New sentencing guidelines to reward ethical culture, compliance commitment

Establishing an effective compliance and ethics program is a must for any organization seeking to mitigate criminal sanctions under new, stricter federal sentencing guidelines slated to go into effect Nov. 1.

First promulgated in 1991, the guidelines require an "effective program" to prevent and detect violations of law--defined as a program that promotes "an organizational culture that encourages ethical conduct and a commitment to compliance with the law."

The amended guidelines that the U.S. Sentencing Commission (USSC) published in the Federal Register on May 19 enhance "the rigor and detail" of that requirement, calling for:

* Boards of directors and executives to assume responsibility for oversight and management of compliance and ethics programs, which includes active leadership in defining program content and operation.

* Identification of areas of risk where criminal violations may occur.

* Training of high-level officials and employees in relevant legal standards and obligations.

* Giving compliance and ethics officers sufficient authority and resources to carry out their responsibilities.

The organizational sentencing guidelines apply to corporations, partnerships, associations, unions, trusts, pension funds, unincorporated organizations, governments and nonprofit organizations. They cover the gamut of potential organizational criminal liability--from a recordkeeping violation to creating an organization specifically for a criminal purpose. They establish incentives for organizations to create meaningful compliance and ethics programs, report violations, cooperate in criminal investigations, and discipline responsible employees.

Under the amended guidelines, an organization may fail to qualify for lighter sentences if it fails to self-report criminal misconduct in a timely fashion or if executive or management officials tolerated or were involved in illegal activities, according to a release from the USSC, an independent federal agency.

Heads Up, HR Professionals

Nearly 70 percent of respondents to the 2003 Business Ethics Survey, conducted by the Society for Human Resource Management and the Ethics Resource Center, said that the HR department was a primary resource for ethics policies in their organization. On the other hand, 40 percent of respondents said that they are not truly part of the ethics infrastructure in their organization yet are often called on to "clean up the messes."

"In many organizations, the human resources function is poised to play a critical role in the oversight and/or administration of various activities relating to ethics," the survey report said. "These activities may include: developing ethics communications; providing training on ethics standards; handling ethics inquiries and reports; and becoming involved in cases where investigations and disciplinary actions must be undertaken."

Good But Challenging News

"The new guidelines are indeed glad tidings for those seeking to make compliance programs strong. ... But now, for many companies, the hard part begins--actually meeting these new standards," wrote Jeffrey M. Kaplan in a recent article in ethikos, a professional publication for ethics officers. "In light of the new legal landscape, no prudent director or executive--let alone ethics officer--should delay responding to these requirements."

The requirement to assess the risk of criminal conduct and to incorporate the results into all other aspects of the company's compliance and ethics program is among the most significant aspects of the new guidelines, Kaplan wrote. "Addressing the risk assessment mandate should--for many companies--be the point of departure in responding to the new guidelines."

The guidelines' emphasis on an organizational culture that promotes ethical conduct and a commitment to compliance is important in light of the fact that "numerous cases in recent years have shown how bad culture can 'trump' seemingly good compliance program functions," Kaplan said.

In an introduction to its annotated version of the amended sentencing guidelines, ethics and compliance solutions provider LRN of Los Angeles says the amendments address concerns about the effectiveness of compliance programs "by requiring the implementation of more rigorous business process in the compliance function and by recognizing the importance of culture and ethics in controlling behavior."

RELATED ARTICLE: HR Action Items

1. Alert top management concerning the issuance and significance of the new guidelines.

2. Take timely steps to ensure that the company is applying best practices in all aspects of employment law compliance, and contribute to risk assessment under the amended guidelines.

3. Work with the company's ethics and compliance officers to audit and re-engineer the company's ethics and compliance programs.

--MARGARET M. CLARK, J.D., SPHR

COPYRIGHT 2004 Society for Human Resource Management
COPYRIGHT 2004 Gale Group