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 [email protected].