E-LEARNING UPDATE: CCG
has completed production of its Real World
E-Learning™ Sampler, a 20 minute
CD-ROM entitled “Avoiding Employee Lawsuits.” The
Sampler demonstrates and explains some of CCG's e-learning
modules and techniques, and is provided at no cost to
companies which may prefer to meet the Supreme Court’s
training mandates through e-learning, as opposed to in-person
instruction. It includes segments on unintentional sexual
harassment, file documentation, and reasonable accommodations
under the ADA.
“CCG's approach
to e-learning is unique, state of the art,
and extremely effective. It grabs and holds
the trainees' attention in novel and creative
ways and teaches decision-making (instead of
just conveying information). It includes the
kind of content, such as extensive, customized
and easy to use downloadables, that produce
real, long term behavioral changes.”
- Teresa Ciccotelli, Divisional
Counsel, Saint-Gobain Corporation
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If you wish to receive a free copy of the Sampler,
please click here.
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GET READY FOR A MANDATORY, TOP-DOWN
“CULTURE
OF COMPLIANCE”
What the Federal Government’s Evolving Response
To Enron
And WorldCom Will
Mean to HR
It’s taken a few years, but the “government must
control private industry” fallout from the Enron, WorldCom,
Global Crossing and similar corporate scandals is beginning
to extend beyond the financial and accounting world, and into
a much broader array of business issues, including the relationships
between employers and employees. Here is what we see coming:
companies that have not implemented and enforced a top-down “culture
of compliance” through an “organized compliance
effort” backed by “adequate resources” and “training
and the dissemination of training materials,” all
as defined by the federal government, will face serious, amplified
liability risks and damage awards in the event of an employment
law violation.
What is spurring this major change in the law? Believe it
or not, changes in federal sentencing guidelines.
Whether you think this is a good idea or a bad idea, you need
to get on this train now, before it runs you over.
How It Began
Historically, our government reacts – many would say
overreacts – to scandals by enacting laws and regulations.
Elected officials understandably feel the need to do something – anything -- to convince the voters that they’ve taken quick action
to address well-publicized concerns respecting, for instance,
an environmental issue, a public health threat or a public
or private corruption issue. But in the rush to appear concerned
and responsive, they often fail to consider the real world
consequences of the laws and rules they enact. Too often, legislators
take a ham-handed, blunderbuss approach that makes the innocent
majority pay for the perceived sins of a culpable minority.
The cure becomes worse than the disease.
Enter Enron, WorldCom, Global Crossing, and all other “corporate
greed” scandals of recent years, which begat Sarbanes-Oxley
and related laws – the most far-reaching business regulatory
controls since the 1930’s. Clearly, something had to
be done, but in the eyes of many respected commentators, Sarbanes-Oxley
has become the poster child for what happens when a legislature
plays to the crowd, instead of focusing on solving the problem.
An excerpt from a May 24, 2004 analysis in the The Washington
Times makes the point:
| No one denies there was a corporate governance problem
that came to a head with the Enron scandal. But in the
zeal to pass new legislation, no one in Congress stepped
back to question the magnitude of the problem.
Some 12,000 companies are required to file public financial
statements with the Securities and Exchange Commission.
According to George Benston, accounting professor at
Atlanta's Emory University, no more than a few dozen
per year ever were implicated in dishonest bookkeeping.
But rather than simply step up SEC enforcement, all
companies were treated as guilty until proven innocent
and forced to comply with onerous new regulatory requirements.
The most onerous provision of the Sarbanes-Oxley legislation
is section 404, requiring extensive new internal controls
for financial reporting. A recent study by industry
group Financial Executives International found the
average compliance cost for large companies was $4.6
million, involving 35,000 hours of internal manpower,
$1.3 million on external consulting and software, and
additional audit fees of $1.5 million.
These numbers probably are very low. FEI admits the
compliance cost jumped sharply between its 2003 and 2004
surveys, as companies became more aware of what they
had to do. On May 19, Maurice Greenberg, chairman of
AIG, the world's largest insurance company, told shareholders
Sarbanes-Oxley was costing them $300 million yearly.
