Proceedings of the Second Symposium On Crime and Punishment in the United States

Corporate Crime in America: Strengthening the "Good Citizen" Corporation

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September 7-8, 1995

Washington, D.C.

Richard P. Conaboy
Chairman

Michael S. Gelacak
Vice Chairman

A. David Mazzone
Vice Chairman

Wayne A. Budd
Commissioner

Julie E. Carnes
Commissioner

Michael Goldsmith
Commissioner

Deanell R. Tacha
Commissioner

Mary Frances Harkenrider
Ex-officio

Edward F. Reilly, Jr.
Ex-officio


Introduction

Day One - Proceedings

Day Two - Proceedings


INTRODUCTION

On September 7-8, 1995, approximately 450 people gathered in Washington, D.C., for the U.S. Sentencing Commission's second symposium on crime and punishment, "Corporate Crime in America: Strengthening the 'Good Citizen' Corporation." The symposium focused on the ways in which companies, industries, and enforcement officials have responded to the organizational sentencing guidelines' "carrot and stick" incentives and other changes in the enforcement landscape that encourage businesses to develop strong compliance programs and adopt crime-controlling measures. Participants included a wide range of federal enforcement officials, representatives of Fortune 500 as well as smaller corporations, private attorneys and other consultants who advise organizations, and academics who focus on business ethics and crime.

The Sentencing Commission sponsored this second symposium on crime and punishment in furtherance of its various authorities to collect and disseminate information on sound sentencing policies and practices (see 28 U.S.C. 991-98). The event was co-chaired by Commissioners Wayne A. Budd and Michael Goldsmith.

The organizational sentencing guidelines became effective on November 1, 1991. With a general focus on the organizational guidelines' policy of tying potential penalties for criminal offenses to the quality of corporate self-policing efforts, the symposium addressed the following issues:

1. corporate experiences in developing "effective" compliance programs;

2. whether the government can (or should) do more to foster "good corporate citizenship";

3. whether and when compliance practices should be protected from disclosure;

4. new models and proposals for evolving compliance standards;

5. the role of ethics, incentives, and private inspectors general in achieving compliance;

6. whether and how overlapping enforcement schemes can be coordinated more effectively; and

7. the views and experiences of the enforcement community on compliance and related "good corporate citizenship" issues.

The first day began with a welcoming address from Judge Richard P. Conaboy, Chairman of the Sentencing Commission, who stated that at the core of the organizational guidelines is the notion that "people committed to high ethical standards and carefully considered policies can, in fact, reduce corporate crime." He added that he hoped the symposium would "provide a window" on the way in which corporations, industry groups, and government enforcement personnel are responding to the organizational sentencing guidelines' emphasis on compliance programs and other crime-deterring measures.

Two presentations followed that provided participants an overview of the organizational guidelines' operation and goals. L. Russell Burress, the Sentencing Commission's Principal Training Advisor, and Julie R. O'Sullivan, Associate Professor, Georgetown University Law Center, discussed the operation of the organizational guidelines' culpability score and other guideline features that combine to provide structured sentencing for organizations. Win Swenson, the Commission's Deputy General Counsel, then outlined the "carrot and stick" philosophy that underlies the organizational guidelines. This philosophy strongly encourages the establishment and maintenance of effective compliance plans to prevent and detect wrongdoing by providing for substantially reduced penalties for companies that have undertaken these actions but have nevertheless sustained a criminal conviction.

The program next turned to the first of 11 topical panels, each led by a moderator who laid out the issues to be addressed by the panel, facilitated the transition and interaction between the speakers, and relayed questions submitted by the audience. (Panel moderators were Jeffrey M. Kaplan of Arkin, Schaffer & Supino, and Commissioner Wayne A. Budd, Mary E. Didier, Marguerite A. Driessen, Donald A. Purdy, and Win Swenson of the Sentencing Commission). The first panel, consisting of Kenneth D. Martin of Sundstrand Corporation, Herbert L. Thornhill of the Bank of Tokyo, and John A. Meyers formerly of Tenet Healthcare Corporation, discussed experiences with compliance programs in the defense and general manufacturing, financial services, and health care industries, respectively.

