Effective Corporate Compliance Programs: The Impact of the 2004 Amendments to the U.S. Federal Sentencing Guidelines for Organizations

Transcription

1 Effective Corporate Compliance Programs: The Impact of the 2004 Amendments to the U.S. Federal Sentencing Guidelines for Organizations DISSERTATION of the University of St. Gallen, Graduate School of Business Administration, Economics, Law and Social Sciences (HSG) to obtain the title of Doctor of Business Administration submitted by Peter Kimmich from Germany Approved on the application of Prof. Dr. Martin Hilb and PD Dr. Roland Miiller Dissertation no Difo-Druck GmbH, Bamberg 2006

2 Table of Contents TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES LIST OF ABBREVIATIONS ABSTRACT i vi vi vn xi CHAPTER ONE: INTRODUCTION 1 1. RESEARCH PROBLEM PRACTICAL BACKGROUND OF THE PROBLEM THEORETICAL BACKGROUND OF THE PROBLEM 5 2. RESEARCH OBJECTIVE 7 3. APPROACH SCIENTIFIC APPROACH Relevant Research Paradigms Selection of Research Paradigm for this Dissertation STRUCTURAL APPROACH DEFINITION AND DESCRIPTION OF KEY CONCEPTS COMPLIANCE-ORIENTED REGULATION DOCTRINE OF CORPORATE CRIMINAL LIABILITY CORPORATE COMPLIANCE PROGRAMS FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS THE "CARROT AND STICK" CONCEPT AMENDMENTS OF THE FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS BLAKELYV. WASHINGTON. THE CONSTITUTIONALITY OF THE GUIDELINES THEORIES OF CORPORATE ILLEGALITY CORPORATE CODES OF ETHICS 29 CHAPTER TWO: THEORETICAL FRAMEWORK CORPORATE COMPLIANCE PROGRAMS: AN OVERVIEW REGULATING CORPORATIONS Command and Control Regulation The New Regulatory State ' Compliance-Oriented Regulation EMERGENCE OF CORPORATE COMPLIANCE PROGRAMS CORE SUBSTANTIVE AREAS FOR CORPORATE COMPLIANCE PROGRAMS Antitrust Financial Services Healthcare Bribery and Misconduct in Defense Contracting Environment Occupational Health and Safety Affirmative Action and Equal Employment Opportunity CORE INSTRUMENTS OF CORPORATE COMPLIANCE PROGRAMS Code of Ethics 43 I

3 1.4.2 Reporting Mechanisms Compliance Hotlines Whistleblower Protection Compliance Training Interaction of Core Instruments for a Compliance Program EMPIRICAL EVIDENCE ON CORPORATE COMPLIANCE PROGRAMS Studies on Implementation of Corporate Compliance Programs Studies on Business Ethical Practice Studies on Corporate Compliance Programs and Corporate Illegallity Limitations of Empirical Studies Concluding Observations INTERNATIONAL CORPORATE COMPLIANCE PROGRAMS FOR U S.-BASED COMPANIES THE BIRTH OF THE COMPLIANCE PROFESSION FRAMEWORK FOR EFFECTIVE CORPORATE COMPLIANCE PROGRAMS - THE 1991 U.S. FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS UNITED STATES SENTENCING COMMISSION APPLICABILITY OF THE FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS FUNCTION OF THE FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS Restitution Corporate Probation Imposition of Fines "EFFECTIVE" CORPORATE COMPLIANCE PROGRAM ACCORDING TO THE 1991 GUIDELINES Definition for an "Effective" Corporate Compliance Program Seven Elements of an " Effective" Compliance Program Element 1 Establishing Compliance Standards and Procedures Element 2-Appointment of Compliance Officer Element 3. Due Care in Authority Delegation Element 4. Employee Compliance Training Element 5. Reasonable Steps to Ensure Compliance Element 6- Consistent Enforcement of Compliance Standards Through Appropnate Disciplinary Measures Element 7 Reasonable Steps to Prevent Further Offenses Evaluationof the Seven Elements of an Effective Compliance Program Theoretical Framework for an Effective Corporate Compliance Program Based on the 1991 Guidelines APPLICATION OF THE 1991 GUIDELINES "Litigation Dilemma" of the 1991 Guidelines Punishment due to Compliance Programs Concluding Observations Concerning the Application of the 1991 Guidelines Is ETHICS PART OF AN EFFECTIVE COMPLIANCE PROGRAM THE 1991 GUIDELINES - POSSIBLE FRAMEWORK FOR CORPORATE COMPLIANCE PROGRAMS IN COUNTRIES OUTSIDE THE U.S Non-U.S. Companies Operating in the U.S Effect of Globalization Changing Regulatory Environment: Outside the U.S Benefit of Adopting 1991 Guidelines-Similar Legislation Limitation of the 1991 Guidelines Is 1991 Guidelines Framework Suitable for Non-U.S. Based Companies CONCLUDING OBSERVATIONS OPTIMIZING THE "EFFECTIVENESS" OF CORPORATE COMPLIANCE PROGRAMS - THE 2004 AMENDMENTS KEY LEGAL DEVELOPMENTS INFLUENCING CORPORATE COMPLIANCE PROGRAMS PREPARATORY WORK IN THE AD-HOC ADVISORY GROUP THE 2004 AMENDMENTS TO THE FEDERAL SENTENCING GUIDELINES FOR ORGANIZATIONS REVISED SEVEN ELEMENTS FOR AN EFFECTIVE COMPLIANCE PROGRAM Element 1' Standards and Procedures Element 2: Organizational Leadership and Culture Element 3: Reasonable Efforts to Exclude Prohibited Persons Element 4-Compliance Training and Communication 110

