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At Large: Is this the most important change in the DOJ’s new guidance?

The DOJ’s new guidance for evaluating corporate compliance programs put the spotlight on organizational justice, or what we might simply call fairness.

This question was added to Monday’s version of the guidance: “Does the compliance function monitor its investigations and resulting discipline to ensure consistency?”

That new question appears under the heading “Consistent Application.” That part of the guidance already asked: “Have disciplinary actions and incentives been fairly and consistently applied across the organization? Are there similar instances of misconduct that were treated disparately, and if so, why?”

Why is the added emphasis on monitoring to “ensure consistency” so important? Because inconsistency — showing favoritism to those who violate the compliance program, or don’t implement it — undermines the entire idea of compliance, and those responsible for making it happen.

When corporate leaders give preferential treatment to internal wrongdoers, everyone else in the company stops trusting the leaders. What those leaders say about compliance becomes hollow. Their bad actions overtake their good words.

When that happens, a deep cynicism takes root. That’s when a compliance program becomes mere window dressing. Other executives and employees abandon the corporate “vision” and its values.

You get a sense of that corporate lawlessness from some of the biggest recent FCPA enforcement actions. In the Petrobras case, the SEC said “senior executives operated a massive, undisclosed bribery and corruption scheme.” In Ericsson, the DOJ said the bribery “involved high-level executives and spanned 17 years and at least five countries, all in a misguided effort to increase profits.” At Keppel Offshore & Marine, at least 15 managers were involved in large-scale corruption, and the effort to cover it up.

The idea that organizational justice is indispensable for effective compliance isn’t new. Since 2004, the federal sentencing guidelines have said: “The organization’s compliance and ethics program shall be promoted and enforced consistently throughout the organization through (A) appropriate incentives to perform in accordance with the compliance and ethics program; and (B) appropriate disciplinary measures for engaging in criminal conduct and for failing to take reasonable steps to prevent or detect criminal conduct.” The DOJ’s guidance cites the call for consistency in the sentencing guidelines.

“Tone at the top” is a tired cliché. And yet, is there anything more important to the success of a compliance program than the perceived fairness of corporate leaders? If they play favorites, if they let some bad actors off the hook, if they close their eyes to someone who flouts the requirements of the compliance program, the enterprise is headed for disaster. It won’t matter what’s written in the compliance program, or how hard honest compliance officers work to enforce it.

The DOJ has now said as clearly as possible that prosecutors and the rest of us should evaluate corporate compliance programs by asking: “Does the compliance function monitor its investigations and resulting discipline to ensure consistency?”

It’s a yes or no question.

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5 Comments

  1. Hi Richard,
    Great piece, couldn’t agree more. Organizational justice is one of the key metrics of ethical culture.

    Even non-human primates display a strong sense of fairness – take a look at one of the behavioral experiments conducted by Frans de Waal:

    https://www.youtube.com/watch?v=-KSryJXDpZo

  2. Thank you, Vera. I’d like to hear what you and other experts think about the organizational justice aspect of compliance programs. The DOJ has now tripled down on the topic (three questions in the evaluation guidance), which gives us some idea of its importance.

  3. Hi, Richard – This is an important point. Inconsistency and unfairness with ruin any compliance efforts. I would add another perspective to this. One of the most important elements of any good compliance program (and an element of the Sentencing Guidelines) is to evaluate the effectiveness of whatever you do in the program. You can’t just roll it out – you need to see whether it is actually working. To me, this means you have to listen to your people. If there is injustice in your system, if there is favoritism, your people will tell you if you just ask and listen.

    For example, if we think about why all the years of training on harassment failed so often, one big flaw I see is that while training was required, there was no mandate to evaluate it. Anyone who had bothered to ask would have been told how bad or ineffective that training was. They would also have heard employees talk about the senior leader (or, perhaps as happened in the federal judiciary, appellate court judge) who was able to get away with doing what the training said not to do. Injustice and unfairness not only undercut the compliance message, but can actually lead to more wrongdoing. But how do you know if your people see things this way? Just ask and then listen.

  4. Hi Richard, is it possible for you publish the document translated into Spanish?

    Thank you.

  5. Not showing favoritism is a tough one for the corporate world, where those who ensure profits usually get the velvet glove treatment.


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