Sundstrand established a government contracts-oriented compliance program in the 1980s after being prosecuted for billing irregularities and at a time when the defense industry generally was instituting compliance-related reforms. When the organizational guidelines were promulgated, Sundstrand expanded its compliance efforts to cover its commercial business and adopted an innovative "responsible executive" program in which an executive with responsibility for a specific compliance area (e.g., antitrust, environment, copyright) reports directly to the highest echelon of the company on a wide range of compliance issues relating to that area. The Bank of Tokyo responded to a climate influenced by the savings and loan crisis and new regulatory demands by instituting an integrated compliance structure based on the sentencing guidelines. After a major government investigation focused on one of its multiple businesses, Tenet Healthcare, formerly National Medical Enterprises, was required to establish costly and demanding compliance practices, some of which might have been avoided had the company been able to establish company-wide the significant compliance measures it had adopted in other sections of the company.

The next panel discussed the sharing of "best practices" information within four associations formed in large part for this information-sharing purpose. Members on the panel were Howrey & Simon attorney Alan R. Yuspeh, the coordinator of the Defense Industry Initiative on Business Ethics and Conduct, W. Michael Hoffman of the Ethics Officer Association, Thomas Furtado of United Technologies representing the Ombudsman's Association, and Anne L. Gill from Sprint who described the Telecommunications Industry Compliance Practices Forum.

The first day's luncheon keynote address was given by Senator Edward M. Kennedy (D-Mass.), one of the principal architects of the Sentencing Reform Act that created the Sentencing Commission. Senator Kennedy discussed how the organizational guidelines brought greater rationality to federal enforcement of corporate crime. This system, he said, had been characterized by "law without order," with penalties largely dependent on the views of individual judges. He emphasized that corporate crime is not "an overblown, anti-business invention of career-hungry prosecutors, regulators, and politicians," but is "both serious and distressingly common." In this regard, he praised the "serious commitment to compliance" that some companies are making.

Senator Kennedy added that government enforcement personnel must attempt to understand better what an effective compliance plan entails, and to coordinate criminal, civil, and administrative penalties to make federal policy more effective. He recommended that small businesses be given a fair opportunity to develop effective compliance plans as well.

The first afternoon panel presented the results of empirical research on compliance practices - cataloging what compliance practices companies are undertaking and shedding light on the differences between what companies believe they are doing and what employees actually perceive. The first three panelists presented results from Commission-sponsored studies: Andrew R. Apel of the Minnesota Association for Applied Corporate Ethics presented preliminary results from a national study of compliance practices; William S. Laufer of the Wharton School of Business presented the preliminary results of a study of small business compliance practices; and Edward S. Petry of the Center for Business Ethics presented preliminary results from a study of compliance practices in "compliance aware" companies. The remaining two panelists were Rebecca Goodell of Howery & Simon, and Mark Pastin of the Council of Ethical Organizations. These two panelists described, respectively, the Ethics Resource Center's survey of ethics practices and employee perceptions, and the Council of Ethical Organizations's study of organizational factors and their effect on compliance.

The first day's program concluded with two breakout sessions. One breakout session was devoted to new models and proposals for compliance standards. Edward A. Dauer, President of the National Center for Preventive Law, discussed his organization's efforts to develop standards for corporate compliance. James T. Banks, Director of Governmental and Environmental Affairs for WMX Technologies, Inc., presented the compliance plan designed by the Advisory Working Group on Environmental Sanctions. Christopher L. Bell, a member of the U.S. delegation to the Organization for International Standardization's international environmental standards initiative ("ISO 14000"), discussed the development and implications of environmental quality standards in the global arena.

The second breakout session began with a presentation by Commission Staff Assistant Mary E. Didier on the flexibility of the guidelines' approach to defining "effective" compliance strategies. Ronald Goldstock of Kroll Associates then discussed the value of using an "Independent Private Sector Inspector General" in fostering effective, credible compliance programs within organizations. Gary Edwards of the Ethics Resource Center discussed the principal causes of serious misconduct in organizations. He emphasized that a particularly problematic root cause of corporate misconduct involves employees who come to believe mistakenly that management expects them to cut legal corners.

