Corporate Codes of Conduct and Corporate Self-Regulation
Harvey L. Pitt and Karl A. Groskaufmanis
Corporate codes of conduct fit into no clearly defined legal niche. Few courts have weighed the legal impact of corporate policy statements intended to discourage employee defalcations. By investing in compliance programs, executives reasonably expect that this effort will afford the corporate entity a measure of protection from civil or criminal liability. To their surprise, prevailing legal norms offer little to bolster these expectations.
This chapter proposes an alternative standard of corporate liability when the defendant corporation has developed a meaningful code of conduct. An effective program, to some extent, should shield the corporation from exposure. Support for this alternative standard derives from a handful of decisions in which courts considered compliance programs in determining corporate liability; these courts assess whether the compliance programs were tailored to the entity involved, effectively communicated to employees and enforced. The current state of the law often renders futile the investment made in such programs. Rewarding effective programs would foster careful supervision--a fundamental objective of our system of corporate liability.
This chapter reviews the genesis, composition, and legal effect of corporate codes of conduct. The review is presented in four parts. First, we summarize the forces that prompted the adoption of