By Mandi Crane
The word “compliance” sends a collective shiver down the spine of many profit-minded organizations. With revenue responsibilities top of mind, corporate leaders (and those they supervise) bemoan having to comply with complex regulatory requirements. At the same time, these leaders are aware of the financial and legal consequences of failing to adhere to regulatory requirements.
In my experience as in-house legal counsel for a federally recognized Indian tribe, compliance work creates a healthy tension. That tension is not only necessary but good, because it fuels responsible innovation and fosters ethical corporate—for tribes, governmental—culture.
Regardless of whether you serve corporate or governmental clients as legal counsel, there are important actions we can take to position our organizations in what I refer to as “compliance peak position”—that generous area of the Yerkes-Dodson bell curve where organizations minimize the risk of both corporate wrongdoing and compliance burnout.
Compliance beginnings
Draconian command-and-control models of corporate compliance from decades past are inefficient and hard on employee morale. The first internal compliance-oriented laws date back to the Interstate Commerce Act of 1887, which created a federal agency, in part, to regulate the railroads.1 The concept of corporate compliance continued to evolve in the American judicial system in the proceeding decades. The term “compliance” as it’s now understood came into the collective consciousness after a series of corporate scandals in the 1970s and 1980s.
In response to these scandals, industry groups worked together to create standard practices for preventing and reporting employee misconduct. Self-policing benefitted business leaders and regulators alike. The United States Sentencing Commission took note; in 1991, it established formal sentencing guidelines that provided incentives to corporate defendants to implement voluntary compliance programs to prevent and remedy regulatory violations.2
Organizations today must grapple with increased regulatory complexity and significant compliance expense. The cost of compliance missteps can be significant. Companies that rely exclusively on the strength of corporate policies and procedures backed by punitive consequences to deter employee misbehavior miss a valuable opportunity to appeal to their employees’ values and aspirations. Values are powerful drivers of ethical behavior.3 Effective compliance programs also identify and prevent employee misconduct and align corporate policy and practice with applicable laws, rules, and regulations. In other words, they reduce organizational monitoring costs and create incentives that align employee and shareholder interests.4
What do tribal governments have to do with corporate compliance?
Tribal governments are independent sovereign nations, not corporations. But they share many similar interests when it comes to effective compliance practices. Tribal gaming operations are one of the most heavily regulated industries in the United States. They must comply with myriad laws, including federal laws and regulations such as the Indian Gaming Regulatory Act, National Indian Gaming Commission Regulations, federal gaming tax law, and Bank Secrecy Act laws; tribal-state gaming compacts; and internal tribal laws and regulations. Many tribes rely on their gaming operations to provide vital funding for their communities. It is therefore essential that they maximize revenue within the legal and regulatory framework to which they are beholden. Maximizing profit is one important reason to establish an effective compliance program.
What does an effective compliance program look like?
Effective compliance programs share some universal elements. First, they encourage ethical awareness. Second, they hold each individual accountable not only for his or her own actions, but for the larger ethical wellbeing of the organization—executive leadership and front-line employees alike. Third, they reward ethical conduct.5 They must also have the appropriate legal infrastructure in place to maintain a culture of integrity.
Legal counsel plays a critical role in building the compliance infrastructure necessary to support an ethical culture and reduce regulatory risk. In-house counsel are particularly well positioned to influence organizational culture because they have strong working relationships across a spectrum of operational departments and a keen understanding of the organization’s values and objectives. In-house and outside counsel alike are also subject to independent ethical standards imposed by the Minnesota Rules of Professional Conduct. For example, Rule 1.13 requires any attorney representing an organization as a client to report legal misconduct to an appropriate authority within the organization. Rule 1.13 also allows the attorney to resign and make any necessary information disclosures under Rule 1.6 if the organization fails to take action in response to the report of misconduct.
In addition, Rule 2.1 acknowledges that a lawyer may consider “moral, economic, social, and political factors” in advising a client. These considerations are particularly relevant where the law is conflicting or ambiguous, when the question at issue is highly sensitive or involves matters of public interest, or when the client has competing objectives. Recognizing and resolving ethical dilemmas is within every lawyer’s purview.
