Is it Ever "Rational" to Ignore Compliance?
The steady drumbeat of compliance continues – comply, comply and comply. The refrain goes even deeper – document, document, document.
But can you imagine when the “rational” decision maker decides to continue engaging in bribery, or turning a blind eye to continuing bribery. Let’s examine a possible scenario. “Assume” (in the economists favorite refrain) that a company sells a product in a highly competitive market and the company and its competitors engage in bribery. As the chief compliance officer, you know that if you train and educate your sales staff in that country about compliance with anti-corruption laws and inform the sales staff that they cannot continue to engage in bribery, they will quickly lose market share and eventually leave the company, and the company which is in a precarious financial condition will suffer dramatic losses. Senior management is well aware of this situation and has decided to “take the risk” of continuing the behavior. Nothing is in writing and the issue is never discussed but the message is clear. There is no smoking gun of criminal conduct at the senior level. For the company’s survival, they cannot comply nor can the company seriously consider a voluntary disclosure. The risk to the company is the risk of detection and risk of reporting. But even in that case, the company is looking at a fine, a low risk of debarment, and an unlikely criminal prosecution of any individual except maybe in the country of operation.
This is not a far out scenario. In fact, I would argue that some companies engage in collusive antitrust violations with their eyes open to the violations and the risk, and companies in the off-label marketing arena may be doing just the same. The benefits from illegal conduct outweigh the downside of an enforcement action. In this case, enforcement may truly be a “cost of doing business.”
What should the Chief Compliance Officer do? What alternatives does the Chief Compliance Officer have? If the CCO alerts senior management and the Board, the CCO may put each of the officers and Board members at risk, raising the stakes and the cost of any enforcement action. In this case, the tone at the top may be communicated through neglect and avoidance. The CCO is stuck and may even be the most at risk of possible prosecution – why? Because the CCO is “aware” of the entire picture, has the duty to investigate (red flags are lying all over) and may be senior management’s sacrificial lamb.
The CCO needs to protect himself or herself. First, the CCO needs to document what is occurring, create a record to protect himself or herself, and quietly depart. The difficult issue he or she faces is the duty to disclose to the Board or to top management who may truly not be aware of the situation. These are some of the most difficult issues a CCO can face, and they need to be represented and they need to make sure they are not the scapegoat when the stakes get raised.
In my experience, this situation is occurring more and more frequently. It is not the norm but it certainly is not outside the possibility. It requires careful deliberation and planning, and the examination of some difficult alternatives. As the compliance message grows and as more companies face the need to design and implement compliance programs, the market context will play a bigger and bigger role.