Perspectives of Chief Ethics and Compliance Officers on the Detection and Prevention of Corporate Misdeeds: What the Policy Community Should Know

By Michael D. Greenberg | Go to book overview

1. INTRODUCTION

Improvements in corporate ethics, compliance, and governance have been a significant policy priority for the U.S. government over the past 20 years. In 1991, the U.S. Sentencing Commission promulgated a set of Federal Sentencing Guidelines for Organizations (FSGO) to guide judges in imposing appropriate penalties on corporate organizations whose employees commit federal crimes.1 Notably, the FSGO included recommendations to organizations for establishing effective compliance mechanisms, which, if followed, also offer grounds for more lenient criminal sentencing by judges. Subsequent prosecutorial guidance materials issued by the U.S. Department of Justice (DOJ) in 2003,2 and revisions to the FSGO in 2004, elaborated on the elements to consider in prosecuting and sentencing organizations, and placed emphasis on mitigating factors such as corporate cooperation and effective compliance efforts, the distinction between real and “paper” compliance programs, and the importance of establishing an ethical organizational culture. Meanwhile and in a complementary vein, the Sarbanes-Oxley Act of 2002 (SOX) introduced a series of substantive legal requirements for corporate compliance and disclosure, as with regard to internal control structures and reporting processes (§404), financial statement accuracy (§401), officer certifications (§302), and whistleblower protections (§806). Collectively, these various federal policies were intended to address perceived lapses and shortcomings in corporate oversight, and to create incentives and requirements for more effective self-policing by organizations.

In the wake of the Enron and WorldCom scandals of the early 2000s, it was hoped that SOX in particular would help to limit the occurrence of future waves of corporate malfeasance and ethical misbehavior. Limited empirical evidence addressing this point, however, has not been encouraging. Although a 2003 national telephone survey of American workers on ethical practices and workplace misconduct showed improvements on several measures from findings in earlier years,3 the most recent follow-on survey in 2007 suggested that observed misconduct has now returned to pre-ENRON levels, and furthermore that many American workers choose not to report misconduct by co-workers out of fear of reprisal.4 These sorts of findings are unsurprising, in light of newer rounds of corporate misbehavior that have occurred in recent years, including the stock options back-dating scandals and the mutual fund market-timing scandals of the mid-2000s. Of course, the most recent set of corporate scandals has broadly swept across the mortgage and banking sectors, in a series of events that culminated in the worldwide financial collapse of late 2008. It remains for history to judge what role corporate

1 For discussion and history of the FSGO, see U.S. Sentencing Commission (undated).

2 See Thompson (2003).

3 See Ethics Resource Center (2003).

4 See Ethics Resource Center (2007).

-1-

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