The second day of the symposium began with a panel presenting empirical data on organizational cases. Commission Research Associate John Scalia, Jr., discussed cases sentenced to date under the guidelines, and Kirk S. Jordan of Compliance Systems Legal Group discussed criteria in consent decrees.

The next two panels examined the interaction between the enforcement community and those subject to enforcement. The first of these panels consisted of Eleanor Hill, the Inspector General at the Defense Department, William B. Lytton of Lockheed Martin Corporation, and David N. Yellen of Hofstra University Law School. Ms. Hill discussed the successes of the Defense Department's Voluntary Disclosure Program. Mr. Lytton discussed the seeming lack of coordination in federal enforcement and noted that overlapping enforcement policies can send inconsistent or even conflicting messages to organizations. Professor Yellen explored the ways in which inconsistent policies can undercut strong compliance and suggested possible reforms.

The next panel was comprised of senior Justice Department officials who detailed their approaches to enforcement, especially with respect to compliance programs. Panelists were: Robert S. Litt, Deputy Assistant Attorney General in the Criminal Division, Ronald A. Sarachan, Chief of the Environmental Crimes Section of the Environment and Natural Resources Division, Gary R. Spratling, Deputy Assistant Attorney General in the Antitrust Division, and Eugene M. Thirolf, Director of the Office of Consumer Litigation in the Civil Division. The panel was moderated by Commissioner Wayne A. Budd, formerly Associate Attorney General of the United States.

The luncheon keynote address on the second day was given by Stephen L. Hammerman, Vice Chairman of the Board of Merrill Lynch & Company, Inc. Mr. Hammerman said that the securities industry generally believes that good compliance is "good business," noting that an attack on a corporation's reputation in the securities industry will cause an important lack of confidence both in the company and the capital markets. In his view, however, management must set the tone for how employees are to behave. He emphasized that while the general counsel should participate in correcting any wrongdoing, the highest executive in the business unit "bears the primary responsibility for taking compliance action and [for reacting] if one of their people does not adhere to good compliance standards." Mr. Hammerman stated that an effective compliance program requires a consistent and sincere effort at education that involves the active participation of senior officials.

The first afternoon panel updated the status of legal privileges and their relationship to compliance practices. Commissioner Michael Goldsmith of the Sentencing Commission discussed the relationship of privilege to the organizational guidelines' carrot and stick features. After canvassing current law, Commissioner Goldsmith observed that the compliance practices contemplated by the guidelines do pose some disclosure and liability risks. He discussed the possible implications of these risks and ways practitioners may respond to them. Patricia Bangert, Deputy Attorney General for National Resources in Colorado, discussed recently enacted legislation in Colorado designed to respond to these risks - at least in the environmental area - by 1) giving privileged status to self-evaluative audits that companies perform voluntarily in administrative, civil, and criminal contexts; and 2), giving immunity to a company that performs a voluntary audit, discloses to authorities any violations found by that audit, and corrects the violations.

The ideal role of government in fostering "good corporate citizenship" was the subject of the next panel, featuring two perspectives on enforcement and compliance assurance. Steven A. Herman, the top enforcement official at the Environmental Protection Agency (EPA), discussed a variety of programs and approaches EPA has undertaken to foster good corporate citizenship in the environmental area.

Joseph E. Murphy of Bell Atlantic recommended that government enforcement officials learn more about the practicalities of establishing compliance and ethics programs. He stressed the need for more incentives from government to reward innovative, compliance-supporting corporate actions. He expressed concern, for example, that voluntary disclosure can cause companies more negative consequences than positive.

The final panel was comprised of four experts of diverse backgrounds who faced the challenging task of describing what they found to be the most important themes and issues - for both the business community and government - raised during the course of the conference. The final panelists were: Neal S. Cartusciello of Shanley & Fisher, Janet C. Cook, from the U.S. Air Force, Richard S. Gruner of the Whittier Law School, and Lynn Sharp Paine from the Harvard Business School.

This proceedings book attempts to capture the flavor and substance of the symposium. In addition to reproducing presentations by symposium speakers, the book includes responses to questions that were submitted to speakers, but to which time did not permit answers during the program itself, as well as an analysis of ideas and issues that symposium attendees found most significant. Because of space considerations, not all overheads used at the symposium are included in this volume.

