What is the value of having a Code of Conduct? I have heard many business folks ask that question over the years. In its early days, a Code of Conduct tended to be a lawyer-written and lawyer-driven document to wave in regulator’s face during an enforcement action by using it to claim, “we are an ethical company”. Is such a legalistic code effective? Is a Code of Conduct more than simply your company’s law? What is it that makes a Code of Conduct effective? What should be the goal in the creation of your company’s Code of Conduct?
How important is the Code of Conduct? Consider the 2016 SEC enforcement action involving United Airlines, Inc., which turned on violation of the company’s Code of Conduct. The breach of the code was determined to be a FCPA internal controls violation. It involved a clear quid pro quo benefit paid out by United to David Samson, the former Chairman of the Board of Directors of the Port Authority of New York and New Jersey, the public government entity which has authority over, among other things, United Airlines operations at the company’s huge east coast hub at Newark, NJ.
The actions of United’s former CEO, Jeff Smisek, in personally approving the benefit granted to favor Samson violated the company’s internal controls around gifts to government officials by failing to not only follow the United Code of Conduct but also violating it. The $2.4 million civil penalty levied on United was in addition to United’s Non Prosecution Agreement resolution with the DOJ, which resulted in a penalty of $2.25 million. The scandal also cost the resignation of Smisek and two high-level executives from United.
Three key takeaways:
- Every formulation of a best practices compliance program starts with a written Code of Conduct.
- The substance of your Code of Conduct should be tailored to the company’s culture, and to its industry and corporate identity
- “Document, Document, Document” your training and communication efforts around your Code of Conduct.
