DOJ Issues New Compliance Guidelines – How Does Your EHS Program Measure Up?

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Benjamin Franklin, known for his wisdom and sophisms, uttered a number of now famous quotes, including, “an ounce of prevention is worth a pound of cure.”  That particular quote has its roots in Franklin’s efforts to organize the Philadelphia Union Fire Company and the creation of institutionalized fire-fighting.  The underlying theme, that it was far better to prevent a city-wide fire than to rebuild a destroyed city.  Franklin also said, “it takes many good deeds to build a good reputation, and only one bad one to lose it.”

These two themes  are still very germane today, and extend to corporate reputation and risk-based governing principles.  Most companies strive to insure their employees are sufficiently trained and have all the tools they need to make good and safe decisions.  But all companies are filled with employees of varying capacities and backgrounds, and these same employees will make tens if not hundreds of discrete decisions every day.  While the vast many of these decisions are routine and immaterial and won’t lead to an environmental incident or occupational injury, odds are that a poor decision eventually will be made that results in a catastrophic spill, fire, employee death, or investigation that will find its way onto social media, such as Facebook, or local newspaper. Such events can cause unwanted attention and serious damage to a company’s reputation and, by extension, a company’s performance in the marketplace.

According to a 2007 Harvard Business Review article titled Reputation and Its Risks,

Executives know the importance of their companies’ reputations. Firms with strong positive reputations attract better people. They are perceived as providing more value, which often allows them to charge a premium. Their customers are more loyal and buy broader ranges of products and services. Because the market believes that such companies will deliver sustained earnings and future growth, they have higher price-earnings multiples and market values and lower costs of capital. Moreover, in an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations.

So, with so much at risk, it is surprising that more companies don’t stress-test their compliance programs to understand how well they will withstand scrutiny if and when they reviewed by government.

This past week, the Department of Justice’s fraud section issued new guidance titled Evaluation of Corporate Compliance Programs, which provides a road-map of sorts for what federal prosecutors will be evaluating in deciding whether to pursue criminal versus civil charges when something goes wrong.  The Guidance explains the utility of its elements:

The Principles of Federal Prosecution of Business Organizations in the United States Attorney’s Manual describe specific factors that prosecutors should consider in conducting an investigation of a corporate entity, determining whether to bring charges, and negotiating plea or other agreements. These factors, commonly known as the “Filip Factors,” include “the existence and effectiveness of the corporation’s pre-existing compliance program” and the corporation’s remedial efforts “to implement an effective corporate compliance program or to improve an existing one.”

 

Because a corporate compliance program must be evaluated in the specific context of a criminal investigation that triggers the application of the Filip Factors, the Fraud Section does not use any rigid formula to assess the effectiveness of corporate compliance programs. We recognize that each company’s risk profile and solutions to reduce its risks warrant particularized evaluation. Accordingly, we make an individualized determination in each case.

 

There are, however, common questions that we may ask in making an individualized determination. This document provides some important topics and sample questions that the Fraud Section has frequently found relevant in evaluating a corporate compliance program. 

Companies would be wise to heed the words of Benjamin Franklin – an ounce of prevention really can be worth the pound of cure.

Please contact Earth & Water Group if you would like to discuss an evaluation of your compliance program.  A summary of our services can be found here, E&W EHS Assessment Services (Feb. 2017).