The Justice Department is raising the bar on corporate compliance, and Michael Volkov believes we are witnessing a watershed moment. In this episode of Corruption, Crime and Compliance, he explains the significant revisions to the evaluation of corporate compliance programs, the new corporate enforcement policy, and the criminal division’s three-year pilot program on compensation incentives and clawback.
Some of the ideas discussed in this episode include:
- DOJ is raising expectations for corporate compliance programs and incentivizing ethical behavior.
- Companies must implement effective employee reporting systems, conduct timely internal investigations, and hold bad actors and weak supervisors accountable for their failures.
- DOJ is frustrated with the lack of cooperation between HR and compliance departments and seeks to promote a new era of compliance cooperation and operationalization.
- The evaluation of corporate compliance programs now includes a new section entitled Compensation Structures and Consequence Management, which mandates the design and implementation of compensation schemes to foster a compliance culture.
- DOJ’s three-year pilot program for corporate compensation systems and clawbacks aims to reduce the burden on corporate shareholders and punish individual wrongdoers.
- Companies need to bring together senior leadership, business leaders, legal and compliance, and human resources to build together a set of incentives, disincentives and other structural changes to promote an ethical culture of compliance.
- DOJ expects companies to implement an effective employee reporting system. The updated guidelines provide specific guidance on how that reporting system ties into the overall advancement of the corporate culture, timely internal investigations, careful root cause analyses, and a new term consequence management.
- Companies can earn a fine reduction when they seek to recoup compensation from culpable employees, and prosecutors will have discretion in how to fashion the requirements for the compliance-related compensation and bonus systems.
- DOJ’s new policy includes important requirements for preservation of data from messaging applications and texting systems, and companies need to tailor communications data preservation policies to the specific risk, profile, and needs of their business.
KEY QUOTES:
“DOJ’s intent here is just unmistakable. Companies have to monitor, detect, and prevent future wrongdoing, and they have to hold bad actors and weak supervisors accountable for their failures.” – Michael Volkov
“To the extent that compliance and HR departments fail to coordinate and fight over turf, companies will face increased risks of a defective ethics and compliance program, employee misconduct rates will rise, and government investigation risks will rise as well.” – Michael Volkov
“Finally, with respect to risk management, companies have to ensure that they are appropriate consequences to executives and employees who fail to comply with communications and data preservation requirements. ” – Michael Volkov
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