5/22/2014

SCCE Higher Education Compliance Conference

Austin, TX June 2,2014

John R Steer
Clemson, SC

The Federal Sentencing Guidelines for

Organizations (FSGO) provide a workable
basic framework for a comprehensive
compliance and ethics program.

The Rutland Institute for Ethics at Clemson
University offers individuals an “Ethical
Toolkit” and decision-making model
adaptable for diverse circumstances.

Both a well-designed compliance program
and a workable ethical choice process for
individuals are needed for success.

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Derivation of 1991 Initial Guidelines

◦ Key 2004 Amendments
◦ Principal 2010 Amendments

Major objectives of the guidelines

Principal features of the policy scheme

Reinforcement of the Sentencing Commission
model over time

Examination of important compliance
program components

Authorization: The Sentencing Reform Act of

1984
◦ Principal purposes to reduce sentencing disparity,
prevent crime
◦ US Sentencing Commission to develop sentencing
guidelines for individuals and organizations

Initial 1991 FSGO pioneered concept of
punishment mitigation for organizations w/
effective compliance program and for
cooperation

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1. Establish Standards and Procedures to achieve

and maintain Compliance with the law.
2. Ensure High Level Responsibility for
implementation.
3. Avoid delegating responsibility to known
problem persons.
4. Communicate/train effectively all personnel and
agents.
5. Monitor/audit effectively; establish Internal
Reporting System/Hotline.
6. Discipline violators appropriately but effectively.
7. Respond promptly to problems, Remedy
appropriately,, Strengthen program..
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Immediate Goal: Reduce sentencing

punishment.

Intermediate societal objective–
Incentivize businesses to develop
Internal Control Systems to achieve and
maintain Compliance..

Long term societal objective—Reduce,
prevent crime; promote Good Corporate
Citizenship and more Ethical Business
Cultures.

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2004 Updating and Strengthening Amendments

Created more visible, stand alone Guideline,
Section 8B2.1, describing more detailed elements
of an Effective Compliance and Ethics Program.

Expressly joined Ethics and Compliance
functions, emphasizing importance of
Organizational Culture..

Emphasized importance of Risk Assessments..

Established express Governing Authority
Responsibilities.

Strengthened all program elements.

2010 Amendments

Clarified expected responsive and remedial actions
when violations occur:
1. Restitution, remediation
2. Voluntary disclosure
3. Compliance program review, possible outside expertise

Emphasized importance of CCO Direct Reporting ,
Independence
1. Direct reporting to governing authority re: criminal conduct
occurrences and at least yearly re: compliance program
operation
2. Policy expressed in context of judging program as effective
even if high level person involved in wrongdoing.

Fact of Whistleblower Report does not render
program per se ineffective.

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The Courts

The US Congress

Federal Regulatory Agencies

The Securities and Exchange Commission

The US Department of Justice

In Re Caremark Int’l. Inc. Derivative Litig., 698 A.2d

959 (Del. Chancery, 1996)
◦ Shareholders sued Board (unsuccessfully)for failure to prevent
and confront unlawful conduct by health care company.
◦ Chancellor Allen admonished governing authorities to heed
FSGO compliance program features.

Burlington Industries v. Ellerth, 524 U. S. 742 (1998).
◦ US Supreme Ct recognized value of effective compliance
programs and prompt corrective action as part of affirmative
company defense to sexual harassment suit under Title VII of
Civil Rights Act of 1964.

United States v. Booker, 543 U. S. 220 (2005), and its
progeny.
◦ Changing sentencing guidelines from presumptively
mandatory to Advisory has not diminished their importance as
internal control system template.

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Foreign Corrupt Practices Act of 1977.

1977
◦ Led to Corporate Codes of Conduct prohibiting overseas bribery.
◦ Enforcement priority today for SEC, DOJ.

Sarbanes Oxley Act of 2002.
◦ Public companies must report re: ethics codes for financial,
accounting officers.
◦ U. S. Sentencing Commission directed to review, strengthen FSGO.

Dodd-
Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010.
◦ 2000+ pages of law; approx. 50% implementing regulations
issued to date.
◦ No direct mention of compliance programs.
◦ Strengthened hand of Whistleblowers,
Whistleblowers providing indirect impetus
to bolster compliance program internal reporting and
investigation systems.

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Environmental Protection Agency

◦ recognizes value of effective compliance programs
and cooperation as bases to refrain from DOJ
Criminal or Civil Enforcement.

Equal Employment Opportunity Commission
◦ Similar

Dept. of Health and Human Services

Dept. of Education (Office of Civil Rights—
Title IX)

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Principles of Federal Prosecution of Business

Organizations (Thompson/McNulty, etc.
Memoranda).
◦ Prosecution decisions based significantly on
compliance program effectiveness ,
cooperation (including voluntary disclosure).
◦ DOJ evaluation of Compliance Programs.

