PROCEEDINGS OF THE SECOND SYMPOSIUM ON CRIME AND PUNISHMENT IN THE UNITED STATES Corporate Crime in America: Strengthening the “Good Citizen” Corporation SEPTEMBER 7-8, 1995 WASHINGTON , D.C. Corporate Crime in America: Strengthening the “Good Citizen” Corporation 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 Corporate Crime in America: Strengthening the “Good Citizen” Corporation 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 iii U.S. Sentencing Commission 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. iv Corporate Crime in America: Strengthening the “Good Citizen” Corporation 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