The Commission will continue to monitor sentencing practices for organizational defendants, amend the guidelines as experience warrants, and encourage organizational guideline training. In addition, the Commission will communicate with the private sector, business and law schools, and other interested parties to promote a more ethical, law-abiding corporate culture, and will work with law enforcement on issues concerning consistent, effective enforcement policies.

INTRODUCTION

On September 7-8, 1995, approximately 450 people gathered in Washington, D.C., for the U.S. Sentencing Commission's second symposium on crime and punishment, "Corporate Crime in America: Strengthening the 'Good Citizen' Corporation." The symposium focused on the ways in which companies, industries, and enforcement officials have responded to the organizational sentencing guidelines' "carrot and stick" incentives and other changes in the enforcement landscape that encourage businesses to develop strong compliance programs and adopt crime-controlling measures. Participants included a wide range of federal enforcement officials, representatives of Fortune 500 as well as smaller corporations, private attorneys and other consultants who advise organizations, and academics who focus on business ethics and crime.

The Sentencing Commission sponsored this second symposium on crime and punishment in furtherance of its various authorities to collect and disseminate information on sound sentencing policies and practices (see 28 U.S.C. 991-98). The event was co-chaired by Commissioners Wayne A. Budd and Michael Goldsmith.

The organizational sentencing guidelines became effective on November 1, 1991. With a general focus on the organizational guidelines' policy of tying potential penalties for criminal offenses to the quality of corporate self-policing efforts, the symposium addressed the following issues:

1. corporate experiences in developing "effective" compliance programs;

2. whether the government can (or should) do more to foster "good corporate citizenship";

3. whether and when compliance practices should be protected from disclosure;

4. new models and proposals for evolving compliance standards;

5. the role of ethics, incentives, and private inspectors general in achieving compliance;

6. whether and how overlapping enforcement schemes can be coordinated more effectively; and

7. the views and experiences of the enforcement community on compliance and related "good corporate citizenship" issues.

The first day began with a welcoming address from Judge Richard P. Conaboy, Chairman of the Sentencing Commission, who stated that at the core of the organizational guidelines is the notion that "people committed to high ethical standards and carefully considered policies can, in fact, reduce corporate crime." He added that he hoped the symposium would "provide a window" on the way in which corporations, industry groups, and government enforcement personnel are responding to the organizational sentencing guidelines' emphasis on compliance programs and other crime-deterring measures.

Two presentations followed that provided participants an overview of the organizational guidelines' operation and goals. L. Russell Burress, the Sentencing Commission's Principal Training Advisor, and Julie R. O'Sullivan, Associate Professor, Georgetown University Law Center, discussed the operation of the organizational guidelines' culpability score and other guideline features that combine to provide structured sentencing for organizations. Win Swenson, the Commission's Deputy General Counsel, then outlined the "carrot and stick" philosophy that underlies the organizational guidelines. This philosophy strongly encourages the establishment and maintenance of effective compliance plans to prevent and detect wrongdoing by providing for substantially reduced penalties for companies that have undertaken these actions but have nevertheless sustained a criminal conviction.

The program next turned to the first of 11 topical panels, each led by a moderator who laid out the issues to be addressed by the panel, facilitated the transition and interaction between the speakers, and relayed questions submitted by the audience. (Panel moderators were Jeffrey M. Kaplan of Arkin, Schaffer & Supino, and Commissioner Wayne A. Budd, Mary E. Didier, Marguerite A. Driessen, Donald A. Purdy, and Win Swenson of the Sentencing Commission). The first panel, consisting of Kenneth D. Martin of Sundstrand Corporation, Herbert L. Thornhill of the Bank of Tokyo, and John A. Meyers formerly of Tenet Healthcare Corporation, discussed experiences with compliance programs in the defense and general manufacturing, financial services, and health care industries, respectively.