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Considerations include:
1. Program designed for maximum effectiveness, most likely
risks??
2. Applied earnestly and in good faith? Does it work?
3. Supported with adequate staff and resources?
4. Employee awareness of program; effectiveness of training.
5. Effective internal reporting system for employees and to
governing authority.
6. Sufficient internal audits; accurate results.
7. Violators effectively disciplined.
8. Violations promptly investigated, disclosed.
9. Program deficiencies promptly remedied.
10. Compliance program functions sufficiently independent.

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Since 2004, FSGO state two Overarching

Requirements for an Effective C&E Program:
1. Due Diligence to Prevent and Detect Violations..
2. Promotion of an Organizational Culture that
encourages Ethical Conduct and Commitment to
Compliance with the law. Section 8B2.1(a).

Practice Points:: Ethical conduct derives from
organization’s Core Values
◦ Nominally expressed in Code of Conduct, Mission
Statement, Board and Management statements.
◦ Practically embodied in how the organization operates
daily..
◦ “Tone” –What matters most are not words but actions so
that Tone becomes Ethical Culture and Standard
Operating Procedure..

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Since 2004 FSGO require Periodic Risk

Assessments with findings used to design,
implement, or modify each C&E program
element. Section 8B2.1(c), App. n.7.

Practice Points:: Periodic risk assessments should
cover:
◦ Nature and seriousness of likely misconduct.
◦ Particular risks associated w/ nature of activities..
◦ Particular risks associated w/ prior org. history..
◦ Risks should be prioritized.
◦ Ongoing, effective risk assessments are of heightened
importance in heavily regulated components to protect
public health and safety.

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Since 1991, FSGO require ongoing, effective

training to communicate org. standards and
procedures to all personnel and agents.
8B2.1(b)(4)(A).

Training, appropriate for org. roles,
responsibilities must include Boards, senior
management.8B2.1(b)(4)(B).
8B2.1(b)(4)(B). 2004 amend.

Practice Points: Org. should document education
(whether conducted on-line or in person),
employee completion, test for understanding,
audit for performance, remedy deficiencies.
Maintain records.

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FSGO require reasonably prompt steps to

investigate detected misconduct, respond
appropriately, prevent reoccurrence (including
necessary modifications to strengthen C&E
Program). Section 8B2.1(b)(70, App.n. 6.

Remedial actions generally will include restitution
or appropriate harm remediation..

Practice Points: Self reporting and cooperation
are organization’s call but get heavy emphasis
from regulatory agencies, DOJ.

Preventive actions generally include assessing,
modifying C&E Program, discipline of individual
violators, outside professional assistance (often
necessary to satisfy regulators, DOJ).

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As amended in 2004 and 2010, FSGO emphasize strength

and independence of C&E function. Section 8B2.1(b)(2),
App. n.3.
◦ High level responsibility for C&E Program.
◦ Periodic (at least yearly) reporting to management and Board.
◦ Adequate resources, authority, access to governing authority.

FSGO strongly suggest direct reporting for CCO to
governing authority or subgroup charged w/ compliance
oversight. Section 8B2.5(f)(C)(i), App. n. 11.
◦ Prompt reporting to Board re: criminal conduct.
◦ At least yearly reporting on implementation, effectiveness of C&E
Program.

Practice Point: Compliance independence increasingly
important to DOJ, others.

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FSGO have evolved over 2+ decades from

punishment mitigation at sentencing to a
template for all forms of compliance programs
(criminal, civil, ethical misconduct).

Elements of an effective C&E Program are
applicable to all risk areas and types of
violations.

The FSGO continue to represent the best
fundamental model to achieve Compliance and
Ethical behavior-one that is institution/industry
flexible and internationally recognized.

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Compliance Program provides the Policies,

Structure, and Methodology.

Ethical Choice Process helps individual actors
make sound decisions within the compliance
framework.

What do we mean by an Ethical Choice
Process and how might it work?

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One such model has been developed by the

Rutland Institute for Ethics at Clemson
University.

http://www.clemson.edu/ethics/RIE/programs.html

Basic point: No single approach works for all
ethical problems.

Hence, consider 3 different ways of viewing
ethical dilemmas:
1. Utilitarianism.
2. The Rights-based approach.
3. Virtue ethics.

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Focuses on the Consequences or outcomes of an

action.

Goal: achieve greatest good for greatest number
w/o causing significant harm.

Right actions yield happiness; Wrong choices
yield unhappiness.

Procedural steps/ analysis:
◦ Identify the foreseeable consequences of a possible
action.
◦ Evaluate those consequences in terms of happiness yield
vs. costs.
◦ Choose the action yielding greatest overall happiness.

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Achieving the greatest happiness may violate

important individual rights and/or institution
policies.

Consequences alone can’t always determine
what’s right.

An ethical choice in some situations demands
a different analysis.

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Also known as the “Golden Rule” approach.

Focus: Every person deserves respectful
treatment.

Hence, must consider the rights and duties
owed others.

A right action applies the policy equally to all
regardless of identity or position.

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Fails to consider consequences.

Lack of pragmatism, flexibility sometimes can

yield undesirable outcomes.

