The Department of Justice has laid down a marker – companies would be smart to understand the significant change in ethics and compliance program expectation.  Companies that ignore this new landscape are gambling with their financial security and their reputational value.  Every company that has suffered through a DOJ investigation knows how damaging and draining such an experience can be. 

The purpose of an ethics and compliance program is to prevent and detect misconduct.  A key component for this mission is promotion of culture of ethics and compliance.  In addressing this overall goal, DOJ’s March 2023 modifications to its Evaluation of Corporate Compliance Programs included the substitution of the element Incentives and Discipline with the more robust and holistic concept of Consequence Management System.  If you examine the definition and requirements for such a system, DOJ’s vision and objective for corporate compliance programs includes new and important elements and principles.

A key requirement in this area is the importance of Transparency. Companies have to design and promote an employee reporting system built on transparency with respect to four essential processes: (1) incentives and disincentives; (2) employee reporting; (3) internal investigations; (4) disciplinary actions.  We have written about incentives and disincentives in prior blog postings.  Incentive systems have to be outlined in a compliance compensation system policy that includes review of sales, compliance, and performance compensation systems that are conditioned on satisfaction of specified triggers and requirements.  An internal process has to be established to ensure that incentives risks are properly balanced and will not skew performance to encourage misconduct or circumvention of basic ethical requirements.

In this Episode, Michael Volkov discusses implementation of a Consequence Management System.