Contrary to former candidate Romney’s view of the world (“Corporations are people”), you cannot put a company in jail. Try as you might, it just can’t be done.
How to treat corporations in our criminal justice system is an interesting issue. Some have even taken the position that corporate criminal liability is misdirected since shareholders are the ones who bear the brunt of any punishment and often have little to do with corporate misconduct. Others urge reform of the doctrine of respondeat superior which attributes the misconduct of a single employee to the company when acting within his or her scope of duty.
The United States Sentencing Commission has wrestled with this issue for years, which ultimately led to the adoption of the Organizational Guidelines in 1991. The Sentencing Commission is credited with spurring companies to focus on compliance programs.
Interestingly, in the early years of sentencing under the new Organizational Guidelines a significant percentage of corporate defendants sentenced under the guidelines did not have a compliance program in place. Only two companies in the last twenty years have been credited with having an “effective” compliance program as defined under the Sentencing Guidelines.
It is very likely that these numbers will change in the next few years. More companies have a compliance program and a larger number (more than 2) of these companies should have an “effective” compliance program.
The Sentencing Commission deserves a lot of credit for its work in this area. It has recognized the leadership role it can play to improve corporate governance and compliance. It has devoted time and resources to working with governance, compliance and ethics experts to determine additional incentives and measures to promote compliance.
Chief compliance officers owe a lot to the Sentencing Commission. In 2010, the Sentencing Commission adopted amendments which required that companies give chief compliance officers direct reporting access to the Board or a Board Committee. As a result, more chief compliance officers are independent and have greater access to the board.
There is still more the Sentencing Commission can do to promote compliance.
Increased compliance incentives – under the current guidelines a company can earn a three-point reduction in its base offense level for implementing an “effective” compliance program. The amount of the credit should be increased or a tiered approach could be developed depending on the company’s compliance program. I have written several times about the problems with a compliance defense and would favor increasing incentives for compliance programs at the sentencing phase.
Specific compliance program elements – the Sentencing Commission should review the compliance program elements and propose more specific requirements to reflect “best practices.” For example, for large companies there is no reason to permit a general counsel to serve as the chief compliance officer. This principle has been well established by the government and industry. There are a number of practical points which can be layered into the guidelines without damaging the flexibility needed under the guidelines.
Company size and compliance – under the current guidelines, a comment advises the sentencing court to consider the required compliance program elements in the context of the size of the company. While it is important for a court to consider this factor in assessing a compliance program, the Commission should try to take this into account in the specific guideline.