Sundstrand established a government contracts-oriented compliance program in the 1980s after being prosecuted for billing irregularities and at a time when the defense industry generally was instituting compliance-related reforms. When the organizational guidelines were promulgated, Sundstrand expanded its compliance efforts to cover its commercial business and adopted an innovative "responsible executive" program in which an executive with responsibility for a specific compliance area (e.g., antitrust, environment, copyright) reports directly to the highest echelon of the company on a wide range of compliance issues relating to that area. The Bank of Tokyo responded to a climate influenced by the savings and loan crisis and new regulatory demands by instituting an integrated compliance structure based on the sentencing guidelines. After a major government investigation focused on one of its multiple businesses, Tenet Healthcare, formerly National Medical Enterprises, was required to establish costly and demanding compliance practices, some of which might have been avoided had the company been able to establish company-wide the significant compliance measures it had adopted in other sections of the company.

The next panel discussed the sharing of "best practices" information within four associations formed in large part for this information-sharing purpose. Members on the panel were Howrey & Simon attorney Alan R. Yuspeh, the coordinator of the Defense Industry Initiative on Business Ethics and Conduct, W. Michael Hoffman of the Ethics Officer Association, Thomas Furtado of United Technologies representing the Ombudsman's Association, and Anne L. Gill from Sprint who described the Telecommunications Industry Compliance Practices Forum.

The first day's luncheon keynote address was given by Senator Edward M. Kennedy (D-Mass.), one of the principal architects of the Sentencing Reform Act that created the Sentencing Commission. Senator Kennedy discussed how the organizational guidelines brought greater rationality to federal enforcement of corporate crime. This system, he said, had been characterized by "law without order," with penalties largely dependent on the views of individual judges. He emphasized that corporate crime is not "an overblown, anti-business invention of career-hungry prosecutors, regulators, and politicians," but is "both serious and distressingly common." In this regard, he praised the "serious commitment to compliance" that some companies are making.

Senator Kennedy added that government enforcement personnel must attempt to understand better what an effective compliance plan entails, and to coordinate criminal, civil, and administrative penalties to make federal policy more effective. He recommended that small businesses be given a fair opportunity to develop effective compliance plans as well.

The first afternoon panel presented the results of empirical research on compliance practices - cataloging what compliance practices companies are undertaking and shedding light on the differences between what companies believe they are doing and what employees actually perceive. The first three panelists presented results from Commission-sponsored studies: Andrew R. Apel of the Minnesota Association for Applied Corporate Ethics presented preliminary results from a national study of compliance practices; William S. Laufer of the Wharton School of Business presented the preliminary results of a study of small business compliance practices; and Edward S. Petry of the Center for Business Ethics presented preliminary results from a study of compliance practices in "compliance aware" companies. The remaining two panelists were Rebecca Goodell of Howery & Simon, and Mark Pastin of the Council of Ethical Organizations. These two panelists described, respectively, the Ethics Resource Center's survey of ethics practices and employee perceptions, and the Council of Ethical Organizations's study of organizational factors and their effect on compliance.

The first day's program concluded with two breakout sessions. One breakout session was devoted to new models and proposals for compliance standards. Edward A. Dauer, President of the National Center for Preventive Law, discussed his organization's efforts to develop standards for corporate compliance. James T. Banks, Director of Governmental and Environmental Affairs for WMX Technologies, Inc., presented the compliance plan designed by the Advisory Working Group on Environmental Sanctions. Christopher L. Bell, a member of the U.S. delegation to the Organization for International Standardization's international environmental standards initiative ("ISO 14000"), discussed the development and implications of environmental quality standards in the global arena.

The second breakout session began with a presentation by Commission Staff Assistant Mary E. Didier on the flexibility of the guidelines' approach to defining "effective" compliance strategies. Ronald Goldstock of Kroll Associates then discussed the value of using an "Independent Private Sector Inspector General" in fostering effective, credible compliance programs within organizations. Gary Edwards of the Ethics Resource Center discussed the principal causes of serious misconduct in organizations. He emphasized that a particularly problematic root cause of corporate misconduct involves employees who come to believe mistakenly that management expects them to cut legal corners.

The second day of the symposium began with a panel presenting empirical data on organizational cases. Commission Research Associate John Scalia, Jr., discussed cases sentenced to date under the guidelines, and Kirk S. Jordan of Compliance Systems Legal Group discussed criteria in consent decrees.

