26 Mar 2010

Ensuring Corporate Compliance

Coming from a Stetson Professor is this paper entitled 'Educating Compliance' which beautifully sums up the issues relating to ensuring compliance of law from the corporate entities. Taking note of the problem that to speak of the conviction of corporates is rather absurd and that 'it is the individuals within the corporation ... which qualify for the legal fiction for criminal prosecution', the author argues "that pitting the corporate entity against the individual is a bizarre construct for achieving compliance". 

The author has sought to argue against the 'reactive model' which "looks at punishing misconduct to achieve compliance with the law", to argue that by "focusing more resources on the front end and using a pro-active model to achieve compliance would keep the corporate structure whole and yet also provide a sound basis for eradicating corporate criminality". In short, the author has argued that with the government taking an interactive part to this end, corporates can be educated to keep in place an internal program which ensures that the company carries on its business in a manner which is complaint with the law by building a system in place to this end. The author advances the case of pro-active efforts to achieve compliance by using "corporate guidelines that provide a reward to companies that have effective programs and court decisions that emphasize the need to have compliance measures in place to avoid civil suits." 

Though written in the typical perspective of the United States law, the paper provides insights into the effects of proactive measures to ensure due-diligence on increased compliance by the corporate entities. The potential benefits of such an approach, the author describes in the following terms;
If the pro-active model is successful, government costs should be reduced in that fewer investigations and prosecutions would be necessary. A pro-active model also has the entity and individuals in the company working together to assure compliance. Unlike a reactive model that attempts to secure compliance after misconduct through either rehabilitation or deterrence, the corporation and its employees are not pitted against each other as they try to obtain the best benefit for the entity. Finally, government sponsored education allows the government to reap the benefit of better evidence against a company or individuals within the entity when the company fails to comply with the law. 
From a pure economic perspective, another argument of note is the fact that "The government expends enormous resources prosecuting corporate criminality. It can prove equally, if not more so, expensive to the corporation that needs to defend itself against these actions and accompanying civil actions that may accrue from a prosecution or the corporation's entry into a deferred or non-prosecution agreement" to argue that "In these days of limited resources, one has to wonder if a pro-active model might provide a better method for achieving corporate compliance. Reaching out and educating corporations as to what will be considered unacceptable conduct can allow corporations to formulate better compliance programs."

In all, the paper proves to be a recommended reading for those interesting in this aspect of corporate governance. Have a look.

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