treated when they are perceived, or reported-employees are watching
  • Manager Tone-what are their perceptions and how are they communicating the message out
  • Perception of Leadership-what do employees think of the leadership of the organization in compliance and ethics
  • Environment-what is the environment in which the employee works and perceptions of the other employees in that section (peer perceptions interplay)

The purpose of the pillars is to build upon strength, but before building, the strength must be tested through self-examination.

Conclusion

A culture of ethics and compliance makes sense from business profitability and alignment, helping a company out when it gets in hot water, and does not have to break the bank or be done all at once.  There are questions to ask, steps to take, and foundations to build or strengthen.  Doing so pays companies and employees dividends that studies have shown make a company more profitable and employees feel valued.  Part 3 of the Series will explore basic building blocks of an effective compliance program.