Corporate Culture and Ethical Leadership Under the Federal Sentencing Guidelines

What Should Boards, Management, and Policymakers Do Now?

by Michael D. Greenberg

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Research Questions

  1. What are the origins of compliance and ethics program law, and what lies ahead for organizations that pursue such initiatives?
  2. How can leaders, including corporate boards and executives, manage corporate culture in a way that cultivates lasting and effective compliance and ethics programs?
  3. What is the role of government policy in fostering ethical cultures within corporations?
  4. How much progress have corporations made in meeting the cultural goals of the Federal Sentencing Guidelines for Organizations?
  5. What are the barriers to achieving a stronger ethical culture, and what should boards, management, and policymakers do?

In 1991, in recognition that the acts of individuals can create criminal liability for their organizations, the U.S. Sentencing Commission expanded the Federal Sentencing Guidelines to include a new chapter on organizational crime. The intent was twofold: to provide a consistent set of guidelines to deter and punish organizational crime and to encourage positive behavior — specifically, the establishment of effective corporate compliance programs. In the two decades since, one of the chief aims of the guidelines has been to encourage basic cultural change within organizations in ways that might reduce both criminal and ethical risk. On May 16, 2012, RAND brought together a group of public company directors and executives, chief ethics and compliance officers, and stakeholders from the government, academic, and nonprofit sectors for a series of conversations about organizational culture, as well as to explore the business and policy ramifications of efforts to build better ethical cultures in corporations. The symposium discussions featured a range of viewpoints on the history and progress of compliance initiatives, the barriers to achieving a strong ethical culture, and what corporate boards, executives, and compliance and ethics officers, and policymakers can do to cultivate such cultures. Participants put forward a range of solutions, many of which sought to overcome the common tendency to view compliance as a legal issue more so than a cultural one.

Key Findings

Symposium Participants Agreed That Compliance and Ethics Programs and Corporate Culture Are Interdependent

  • Organizations are unlikely to have successful compliance programs without a solid ethical culture, and successful compliance programs are critical to fostering such a culture among corporate leadership and employees.
  • In some important and practical ways, corporate ethical culture can be measured.
  • Corporate boards, top executives, and chief ethics and compliance officers have a central role to play in building stronger ethical cultures.
  • Culture is the "missing link" that drives internal whistleblowers either to come forward or to stay silent.

Participants Found That Both the "Tone at the Top" and the Message Sent by Government Policy Have a Strong Influence on Corporate Ethical Culture

  • High-profile breakdowns of corporate ethics have had a direct effect on legislation and the Federal Sentencing Guidelines for Organizations, but firms cannot simply "check the box" in adhering to these requirements.
  • The only way to effectively reduce risk is to ensure that compliance and ethics programs are prioritized throughout the organization. Some measures to achieve this goal include empowering the chief compliance and ethics officer, offering performance incentives, and committing to periodic corporate self-assessment.
  • Policymakers can play a role by punishing ethical deficiencies while rewarding companies that implement effective compliance and ethics programs.

Recommendations

  • Organizations need to ensure that their chief compliance and ethics officers have sufficient independence, authority, and resources to carry out their responsibilities effectively.
  • Corporations need to view ethics as a business decision and understand how to tie performance incentives to positive ethical behavior, as well as how a strong ethical culture can reinforce the corporation's bottom line.
  • Compliance and ethics programs must come with attendant mechanisms for periodic self-assessment, an approach that can mitigate the potential for ethical breakdowns within an organization.
  • Policymakers should reward companies that implement superior compliance and ethics programs while penalizing those that do not.
  • Effective compliance efforts go beyond the simple legalistic exercise of parsing and following rules. They must be an integral part of an organization's culture.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Invited Remarks from Symposium Participants

  • Chapter Three

    How Much Progress Have Companies Made in Meeting the Cultural Goals of the Federal Sentencing Guidelines for Organizations?

  • Chapter Four

    What Are the Barriers to Achieving Stronger Ethical Cultures and More Effective C&E Programs in Firms, and What Should Boards, Management, and Policymakers Do Next?

  • Appendix A

    Symposium Agenda

  • Appendix B

    Symposium Participants

  • Appendix C

    Invited Papers from Panel Participants

This report was funded with pooled resources from the RAND Center for Corporate Ethics and Governance, a research center within RAND Law, Business, and Regulation, a division of the RAND Corporation.

This report is part of the RAND Corporation conference proceeding series. RAND conference proceedings present a collection of papers delivered at a conference or a summary of the conference.

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