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Hastings Business Law Journal

Abstract

Over the past few decades, as corporate criminal liability rules, sentencing guidelines, and settlement incentives have changed, there has been increased emphasis on and resources devoted to the compliance function at large publicly held companies. In this article, Professor DeStefano traces the development of the compliance function at large corporations and questions the recent mandate by certain governmental entities that malfeasant corporations designate a chief compliance officer and separate the compliance gatekeeping function from the legal department so that this chief compliance officer does not report to the general counsel. She categorizes the types of arguments made for and against departmentalization and then analyzes them from the perspective of the public's objectives to increase detection, monitoring, and prevention of corporate misconduct. By examining secondary literature, surveys, and interviews she conducted with 70 general counsels and chief compliance officers, she hypothesizes that preemptive departmentalization may not be in the public's best interest. It may not increase transparency into compliance transgressions at corporations, actual compliance by corporations, or the commitment by corporations to a culture of compliance and ethics. Further, such structural reorganization of the compliance function may generate consequences that offset the potential benefits of departmentalization and create a sense of false complacency that distracts from substantive cultural change that is integrated throughout the organization. Ultimately, she concludes that a focus on culture and informal norms may have more potential to meet the public's objectives than a focus on organizational structure. Therefore, she proposes the government revise its current focus on the external manifestations of compliance to inward, cultural change. Specifically, she suggests that the government reward corporations that take an inward look at how work is actually being done within the company and at the networks and organizational culture that exists beneath the surface of the organization chart, the mission statement, and code of conduct. Such focus, she believes, could enable compliance structures and programs that promote public access to information about compliance transgressions, actual compliance by corporations, and a culture of compliance and ethics within a corporation.

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