Thursday, August 5, 2010

ECOA Law School instructors

Email sent to ECOA Law School instructors

To: ________
Sent: 8/5/2010 ______.M. Central Daylight Time

Subj: ECOA Law School and the civil liability system

Dear _______,

The online course description for this year's inaugural program says, "A genuine understanding of pertinent legal and regulatory standards is critical for ethics and compliance (E&C) officers who seek to be effective. . . . ECOA Law School provides a dynamic learning experience that focuses exclusively on the many U.S. and multinational areas of law and regulation that all E&C officers should understand."

This course description can be analyzed thusly: "Compliance" means compliance with the law, and an important component of ethical conduct is to obey the law. Accordingly there is a significant need of E&C officers to be knowledgeable about prescriptive substantive law that governs a corporation's activities and thereby have knowledge about what acts of the corporation and its employees will violate the law and when the acts of the corporation and its employess will not be in violation of the law.

Also, the law has provisions for obtaining compliance with its prescriptive rules. These include criminal law punishments, civil law fines and liabilities, and regulatory enforcement apparatus. E&C officers also need to be knowledgeable about these provisions, how they operate to obtain compliance, and how effective they are in obtaining compliance. These provisions of the law have an interaction with corporate ethics and compliance programs that E&C officers develop and oversee to achieve their ethics and compliance objectives. Thus knowledge about these provisions of the law is also very important for E&C officers.

In this mosaic of the law, there is an overlay that significantly affects the operation of the prescriptive law, that also impacts how the law obtains compliance, and that seems deserving of attention by the ECOA Law School, but it does not appear to be covered by the course agenda. This overlay is the civil law liability system and aspects of it that I discuss in my online article Does the Civil Liability System Undermine Business Ethics? .

To indicate the relevance of this first to how the law tries to obtain compliance, consider the attention that ethicists have paid to the criminal law, how it operates to obtain compliance, the effectiveness of the criminal law in prosecuting corporations versus prosecuting officers and employees criminally, and ideas for the criminal law to be more effective. The civil liability system has a deterrence objective, and there are significant, similar questions about the effectiveness of that deterrence, including depending on whether only the corporation is held liable or whether officers and employees are also held accountable for their contribution to a corporate wrongdoing that results in a corporate liability. It appears that Mr. Kaplan's presentation will discuss the criminal law, but the course agenda appears silent about how the civil liability system operates to obtain compliance.

Further, consider how the civil liability system frequently results in settlements that leave uncertain what is permissible under the prescriptive rules and what is prohibited. The mother of all sex discrimination cases (the Walmart case) has recently had class action certification affirmed by the 9th Circuit (opinion here) . If the case proceeds, it is fairly predictable that it will be settled, billions of dollars will be paid by Walmart, the settlement agreement will provide that Walmart denies that it did anything wrong, no one will be enlightened about what is permissible under the prescriptive rules and what is prohibited, and the case will only produce an in terrorum effect on corporate behavior. At a minimum, it would seem E&C officers should gain an appreciation of the widespread failure of the civil liability system to provide guidance about statutory prescriptive law and how this creates an in terrorum environment in which their corporations carry out their activities.

As another example of relevance to E&C officers, I think most would agree that the prescriptive law should and does incorporate cost/benefit principles, and cost/benefit principles have a legitimate role in ethics. Being able to think about cost/benefit principles can aid E&C officers in the prosecution of their mission. My article, however, contends that the civil liability system frequently results in a disregard of cost/benefit principles. At a minimum, E&C officers should learn about this counter force in the law, so they can adapt their own thinking and their corporate programs appropriately.

If you think I make valid points about the relevance of the civil liability system for E&C officers, I hope you will include discussion of the same in this year's ECOA Law School program.

Thank you.

Robert Shattuck

No comments: