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In a talk on Nov. 19, 2004, as reported by the Bureau of National Affairs, the chief of staff of the Department of Justice’s Criminal Division said it is DOJ policy to “zero in on the ‘culture of the corporation’ when assessing whether to pursue charges against the entity versus employees who may have acted as individual wrongdoers.” Although DOJ does consider the role of corporate culture in the initiation or continuation of wrongdoing, DOJ’s main emphasis appears to be on whether and to what extent the corporation makes the prosecutors’ investigation easier. By “culture of the corporation,” it turns out, DOJ means mainly how a corporation behaves after the wrongdoing has come to light: how quickly and completely the corporation reports the wrongdoing to prosecutors, gives up its evidentiary privileges, turns in employees the prosecutors suspect of wrongdoing, and pressures those and other employees to give up their constitutional rights and cooperate with prosecutors. This far greater emphasis on post-discovery behavior as compared to the role of corporate culture in the initiation and continuation of the wrongdoing should be reconsidered. PROSECUTING CORPORATIONS CAN HARM THE INNOCENT The main attraction of prosecution of corporations (beyond the prosecution of culpable individuals) is a huge fine and attendant publicity. (Extensive remedial measures of all sorts can be achieved through agreement not to prosecute at all for specified past conduct or to prosecute only if specified remedial measures are not implemented and maintained for a specified period.) The prosecution of a corporation, however, can have highly destructive effects on large numbers of innocent people who may not have benefited in any way from the wrongdoing — current employees, retirees, securities holders, lenders, suppliers, customers, entire communities where corporate facilities are located and others. Therefore, prosecution of a corporation should not follow automatically (or semi-automatically) upon a conclusion that crimes by employees acting on behalf of the corporation and within the scope of their employment can be proved. In some recent cases, prosecutors and corporations have entered into agreements that totally or conditionally avoid prosecution. Post-wrongdoing corporate cooperation certainly can justify a decision not to prosecute a corporate entity. So, too, however, can a far broader assessment of corporate “culture.” Before inflicting collateral damage on innocent people through the prosecution of a corporation, prosecutors should also consider whether, and if so to what extent, the wrongdoing was an outgrowth of corporate culture and truly had a character reflective of the institution as a whole. Thus, a searching inquiry into the internal causation of the wrongdoing, although not normally an element to be proved at a criminal trial, is warranted before deciding whether to prosecute the corporation. This analysis is largely independent of decisions as to whether to prosecute particular individuals. Part of the analysis would look at the factors considered under the organizational sentencing guidelines — those embraced within “an effective compliance and ethics program.” See USGS �8B2.1 (effective Nov. 1, 2004). Many other factors are potentially relevant, however. Some are discussed in what follows. To what extent did the institution’s values, as actually transmitted to the culpable employees and others, reflect respect (or disrespect) for the requirements of law? In addition to formal statements of policy, formal training and periodic or occasional memoranda, the ways values are actually transmitted include budgets, performance targets and evaluations, decisions about compensation and promotion, and pep talks from managers. To what extent did the corporation support (or suppress) the institutional constraints on corporate conduct? Most corporate crime occurs in, or under the influence of, profit centers or other corporate units (e.g., finance and internal accounting) under strong pressure to help show successful corporate performance. Most corporations of substantial size have professional employees — e.g., lawyers, accountants, regulatory specialists, auditors (financial and nonfinancial), compliance officials — whose job it is to help maintain legal and other constraints on conduct throughout the organization. These employees, who together constitute the “corporate conscience,” are (or should be) in unavoidable tension with the corporate units on whose performance the success, and even the survival, of the corporation in the marketplace depends. Some tension is necessary because excessive deference to the corporate-conscience personnel stifles economically desirable market-oriented conduct, and insufficient deference to them may lead to wrongdoing. In general, because market forces are very powerful and the incentive to cheat in some way is correspondingly strong, corporations need to make special efforts to maintain the tension within an appropriate range. Did the corporation so maintain that tension? Did it try to? Did it provide its corporate-conscience personnel the resources they needed to do their jobs in a reasonable way? In particular, were relevant corporate-conscience personnel in the information loop with respect to corporate operations or activities most vulnerable to the kinds of pressures that can lead to wrongdoing? Were there adequate lines of communication from them to managers authorized to prevent or stop wrongdoing? Was the corporate culture such that corporate conscience personnel and others could reasonably believe that managers were willing to receive and act on reports of misconduct, even at the risk of jeopardizing achievement of corporate objectives? For example, had such reports been made in the past; and, if so, had managers responded appropriately? Did the corporation have a record of prior violations of law? If so, had it acted reasonably to prevent a recurrence? Were there warning signs that reached nonculpable senior corporate officials or board members? If so, how did they respond? Prosecutors do not need to conduct a wide-ranging investigation of such matters in addition to investigating the elements of crimes. If and when they have concluded that a corporation could be prosecuted successfully (because there is adequate evidence that its employees, acting on behalf of the corporation and within the scope of their employment, have committed crimes warranting prosecution) and thus have reached the stage of deciding whether to prosecute it, they could solicit a presentation on these and other factors from counsel for the corporation. Thereafter, the prosecutors could conduct such follow-up investigation as they consider warranted. In many cases, this type of analysis should receive substantial weight in the exercise of prosecutorial discretion as to the charging of a corporation as distinct from individual employees. The timeliness and quality of the corporation’s post-discovery reporting and cooperation also warrant weight in the overall assessment, and the relative weights of the two sets of factors may vary from case to case. Where the post-discovery factors do not, by themselves, persuade the prosecutors not to prosecute the corporation, it should be possible for a strong showing on other “cultural” factors to be persuasive against a corporate prosecution. In general, if the answers to the kinds of questions discussed here are mostly favorable to the corporation, then, the corporation should not be viewed as institutionally culpable, and so should not be prosecuted, unless its post-discovery conduct essentially amounted to adoption and condoning of the wrongdoing. If the investigation, though not revealing institutional culpability, has revealed deficiencies that the corporation needs to correct, an agreement in lieu of prosecution may be a fully adequate and appropriate remedy as to the corporation. CONSIDER SOCIETAL BENEFITS, INCENTIVES AND FAIRNESS One societal benefit of this type of approach is that it would strengthen the incentives already provided by the sentencing guidelines for corporate monitoring of cultural factors that can lead to wrongdoing, and for prompt and effective correction of deficiencies disclosed by such monitoring. The publicly known existence of a policy of examining corporate culture broadly as part of the exercise of discretion to prosecute or not prosecute a corporation (and not just as part of the sentencing decision after a successful prosecution) would change the conversation about compliance within corporations. Those seeking enhanced support for activities to prevent wrongdoing and for corporate-conscience functions generally would have additional arguments to present. The proposed approach also has the merit of promoting fairness. Exercising prosecutorial discretion by examining cultural factors that affect the organizational propensity to engage in wrongdoing is likely to separate those corporations that deserve the institutional condemnation that flows from a successful prosecution (and all the practical consequences of such condemnation) from those that do not. An ability of prosecutors to explain why a corporation’s defective culture (together with lack of full cooperation) justifies prosecution of the wrongdoing that has occurred puts them in a better position than they otherwise would be in to explain why the collateral damage to the innocent from such a prosecution is justified. Conversely, a decision not to prosecute an institution can more effectively be justified by reference to a generally good corporate culture as well as post-wrongdoing cooperation than by reference to the latter alone. The proposed approach thus could help make prosecutorial decisions whether to charge more fair, and could help increase the perception that they are fair. Those are not small matters. Richard M. Cooper is a partner at Williams & Connolly LLP of Washington. He can be reached via e-mail at [email protected].

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