4 3.4.5 Element 5. Monitoring, Auditing and Evaluation of Program Effectiveness Ill Element 6: Performance Incentives and Disciplinary Actions Element 7: Remedial Action OTHER RELEVANT CHANGES Risk Assessment Adoption of Industry Standards/Government Regulation Waiver of Attorney-Client Privilege Upward Departures Corporate Probation SHORTCOMINGS OF THE 2004 AMENDMENTS THE 2004 AMENDED GUIDELINES AND OTHER CORPORATE GOVERNANCE REFORMS CONCLUDING OBSERVATIONS AND IMPLICATIONS FOR EMPIRICAL STUDY 119 CHAPTER THREE: EMPIRICAL STUDY EMPIRICAL RESEARCH OBJECTIVE RESEARCH METHODOLOGY RESEARCH DESIGN Reasons for Adopting the Case Study Method. / ~ Reasons for Adopting the Single-Embedded Case Study Reasons for Adopting United Parcel Service, Inc. as a Research Object ^LIMITATIONS OF THE EMPIRICAL STUDY Limitations of the Single-Embedded Case Study Method Limitations Due to the Resource Constraints Limitations Specific to Researcher Bias RESEARCH PROCEDURES DATA COLLECTION Personal Interviews Direct Observation Documents and Archival Records DATAANALYSIS QUALITY MEASURES OF THE RESEARCH DESIGN Construct Validity Internal Validity External Validity (Generalizabihty) Reliability RESEARCH FINDINGS UNITED PARCEL SERVICE, INC.: COMPANY BACKGROUND UPS BUSINESS CONDUCT AND COMPLIANCE PROGRAM: AN OVERVIEW UPS'Individual Compliance Programs UPS'Risk Specific Compliance Programs Facilitator Projects for Compliance Programs UPS' SEVEN ELEMENTS FOR AN EFFECTIVE COMPLIANCE PROGRAM Element 1: Standards and Procedures at UPS UPS'Standards and Procedures Manuals UPS Code of Business Conduct Element 2: Organizational Leadership and Culture at UPS UPS Corporate Compliance Management Structure UPS Functional Owners and General Managers Element 3: Reasonable Efforts to Exclude Prohibited Persons at UPS Element 4. Compliance Training and Communication at UPS Element 5: Monitoring, Auditing and Evaluation of Program Effectiveness at UPS Regulatory Compliance Reviews The Business Ethics Questionnaire Corporate Compliance Committee III

5 Report and Certification Reporting Systems UPS Help Line Element 6: Performance Incentives and Disciplinary Actions at UPS / Element 7 Remedial Action at UPS Conclusion 193 AA MAIN COMPONENTS OF THE 2004 AMENDMENTS Ethics in Addition to Compliance Corporate Culture Looking Beyond Criminal Conduct Management Oversight Reporting and Cooperation Ongoing Re-Evaluation THE 2004 GUIDELINES AND NON-U.S. COMPANIES DISCUSSION OF MAIN FINDINGS ETHICS IN ADDITION TO COMPLIANCE CORPORATE CULTURE LOOKING BEYOND CRIMINAL CONDUCT MANAGEMENT OVERSIGHT REPORTING AND COOPERATION ON-GOING REEVALUATION RISK ASSESSMENT INTEGRATED FRAMEWORK FOR AN EFFECTIVE CORPORATE COMPLIANCE PROGRAM THE 2004 GUIDELINES AND NON-U.S. COMPANIES 259 CHAPTER FOUR: CONCLUSIONS AND IMPLICATIONS CONCLUSION OVERALL LIMITATIONS OF THE DISSERTATION THEORETICAL IMPLICATIONS IMPLICATIONS FOR BUSINESS CONDUCT MANAGEMENT IMPLICATIONS FOR COMPLIANCE LEADERSHIP STRUCTURE IMPLICATIONS FOR GOVERNANCE, RISK MANAGEMENT AND COMPLIANCE PRACTICAL IMPLICATIONS 277 REFERENCES AND APPENDICES REFERENCES CITED SOURCES (CASE STUDY) PERSONAL INTERVIEWS UPS Employees in Atlanta UPS Employees in Brussels Follow-Up Interviews with UPS Employees Non-UPS Employees in Atlanta, Charlotte and Brussels DIRECT OBSERVATION SPEECHES AND CORPORATE PRESENTATIONS INTERNAL DOCUMENTS PUBLISHED MATERIAL 320 IV

6 3. APPENDICES APPENDIX A: AD Hoc ADVISORY GROUP ON ORGANIZATIONAL GUIDELINES APPENDIX B: INTERVIEW OUTLINE APPENDIX C- PRIORITY COMPLIANCE MANAGEMENT RESPONSIBILITIES AT UPS APPENDIX D. EMPIRICAL RESEARCH ON CODE EFFECTIVENESS APPENDIX E: WORKSHEETS FOR COMPLIANCE AND ETHICS PROGRAM EVALUATION Process Evaluation Worksheet Outcomes Evaluation Worksheet Organizational Culture Worksheet Commonly Used Data Collection Methods APPENDIX F- OFFENSE LEVEL FINE TABLE CURRICULUM VITAE 333