Moving your client into compliance peak position
Serving your client well requires you to work collaboratively with organizational leaders to improve their compliance programs. Here are three ideas to consider as you work to move your organization into compliance peak position:
Conversations matter. Good relationships are the foundation of corporate compliance work. Legal counsel must be able to build bridges of credibility, trust, and familiarity between the organization’s compliance department and corporate management. Legal counsel must also establish strong relationships with industry regulators and follow through with commitments made to them. By understanding and satisfying industry regulators’ interests, legal counsel can ensure their business colleagues are free to innovate without unnecessary regulatory interference.6
Manage materials. This point is two-fold. Legal counsel must work diligently to keep corporate policies in lockstep with business practices and regulatory requirements. Fall short on either of these fronts and you invite regulatory scrutiny. Legal counsel must also manage materials in the sense that they have command over the regulatory framework most directly influencing business operations. Start with the text of the basic underlying statute, and move outward from there. Other good practices:
- Make a checklist of regulatory requirements for your client’s products and services;
- study the content of regulatory agency websites;
- talk with experienced counsel to understand their methods for navigating complex regulatory standards, staying on top of publications and client updates, and studying other organizations’ compliance failures so you can help your organization avoid its own.7
Work from values rather than rules. To meet our professional responsibility obligations and provide value to our clients, legal counsel must understand the organization’s guiding values and commitments and give life to them. Legal counsel occupies a unique position: We can influence the development of corporate policy to ensure it meets legal and regulatory requirements as well as encourage our clients to engage proactively with stickier compliance problems. These practices result in increased ethical awareness within organizations, making it more likely employees will ask the right questions and do the right things when faced with an ethical problem.8
The Department of Justice Evaluation of Compliance Program checklist provides a series of additional considerations counsel may wish to consult in evaluating an organization’s compliance program.9
Winning at compliance
Organizations can have strong compliance programs and strong performance. Legal counsel can best contribute by being knowledgeable about industry regulatory requirements and ensuring that their clients’ compliance programs are based on values like ethical leadership, appropriate reward systems, fair employment practices, and a willingness to engage in open conversations about compliance issues. With unemployment at historically low rates, every organization stands to benefit from achieving compliance peak performance while also fostering a positive corporate culture and engaging employees.
Disclaimer: The contents of this article do not constitute legal advice and do not necessarily reflect the opinions of my employer.
Notes
1 Robert C. Bird and Stephen Kim Park, The Domains of Corporate Counsel in an Era of Compliance, 53 Am. Bus. L. J. 203, 210 (2016) citing Ch. 104, 24 Stat. 379 (1887) (codified as amended in scattered sections of 49 U.S.C.) and Clyde B. Aitchison, The Evolution of the Interstate Commerce Act: 1887-1937, 5 Geo. Wash. L. Rev. 289, 289 (1937).
2 Hui Chen and Eugene Saltes, Why Compliance Programs Fail, Harvard Business Review, March-April 2018 at 5.
3 Scott Killingsworth, Modeling the Message: Communicating Compliance Through Organizational Values and Culture, 25 Geo. J. Legal Ethics 961, 961-962 (2012).
4 Bird and Park, supra, at 220.
5 See generally Linda Klebe Treviño et al., Managing Ethics and Legal Compliance: What Works and What Hurts, Cal. Mgmt. Rev., 131 (1999).
6 Andrew S. Boutros et al., The ABA Compliance Officer’s Deskbook, 5-8 and 168 (American Bar Association 2017).
7 Boutros, supra, at 165-170.
8 Treviño, supra, at 133.
9 U.S. Department of Justice, Criminal Division, Fraud Section, Evaluation of Corporate Compliance Programs, available at https://www.justice.gov/criminal-fraud/page/file/937501/download.
Mandi Crane serves as special staff legal counsel to the Shakopee Mdewakanton Sioux Community, a federally recognized sovereign Indian nation located in Scott County, Minnesota.