A Houston Astros helmet. Credit: Shutterstock.com

The unprecedented punishment of Major League Baseball's Houston Astros is a wake-up call to general counsel, not just in sports but in every industry, to make sure the compliance message is reaching all employees.

Baseball Commissioner Robert Manfred Monday released a nine-page statement on how the Astros' players stole pitching signs from opposing teams in 2017 and 2018, using electronic replay equipment. Stealing signs electronically is a clear violation of baseball regulations.

Corporate governance expert Michael Peregrine told Corporate Counsel Tuesday that Manfred's actions were really about corporate ethics and accountability.

"Baseball is a game, but it's also a big business with rules and regulations just like any other industry," said Peregrine, a partner in the Chicago office of McDermott Will & Emery.

He added, "The relevance of what happened is a direct analogy to what boards and legal and compliance people have to deal with. It's about culture, and about how we ask people to do the right thing."

Peregrine said the Astros scandal is "a great reminder for general counsel to go to the board and say how good is our culture and is our expectation of our employees clear?"

The baseball commissioner seemed to agree. In his statement Manfred attributed the stealing to "a failure by the leaders of the baseball operations department and the field manager to adequately manage the employees under their supervision, to establish a culture in which adherence to the rules is ingrained in the fabric of the organization, and to stop bad behavior as soon as it occurred."

Manfred fined the Astros a record $5 million, the highest fine allowed in baseball. He also made the club forfeit its next two regular first-round player selections and two regular second-round selections in upcoming drafts.

Manfred suspended Astros general manager Jeff Luhnow, who headed baseball operations, and field manager A.J. Hinch from baseball for one year. Shortly after the announcement, Astros owner James Crane fired both men.

Luhnow claimed he had no knowledge of the sign stealing, while Hinch said he had known but did not report the stealing up the chain of command and did not order the players to stop it. Manfred said Luhnow should have known, and that Hinch should have spoken up. Both men were responsible for making sure their club was in compliance with the rules, he said.

Manfred also suspended for one year an assistant general manager for unrelated misconduct involving inappropriate comments to female reporters in the clubhouse.

The statement cited an "insular culture … that valued and rewarded results over other considerations, combined with a staff of individuals who often lacked direction or sufficient oversight" and a total environment that allowed all the misconduct described in the report.

Peregrine said the sign stealing provides a platform for some serious corporate accountability reflection, because "reputation is important and ethics matter."

"If I am a board chairman of a major company right now," the lawyer said, "I am less comfortable about my corporate culture."

Another expert, David Marroso, found at least three lessons for general counsel in the Astros scandal. Marroso is a sports and entertainment litigation partner at O'Melveny & Myers in the firm's Century City office in Los Angeles.

"First is the civil liability of your franchise for putting out an inferior or unfair product," Marroso said. He noted that disappointed fans have brought lawsuits in other scandals where the fans felt cheated. He cited the 2015 Manny Pacquiao-Floyd Mayweather Jr. so-called Fight of the Century when Pacquiao later revealed he was fighting with an injured shoulder.

Marroso helped lead the legal team that defended Pacquiao from a flood of class action suits. He said no disappointed fans have ever won this type of suit, but he expects some fan will still sue over the Astros' scandal.

Another takeaway for general counsel, he said, concerns the power that franchises have over hiring and firing decisions over top employees. Most teams have employee contracts with a clause that refers to the "integrity of the game" or a morals clause, Marroso said.

These clauses, he explained, "give organizations wide latitude to fire somebody for cause and not have to pay the remainder of their contract. You want to protect your organization by including standard clauses in your employment agreements."

Marroso's final "pretty important lesson" for general counsel involves understanding that organizational responsibility goes beyond personal responsibility.

It wasn't enough that the Astros general manager and the field manager did not personally take part in the stealing, he explained. They had a corporate responsibility to properly oversee the players and ensure compliance with the rules.

More lessons may arise as MLB continues to investigate similar allegations of sign stealing against the Boston Red Sox in 2018. The probe also centers on Red Sox manager Alex Cora, both in the Red Sox matter and in the Astros scandal in 2017, when he was the bench coach in Houston and had knowledge of the cheating.

Manfred's report said both the Red Sox and Cora will be dealt with when that investigation is complete.