Jim Nortz (firstname.lastname@example.org) is Founder and President of Axiom Compliance and Ethics Solutions LLC in Rochester, New York, USA.
The publication of Chapter 8 of the US Federal Sentencing Guidelines (FSG) in 1991 launched the compliance and ethics profession that we are now a part of. As the 30th anniversary of this milestone approaches, I thought it appropriate to reflect on the effect we compliance and ethics professionals have had on the ethical performance of the corporations we serve.
Progress to be made
Like you, I have labored in the corporate “vineyards” for many years with the hope that my efforts would materially reduce enterprise legal and ethical risks by preventing and detecting misconduct and promoting a strong ethical culture. There is evidence that our efforts have not been in vain. The business ethics survey data from the Ethics and Compliance Initiative (ECI) consistently show that firms that have implemented the FSG’s seven elements of an effective compliance and ethics program have lower observed misconduct rates. They also show that there is a tight correlation between observed misconduct rates and the strength of a company’s ethical culture—the stronger the culture, the lower the observed misconduct rates. However, their 2018 Global Business Ethics Survey (GBES) report included the following observation that concerns me greatly and presents a significant challenge to all compliance and ethics professionals: “Little progress has been made across the country to implement the most important strategy for mitigating wrongdoing. Misconduct drops substantially when organizations have strong cultures in place, yet the number of organizations with strong cultures has not changed” (emphasis added).
You might discount the GBES data as being skewed, because it includes responses from employees of randomly selected companies that may not have formal compliance and ethics programs. But before you reach that conclusion, consider that Johnson & Johnson, Merck, Pfizer, JPMorgan Chase, Goldman Sachs, Wells Fargo, and hundreds of other marque companies with stellar compliance and ethics programs have been caught engaging in systemic corporate corruption resulting in hundreds of billions in fines, multiyear settlement agreements with state and federal prosecutors, incalculable opportunity costs, and thousands of shattered careers.
Consider also criminal and civil enforcement data reported by the U.S. Department of Justice (DOJ). Monetary recoveries related to corporate non-prosecution agreements and deferred prosecution agreements have trended upward over the last 18 years, totaling a near record $8.1 billion last year. There is also a disappointing trend with respect to corporate fraud prosecutions. In 2018, DOJ recovered $2.9 billion—on par with record amounts collected in past years. Moreover, the data show no reduction in the annual number of False Claims Act actions for the last 31 years. Nor is there evidence of reductions in Foreign Corrupt Practices Act (FCPA) and FCPA-related enforcement actions that continued at a near record clip last year.
A sober analysis of these data lead to one conclusion: We may be winning some battles, but we are losing the war. Despite our best efforts, systemic corporate corruption involving thousands of employees—including top management—continues with discouraging frequency. Adding another inch or two of policies to the pile or beefing up compliance training programs are not likely to change these trends or materially reduce the risk that your firm will be the next successful target of a compliance enforcement action. Instead, our best hope of achieving this end is to take the bold steps necessary to lead an “integrity revolution.”