The next two panels examined the interaction between the enforcement community and those subject to enforcement. The first of these panels consisted of Eleanor Hill, the Inspector General at the Defense Department, William B. Lytton of Lockheed Martin Corporation, and David N. Yellen of Hofstra University Law School. Ms. Hill discussed the successes of the Defense Department's Voluntary Disclosure Program. Mr. Lytton discussed the seeming lack of coordination in federal enforcement and noted that overlapping enforcement policies can send inconsistent or even conflicting messages to organizations. Professor Yellen explored the ways in which inconsistent policies can undercut strong compliance and suggested possible reforms.

The next panel was comprised of senior Justice Department officials who detailed their approaches to enforcement, especially with respect to compliance programs. Panelists were: Robert S. Litt, Deputy Assistant Attorney General in the Criminal Division, Ronald A. Sarachan, Chief of the Environmental Crimes Section of the Environment and Natural Resources Division, Gary R. Spratling, Deputy Assistant Attorney General in the Antitrust Division, and Eugene M. Thirolf, Director of the Office of Consumer Litigation in the Civil Division. The panel was moderated by Commissioner Wayne A. Budd, formerly Associate Attorney General of the United States.

The luncheon keynote address on the second day was given by Stephen L. Hammerman, Vice Chairman of the Board of Merrill Lynch & Company, Inc. Mr. Hammerman said that the securities industry generally believes that good compliance is "good business," noting that an attack on a corporation's reputation in the securities industry will cause an important lack of confidence both in the company and the capital markets. In his view, however, management must set the tone for how employees are to behave. He emphasized that while the general counsel should participate in correcting any wrongdoing, the highest executive in the business unit "bears the primary responsibility for taking compliance action and [for reacting] if one of their people does not adhere to good compliance standards." Mr. Hammerman stated that an effective compliance program requires a consistent and sincere effort at education that involves the active participation of senior officials.

The first afternoon panel updated the status of legal privileges and their relationship to compliance practices. Commissioner Michael Goldsmith of the Sentencing Commission discussed the relationship of privilege to the organizational guidelines' carrot and stick features. After canvassing current law, Commissioner Goldsmith observed that the compliance practices contemplated by the guidelines do pose some disclosure and liability risks. He discussed the possible implications of these risks and ways practitioners may respond to them. Patricia Bangert, Deputy Attorney General for National Resources in Colorado, discussed recently enacted legislation in Colorado designed to respond to these risks - at least in the environmental area - by 1) giving privileged status to self-evaluative audits that companies perform voluntarily in administrative, civil, and criminal contexts; and 2), giving immunity to a company that performs a voluntary audit, discloses to authorities any violations found by that audit, and corrects the violations.

The ideal role of government in fostering "good corporate citizenship" was the subject of the next panel, featuring two perspectives on enforcement and compliance assurance. Steven A. Herman, the top enforcement official at the Environmental Protection Agency (EPA), discussed a variety of programs and approaches EPA has undertaken to foster good corporate citizenship in the environmental area.

Joseph E. Murphy of Bell Atlantic recommended that government enforcement officials learn more about the practicalities of establishing compliance and ethics programs. He stressed the need for more incentives from government to reward innovative, compliance-supporting corporate actions. He expressed concern, for example, that voluntary disclosure can cause companies more negative consequences than positive.

The final panel was comprised of four experts of diverse backgrounds who faced the challenging task of describing what they found to be the most important themes and issues - for both the business community and government - raised during the course of the conference. The final panelists were: Neal S. Cartusciello of Shanley & Fisher, Janet C. Cook, from the U.S. Air Force, Richard S. Gruner of the Whittier Law School, and Lynn Sharp Paine from the Harvard Business School.

This proceedings book attempts to capture the flavor and substance of the symposium. In addition to reproducing presentations by symposium speakers, the book includes responses to questions that were submitted to speakers, but to which time did not permit answers during the program itself, as well as an analysis of ideas and issues that symposium attendees found most significant. Because of space considerations, not all overheads used at the symposium are included in this volume.

The Commission will continue to monitor sentencing practices for organizational defendants, amend the guidelines as experience warrants, and encourage organizational guideline training. In addition, the Commission will communicate with the private sector, business and law schools, and other interested parties to promote a more ethical, law-abiding corporate culture, and will work with law enforcement on issues concerning consistent, effective enforcement policies.


United States Sentencing Commission