I welcome guest blogger Jeff Kaplan, one of the country’s foremost legal experts on compliance and ethics.
Are there practical ways of containing or even reducing compliance and ethics (“C&E”) program costs while still maintaining an effective program? I believe that there are, and in future postings will describe some of them. But to properly frame the discussion, the costs of non-compliance must first be considered.
These costs are on their way up, and there is no end in sight. First, with little notice, we have evidently entered the era of the “mega fine.” Before 2008, in the entire history of U.S. criminal law, there had been only one corporate fine larger than $340 million. But in rapid succession we have now seen five more and a sixth is expected soon. Significantly for global companies, this phenomenon is not limited to the U.S., as record breaking fines have also recently been imposed in Europe for corruption and competition law violations. Moreover, given the extent to which the public blames irresponsible business conduct for the recession, the specter of mega fines seems unlikely to recede at any time soon.
Second, the recession itself enhances C&E-related risk, because desperate conditions tend to breed desperate deeds. More specifically, fraud and corruption risks almost certainly rise in an economic downturn, and the same may also be true of competition law risks. Additionally, the likelihood of employment-law-related claims increases with layoffs. Finally, the heightened fear of job loss will likely deter some employees from reporting wrongdoing, thereby raising the chances that small violations will grow into larger, more costly ones.
Finally, the appointment as Attorney General of Eric Holder – who, in 1999, became the first Justice official to formalize the Department’s consideration of C&E programs in enforcement decisions and, in private practice, served as a member of the Advisory Group whose recommendations led to dramatically enhanced C&E standards in the Corporate Sentencing Guidelines – could mean heightened C&E-related expectations in Justice enforcement decisions. In other words, a company seeking to avoid federal indictment based on the strength of its C&E program may soon be facing a greater burden than before (although this part of my analysis is concededly speculative).
All told, then, there has never been a time when the cost of a C&E program failure is likely to be so high. But these days very few companies have increased resources to meet the growing need of ensuring program effectiveness. Against this background, future postings will examine how law departments can meet the challenge of developing or maintaining effective C&E programs without incurring additional costs and can, in some instances, even reduce C&E cost.