General Electric recently said it was paying $30 million
per year in compliance costs.
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The regulatory push is not over. NASD Chairman Robert Glauber
commented in a speech last October that “history teaches
that in circumstances like these, Sarbanes-Oxley is very unlikely
to be Congress's last word on the subject. And the risks of
overreaction today are by no means limited to Washington.”
As explained below, he was right.
How Does This Apply to Companies Trying To Avoid Employment
Lawsuits?
Strange as it may seem, the answer to that question begins
with the Federal Sentencing Commission, which establishes the
criteria which dictate the length of sentences for federal
crimes.
In 1991, the Commission began to focus on “organizational
compliance efforts” – that is, corporate efforts
designed to prevent violations of the law, instead of ferreting
them out only after it’s too late. The Commission stressed
the idea that a corporation accused of a crime should be treated
more leniently if it had, prior to the offense, implemented
a compliance program in the effort to prevent wrongdoing. General
pronouncements were issued to the effect that the more and
better the preventive efforts, the less culpable a corporation
would be deemed for sentencing purposes.
Between then and now, the headlines have been dominated by
accusations of corporate misconduct, leading to the conclusion,
however unsupported by data, that the Commission’s 1991
efforts did not go far enough. Thus, in December 2003, an Advisory
Group empowered to make recommendations to the Sentencing Commission
significantly increased the focus on corporate compliance,
demanding that corporations be required, from the top down,
to implement a “culture of compliance” through
specific, sometimes draconian measures.
This seemingly unrelated edict has raised the collective corporate
blood pressure of those who understand the regulatory process,
in the employment law as well as other contexts. What’s
the big deal?
Historically, the reach of these sentencing guidelines has
extended way beyond anything to do with crimes and prison terms:
the compliance practices endorsed by these sentencing guidelines
have become the standard imposed upon companies generally,
in all sorts of contexts. The logic has been this: if doing “X” gets
you a lighter sentence and not doing “X” increases
your sentence, then doing “X” should be a hallmark
of good corporate practice and not doing “X” a
hallmark of bad corporate practice.
The Advisory Group acknowledged this tendency for legal and
business standards to piggyback on the sentencing guidelines
in its December 2003 report:
| Over the last twelve years legal standards in a remarkably
diverse range of fields have recognized organizational
law compliance programs as important features of responsible
organizational conduct. The legal standards which have
emerged are often built upon the original organizational
sentencing guidelines model. |
The Advisory Group knew full well that what it was doing would
affect the way in which businesses would be required to conduct
themselves in the future.
| These proposed changes … are also designed to respond
to the lessons learned through the experience of national
corporate scandals over the last two years and to synchronize
the organizational sentencing guidelines with new federal
legislation and emerging public and private regulatory
requirements. |
What’s Going to Happen to Employment Practices Liabilities?
Well before the Advisory Group issued its conclusions, employers
had already been instructed by no less than the Supreme Court
that they had to get their compliance houses in order, or else.
In the late 1990’s, the Supreme Court ruled that employers
must act proactively in order to prevent employment law violations;
they could not simply promulgate “thou shalt not do…” policy
manuals to their managers, and hope for the best.
Most certainly, this required companies to analyze their current
practices, develop new practices that dovetailed with new legal
requirements, and regularly train the managers and executives
expected to implement these new practices. (Indeed, these changes
gave life to Counsel Consulting Group, which was formed to
assist companies with these new compliance efforts.) But, having
said that, there remained a lack of clarity in respect to exactly what needed to be done – how much was enough, where should
the stress be placed, and so on?
Many believe that the new sentencing guidelines will begin
to lift this fog. The sentencing guidelines will, in important
respects, likely become the benchmarks by which to assess liability
for business misconduct, including employment law violations.
What Do The Guidelines Require A Company To Do?
The new guidelines establish very specific criteria, and in the process
send very specific messages to business executives interested in avoiding
employment-related (and other) lawsuits. Here is our breakdown of the key
components of the guidelines, using the Advisory Group’s terminology,
and what you must do to comply:
- Directive: The organizational culture must
emphasize “a commitment to compliance with the
law” and the organization’s “governing
authority” and “organizational leadership” must
take responsibility for corporate compliance.
