Exhibit A: The Perils of Outdated Policies

by NAVEX Global

Well structured, updated policies can be a first line of defense against employment related litigation and regulatory investigations. However, an organization’s policies can quickly turn from defensive tactic to litigation aid if an effective policy management system is not in place to keep up with the pace of changing legislation.

No Policy vs. an Outdated Policy

Outdated policies can be used against the organization they were intended to protect.  In 2009 a large restaurant company was fined more than $1 million for gender-based discrimination under Title VII of the Civil rights Act of 1964. The company had a longstanding policy, which was established in 1938, that prohibited the hiring of men as food servers. The company maintained the same policy for 39 years following the enactment of Title VII, until a discrimination charge was finally filed in 2003.

This extreme example of failing to review and update policies is not unique. An examination of Equal Employment Opportunity Commission cases reveals numerous similar examples of organizations penalized for failing to align “longstanding” policies with current laws.

This stark example raises the question: Is it better to have no policy at all than a policy that is not followed? There is no easy answer, but what is certain is that companies that approach policy management strategically and exercise ruthless discipline with respect to their policies will yield returns in organizational alignment, corporate culture and, ultimately, their bottom-line results.

Exhibit A in a Defense

Take Morgan Stanley as a high-profile example. In 2012 the US Department of Justice (DOJ) declined to prosecute the company when employee Garth Peterson violated the Foreign Corrupt Practices Act (FCPA) because “Morgan Stanley’s internal policies, which were updated regularly to reflect regulatory developments and specific risks, prohibited bribery and addressed corruption risks…”

The DOJ statement  further reveals it declined to bring any enforcement action as   “…Morgan Stanley trained Peterson on the FCPA seven times and reminded him to comply with the FCPA at least 35 times. Morgan Stanley’s compliance personnel regularly monitored transactions, randomly audited particular employees, transactions and business units, and tested to identify illicit payments.”

Proving your Policy has Been Heard

As clearly illustrated in the Morgan Stanley example, policies alone were insufficient. It was the company’s ability to prove regular training and monitoring that protected it from prosecution.

A good colleague, who is a prominent compliance attorney, recently shared with me a compelling example of the perils of policy mismanagement, and the ensuing lack of consistent evidentiary data to protect the organization.  A major Fortune 50 client took disciplinary action against a number of employees who engaged in the circulation of sexually explicit images using their computers. After an investigation, the company discovered that the practice was widespread and issued suspensions and termination notices to the worst offenders. However, a number of those disciplined challenged the action on the basis that that “everyone was doing it” and no policy that specifically prohibited their actions had been circulated.

The Company had a clear and comprehensive sexual harassment prevention policy in place that clearly applied in this case.  However, upon review they were unable to prove the policy had been received and, more significantly, it discovered that multiple version of the policy existed on various websites.

Check out NAVEX Global’s blog entry on tips for the transformation of policy & procedure here.

The Consequences of Mismanagement

The lack of policy tracking and centralization meant that the company in the above scenario had no way of ensuring the updates were included across all platforms or that they were sent to employees with an electronic signature. Ultimately, the employees who were dismissed had their disciplinary action converted into a warning. However, more than one manager had their employment terminated over mismanagement of the sexual harassment policy.  The lasting impact of this kind of HR mess is immeasurable. 

The incident served as an expensive lesson, demonstrating that policy mismanagement is one of the leading causes of failed enforcement of good business standards.  These situations frequently flow from failure of updating and failure of provable distribution rather than from the policy being defectively drafted.  While the missteps seem so rudimentary and basic, the consequences can be devastating.

For a deeper analysis, NAVEX Global’s Definitive Guide to Policy Management is worth a review.


Written by:

NAVEX Global

NAVEX Global on:

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