Internal Investigations Blog

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Compliance vs. Ethics in Internal Investigations

Compliance and ethics are supposedly siblings in the family of doing the right organizational thing. But they are not identical twins. Each speaks to a different mindset and theoretically, one can be in compliance without being ethical, while one probably cannot be ethical without being in compliance. If companies ought to be both, shouldn’t the outside counsels they hire to conduct internal investigations aspire to be the same, particularly in the realm of interviewing employees?

In a very excellent post on the International Compliance Association blog entitled “A tale of two cultures: Compliance and Ethics”, Mushtaq Dost writes of the differences between these two notions. He writes that:

[w]ithin the corporate governance environment, compliance means obeying the law. Ethics is the intent to observe the spirit of the law, in other words, it is the express intent to do the right thing: protecting our customers, behaving respectably in the markets and preserving public confidence, and exhibiting a cooperative attitude which enables financial crime to be fought efficiently.

Despite a significant level of investment in compliance by companies, the frequency of major compliance failures and transgressions continue to grow. We have seen many recent examples where corporate troubles have ensued from a culture of setting [behavioral] standards at a purely compliance level with the rules: The `as long as it is legal` approach.

For authority on this position, Dost cites to Michael Josephson of the Josephson Institute of Ethics in Los Angeles, who has written that:

The culture of an organization can generally be characterized as either rules-based or values-based.

A purely compliance culture tends to be rules-based[;] meaning the rule itself is the ultimate basis of decisions. This invites a legalistic orientation where obedience to the letter of the law is the objective (i.e., if it’s legal[,] it’s ethical). In a rules-based culture, it’s quite enough that employees know and follow the rules. In a rules-based culture there is a minimalist attitude – just do what is required – and efforts to “bend” the rules or make strained but plausible interpretations of the rules to justify desired conduct can result in behaviors that are legal but undesirable (i.e., lawful but awful).

In contrast, an ethical culture is values-based, dominated by core ethical beliefs and convictions (i.e., values about what is right and good) which underlie each rule or policy. Thus, rules and policies are interpreted and applied in relation to traditional ethical values such as honesty, respect, fairness and responsibility and while employees are expected to know and follow rules and policies they are expected to make a good faith effort to honor the spirit (i.e., purpose) of the rules as well as the letter.

In a values-based ethical culture an employee is expected to understand that there is a difference between what there is a right to do and what is right to do. [That is, to] understand that conduct is not necessarily proper just because it is permissible and that ethics sometimes requires doing more than is required to do and less than is allowed.

According to Josephson, the choice for individual employees or business units is “Can I?” in a compliance-based culture, whereas it is “Should I?” in an ethics-based culture. Which tack is – or should be – mandated by corporate morality, law enforcement, and common sense? Contrary to what business units might say, the latter it should be the latter.

In terms of economy, the latter choice may also make long-term business sense. If the “Can I?” mentality leads to pushing the envelope, and if pushing the envelope leads to crossing impermissible lines, then resulting costs – investigations, fines, disgorgements, re-tooling, re-training – and whatever enforcement agency comes a-calling likely spurs the company on toward developing the “Should I?” culture that could have been had and would have been preferable in the first place.

What does any of this have to do with the people who are brought in to conduct internal investigations? Well, they should be as stand-up as the clients that they serve, and that should require them to be ethics-based, too.

Consider this in the context of interviewing of employees during a company’s probe of itself. In “Corporate Miranda warnings and the FCPA”, colleague Tom Fox writes

In the FCPA context, I have pondered about what are not only the rights of those being investigated but also the obligations of those persons conducting an investigation, particularly if the results of the investigation will be turned over to the DOJ and may form the basis of a criminal enforcement action. Put another way, even if the company attorneys handling the investigation provided the now standard corporate attorney Upjohn warnings, how does a company attorney asking questions morph into a de facto federal agent during an internal company investigation regarding alleged FCPA violations and is the attorney thereby required to provide a Miranda warning to employees during a FCPA investigation? Do they have right to counsel?

Employees who are subject to being interviewed or otherwise required to cooperate in an internal investigation may find themselves under the dilemma of requiring either (1) cooperating with the internal investigation or (2) being fired for failure to cooperate by providing documents, testimony or other evidence. Many U.S. businesses mandate full employee cooperation with internal investigations or those handled by outside counsel on behalf of a corporation. These requirements can exert a coercive force, often convincing employees to act contrary to their personal legal interests by disclosing wrongdoing to corporate counsel.

So what is the investigating attorney to do when he or she knows that questions and answers are putting a cooperative employee in the cross-hairs of a criminal indictment of other legal action? And what of the employee whom they know is unaware of this risk and trusting in the beneficence of his or her employer and its counsel?

It would seem that in a compliance-based culture – and so long as the law allows it – to hell with the employee. Service to the client to the fullest extent permitted by the rules is what pays the bills and what the client expects. Or does it? Maybe there is an ultimately quantitative value to be placed on compassion, corporate loyalty, and doing the right thing. Asking “Should we throw this employee to the wolves?” is an inquiry rooted in an ethics-based culture and one that has an easy answer for a business oriented in that manner.

To a company operating from such an ethics-based framework, the practice of investigating lawyers informing an employee of his or her possible exposure to criminal liability – if and when that becomes apparent – and the advisability of seeking the advice of counsel before proceeding further is the right thing to do. And if the DOJ or anyone other agency won’t give credit for being careful around an employee’s Fifth Amendment rights, it would seem that there is a larger problem with compliance and ethics.

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