By SUSAN E. PRINCE, J.D.
Legal Editor, Business and Legal Reports
(Editor's note: This is the second article in a two-part series on
new rules in the Federal Sentencing Guidelines that concern employee ethics.
Read the first article here.)
It takes only one employee, or even an agent of your company, to commit a crime,
and your entire company may be held liable. With liability, your company face
very large fines, a 5-year probationary period, recompense for the victim of
the crime, and more.
There is good news, though.
You can reduce your organization’s fines by showing that you have established
an effective compliance and ethics program in your company. To do this, you
must train your employees at all levels, and your agents, on ethics.
Training is a required element of an effective ethics program
Beginning November 1, 2004, under the amended Federal Sentencing Guidelines,
organizations that wish to reduce potential fines imposed for the criminal activities
of their employees must show that they have an effective compliance and ethics
program—and ethics training is now a required element of an effective program.
The Federal Sentencing Commission has stated that a company with an effective
program may reduce its fines by up to 90 percent.
Who must be trained?
According to the amended Federal Sentencing Guidelines, the following individuals
must be trained:
- Members of the organization’s governing body
- High-level personnel
- Personnel with substantial authority
How often must training occur?
The amended Guidelines state that training must occur “periodically.” One-time
training does not meet the federal requirements. To ensure the continual improvement
of employees’ ethics skills and knowledge over time, it may be best to use a
multi-year program in which a rotation of supplemental issues are emphasized
in addition to the core training issues, different mediums are utilized (video,
online training, instruction in a classroom environment), and new legal developments
Who must conduct the training and how?
The Application Notes to the Guideline’s Commentary specifically state that
the training plans of organizations may vary depending on the following factors:
- What is customary in the industry
- What the applicable state or federal regulations require
- The size of the company
- The rate of recurrence of similar acts of misconduct
The Guidelines distinguish between what is
required of large vs. small organizations, because the resources available to
create compliance and ethics programs will vary by the size of the company.
Small organizations are required to train their employees with “less formality
and fewer resources” than large companies. For instance, in small companies:
- The governing body of the company may actually
manage the company’s compliance and ethics efforts, rather than just oversee
- Employees may be trained in informal staff
- Monitoring can be accomplished during regular
walk-throughs or by continual observation during
the general management of the company.
- Personnel on staff may conduct the training,
rather than hiring trainers outside the company.
- Compliance and ethics programs may be modeled
on those of other, similar companies with successful, well-regarded programs.
What content should be included in the training?
Ethics training not only protects an organization
from overwhelming fines but also can enhance and improve company morale. Bottom
line—it is teaching people what is right and wrong and how to follow the ethical
path when things are not always perfectly clear, as is often the case in a corporate
HR professionals, corporate executives, and
middle managers deal with myriad ethical problems daily and must be clear on
how these situations should be effectively, efficiently, and ethically handled.
One cannot predict or prepare for every possible ethical dilemma, though, so
it is important that training instills a “moral compass” for individual members
of the organization to follow. When faced with an ethical dilemma, these individuals
should be able to guide themselves down the ethical path. For that reason, training
should be geared to the level of the employee, because lower level employees
will not face the same ethical issues as high-level managers. In addition, supervisors,
managers, and executives must understand that they are to set an example for
all other employees with their own ethical behavior.
When establishing a training program, be sure to include the following elements:
- Information on the policies and procedures
of the ethics program
- Handouts of the organization’s code of
ethics and code of conduct
- The creation of an overall awareness and
understanding of ethics in all employees
- A review of the applicable laws related
- A discussion of actual ethical dilemmas that employees have faced in their
- A series of hypothetical ethical dilemmas used to create an interactive
training environment with a discussion of possible solutions
- An outline and discussion of specific risk areas common in the company
Specific issues that should be covered include, but are certainly not limited
- Holding a second job
- Authority of employees to grant discounts to customers
- Gifts (there may be a limitation on receiving all gifts or gifts over a
- Whether employees may have personal financial dealings with or invest in
companies that supply materials to or buy materials from your company
- Office romances
- Confidential information
- How to use company funds
- Privacy policies
- Whether employees’ families may take advantage of employee discounts
- Whether employees may use fictitious names while conducting business
- Harassment of all types
- Employees performing acts of hospitality toward public officials
- Prohibitions on all illegal activity
- Competing with the company
- Insider information
- Borrowing or lending money
- Recruiting employees to work for another organization not related to the
- Conflicts of interest
- Campaign contributions
- Investigations of ethics violations
- Disciplinary action for ethics violations
It is also important that training programs are reviewed periodically for effectiveness,
currency, and reference to new laws.
U.S. Supreme Court review
Employers should note that the United States Supreme Court is in the process
of reviewing the Federal Sentencing Guidelines discussed above.
On June 24, 2004, the United
States Supreme Court ruled in Blakely v. Washington that Washington
State’s Sentencing Guidelines violated
the Sixth Amendment right to a jury trial. The Court reasoned that allowing
the court to impose a sentence greater than that allowed by the standard range
outlined in the Sentencing Guidelines, based on facts that the jury did not
consider, was a violation of a defendant’s right to a jury trial.
Two additional cases have raised a similar issue—except these cases concern
the Federal Sentencing Guidelines. United States v. Booker and United
States v. Fanfan were consolidated into one case,
and on October 4, 2004,
the United States Supreme Court heard the case. A decision is expected by the
end of the year, and the outcome may affect whether training remains a required
element of an effective compliance and ethics plan. Stay tuned for more information.