What’s it mean? Company leadership must undertake
actions and devote resources toward the prevention of
employment law violations. At a minimum, this requires
the design and implementation of compliant policies and
procedures, professional management training, and consistent
enforcement of standards. Company leadership must set
the example, and unjustified exceptions to standards
of compliance cannot be tolerated.
- Directive: The organization
must devote “adequate resources and authority” to
individuals within the organization who are responsible
for implementation of an “effective program” of
compliance.
What’s it mean? Figurehead compliance officers
will not be tolerated. Authority to effect change, coupled
with adequate budgets, must be afforded to those responsible
for a compliance program.
- Directive: Any “effective
program” must include “training and the dissemination
of training materials and information.”
What’s it mean? Merely promulgating policy manuals
will not suffice. Training and implementation will be
the key.
- Directive: Systems must be monitored and audited,
and a procedure must be implemented for “periodic
evaluation of the effectiveness of a program.” The
organization must “provide for the conduct of ongoing
risk assessments as part of the implementation” of
the compliance program.
What’s it mean? A
real compliance program is not a “one and done.” Once
real change is implemented and training provided, assessments
must be undertaken, the results analyzed, and further
remedial efforts applied as required.
- Directive: The
organization must implement “a mechanism for anonymous
reporting”.
What’s it mean? Companies
must implement real, compliant employee complaint and
investigation procedures that protect employees from
retaliation.
- Directive: The
organization must “seek guidance about actual or
potential violations of the law”.
What’s it mean? Companies
are required to seek the assistance of experts to uncover
existing or latent violations – i.e., the “legal
audit” CCG provides as part of its basic services.
|
We have been designing and implementing business compliance solutions
for many years. It’s what we do. Please contact
us if we can assist
your efforts.
WHAT DO YOU THINK?
In June, a California court gave the green light to the largest employment
practices lawsuit in history – a class action, including a claim
for punitive damages, by almost 2 million women against Wal-Mart for gender
discrimination and harassment.
In July, the EEOC announced a $54 million settlement with Morgan Stanley
for claimed gender discrimination and harassment violations.
These cases (and a few more that may also become headlines in the near
future) are providing vast amounts of publicity to the rights of employees
to sue their employers, and garner huge amounts of money in the process.
Click
here to give us your point of view. Next month we will share your
input (but we will never disclose your name, e-mail address or other identifying
data without your permission).
ANALYSIS AND REVIEW: WHAT DO YOU THINK? – June 2004
In last month’s “What Do You Think?” we asked if your
company uses arbitration agreements, employment agreements, covenants not
to compete, and similar devices as tools to protect company rights and
property as well as to minimize employment law liability. Below is a sampling
of the responses we received:
Some of your comments:
- We use these types of tools for senior level positions only,
which raises the question, should we be using them for all
positions?
- No, we are a small organization and have not used
these types of agreements – except for our CEO who has an employment
agreement.
- We started requiring our sales team to sign restrictive
covenants and it has come in handy when a competitor tried
to raid our best sales people. I am not aware of my employer using these
kinds of
things for other positions.
- Yes, we routinely use these types of documents.
Analysis:
Whether your company is large or small, it has assets to protect
and liabilities to protect against. Employment agreements and
arbitration agreements can help avoid ambiguities and unrealistic
expectations – on both sides of the employer/employee
relationship. Non-compete, non-solicitation and confidentiality
agreements can give an employer some comfort in a highly-competitive
industry. Arbitration agreements can remove the threat of runaway
juries and long term litigation.
However, there are pros and cons to all these options. For
instance, as useful as they may be, non-competes are not always
enforceable, and even though arbitration can save time and
money, most arbitration awards are not appealable, so there
is no recourse if a mistake is made. The point is simply this:
these devices can be extremely worthwhile planning and strategic
tools in the right circumstances, but the drafting nuances
and variations, and policy decisions associated with their
design and implementation, can be daunting. Consult your attorney before you sign on the dotted line.
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