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Relies on a generalized goal or aspiration rather

than a set of rules.

Focus on both the decision and the character of
the decision-maker.

Goal: Strive to become a person of admirable
character; i.e., a more ethical person.

Asks character-based questions such as:
◦ What would a person of admirable character do?
◦ If someone (e.g., the boss) was watching, what would
they want me to do?
◦ What would my mentor do?
◦ What action will make me a better person?

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Lacks a precise formula for answering ethical

questions.

Depends on internal prompts to ask the

analysis questions; hence, may assume
person already has strong moral compass.

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Best to apply all 3 tools when considering an

ethical dilemma.

If a solution can meet all 3 criteria; i.e.,
1. bring about good consequences,
2. respect rights (and institution policies), &
3. help decision-maker become a more ethical person,

Then, convergence indicates a good, ethical
decision.

If imperfect convergence, the following 4-step
process/model can help decide:
1. Identify.
2. Analyze.
3. Justify.
4. Decide.

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Identify the problem and stakeholders. Ask:

◦ What constitutes the problem?
◦ What are the issues at stake?
◦ What are the significant factors?
◦ Who has a stake in the outcome?
◦ What is at stake for each?
◦ What are the available options?

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Analyze and compare options using the 3

analytical tools to get different perspectives.

Utilitarian/consequences tool asks:
◦ What are the foreseeable and likely consequences
for each option?
◦ Which option generates the greatest good for the
greatest number?

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The Rights-based tool asks:

◦ Which option is most just?
◦ What are the goals/intentions behind each option?
◦ Would you be willing to be on the receiving end?
◦ Does the preferred option respect the rights of all?

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The Virtue Ethics/ Aspiration tool asks:

◦ Which option best promotes integrity and good
character?
◦ Which option best contributes to the person you
wish to become (personally and professionally)?
◦ Which option would your boss and your mentor
choose?

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Explain and Justify the choice of options.

Questions to consider in this process:
◦ What are the benefits of the preferred choice?
◦ What are the risks and costs?
◦ What happens if the contemplated choice is not
made?
◦ Have all realistic alternatives been
considered?
◦ Can the action be explained and defended?

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Follow through with action.

Relevant questions in this process:
◦ What is the best way to implement the decision?
◦ How can I maximize the good and minimize any
harms?
◦ How can I make the decision “count”?

Courage and commitment to act are
essential.

The Action may be hardest part of using the
IAJD model.

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Careful and Deliberative

A Skill to learn and practice

No easy answers or “pat” approach

Using the 3-step Toolkit and the 4-step IAJD
model can develop confidence in ethical
decision-making.

Other approaches to ethical decision-making
have also been developed.

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http://www.scu.edu/ethics/ethical-
http://www.scu.edu/ethics/ethical-decision

Identify the relevant facts and the stakeholders.

Evaluate contemplated best decision option from
5 ethical perspectives:
1. Utility
2. Rights
3. Justice
4. Common Good
5. Virtue

Weigh the 5 perspectives, assigning points to
each totaling 100.
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(Based on the FSGO Model)

A means of assessing risks and designing
strategic responses.

A means of communicating institution
policies and receiving regular feedback.

An effective problem redress process.

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Helps individuals sensitize their own moral

compass.

Ensures they think seriously about decisions,
ask questions, and hopefully make sound
decisions.

Helps individuals better achieve aspirations.

Promotes an institution culture that
encourages ethical conduct and compliance.

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Both lend themselves well to the higher

education institutional framework.

Both work together to achieve desired results.

Externally, the combination works to ensure a
compliant , ethical institution.

Internally and individually, they help
individuals carry out their daily work w/
greater confidence they are making sound
choices.

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You have a new employee in one of the units

you manage. Near the end of the 90-day
probationary period the employee’s supervisor
comes to you with an unfavorable rating of the
employee. He outlines a list of substandard
performances and says the employee lacks the
experience the employee says he had. He
recommends cutting him loose. You have just
learned, however, that the new employee is
marrying the Department Head’s daughter in a few
months.

What will you do?

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Your position in the department results in a

number of students coming to you for help with both
academic and personal problems. Near the end of one
day an attractive female student comes to you in tears
and wants to talk. She says she was at a party, had a lot
to drink, and ended up having sex with two guys who
were on the football team. She says they forced
themselves on her, but she has been too embarrassed
to report it to the police. She did not know the identity
of one of the guys but the other happens to be the star
running back on the team. You are a rabid sports fan
yourself and know the team is playing in the
Championship game next weekend.

What do you do?

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You have just been promoted to manage an

institutional unit the University President recently
recognized as being one of the University’s best. But,
as you settle into the job and start crunching the
numbers, you realize things are way off. Your
predecessor as manager is a good friend. When you
confront him with the discrepancy, he admits he had
been fudging the numbers, as he really needed the big
promotion he just got to pay family medical bills. On
top of this, you have just learned the Administration is
assessing which under-performing units it can
downsize because of a funding shortfall.

What do you do?

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