Rand ICJ and CCEG

From: RDShatt@aol.com
To: Michael_Greenberg@rand.org, james_dertouzos@rand.org
Sent: 4/4/2012 2:15:14 P.M. Central Daylight Time
Subj: Could Rand ICJ and/or Rand CCEG take this up?

Dear Mr. Greenberg and Mr. Dertouzos

I am an activist lay person.

I have embarked on a project to investigate the views and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing. See this Statement of project.

I would like to make a case study of the $25 billion settlement that has been made by Ally Financial, JPMorgan Chase, Wells Fargo, Citigroup, and Bank of America regarding the alleged mortgage-servicing and home-foreclosure abuses stemming from the so-called "robo-signing" practices. I have tentatively drafted a set of survey questions I would like to ask of employees of those banks. See Employee survey regarding robo-signing settlement.

I have previously written these two pieces that are a provenance of my project: Does the Civil Liability System Undermine Business Ethics? and "Whither the Quest of Business Ethicists?" .

I am disadvantaged in prosecuting my project because I lack credentials, standing and institutional backing in the business ethics field.

I have learned or am discovering that a number of the parties who should have an interest in my project are not interested in responding to me, because it does not entirely suit their interest to respond or because they have other more important interest.

For example, take state attorneys general. Entity level liability has important publicity value to them, and I believe that reduces their interest in determining their position on the issue of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing. State attorneys general also have significant "turf" issues vis a vis the United States Justice Department that are of much greater priority for them. You may draw your own conclusions by review this link and this link (no response received to the email in the latter link).

Corporate management probably has little interest in responding to a project like mine that may lead to sugesstiosn for altering the legal machinery to increase officer and employee individual liability in connection with corporate wrongdoing.

 
Plaintiffs lawyers have a huge financial interest in entity level liability, so much so that, thus far, I have made little effort to contact them regarding my project.

I think corporate ethics officers, including the Ethics & Compliance Officer Association, are not able to respond very well, because they cannot diverge publicly from views of their corporate management bosses who, as mentioned above, probably want to stay away from anything that might lead to increasing officer and employee liability.

Consultants in the business ethics field have been non-responsive to my project. This is probably due to there being little revenue potential for them from my project and follow up that might grow out of my project, such as efforts to educate and persuade lawmakers, judges, and state attorneys general regarding the subject matter.

In the academic community, there currently seems to be greater interest in internal corporate culture, corporate leaders cultivating it positively, and the same being transmitted to employees through internal programs, and there is much less interest in how intrusive externalities of the law, courts, prosecutors and regulators should best be brought to bear on improving corporate behavior. This seemed supported by a review I did of articles in the Business and Ethics Quarterly from the past couple of years and the email correspondence I attempted with authors that is posted here and here.

Regardless of whether any interested parties have a propensity that favors an internally focused approach and they prefer to keep external actors and forces at bay, the SEC's recent whistleblower rules forced parties to speak their minds in order to try to get governmental action that was more to their liking rather than less. The "For Whom the Whistle Blows" report of the Rand Center for Corporate Ethics and Governance explores at length this "significant controversy" in which "critics and advocates have squared off. . .."

In the introductory section, the report lays out, related to its May 11, 2011 symposium, the below "context" of issues and differing views and perspectives, including about employee psychology, concerning whistleblowing:

Critics of the whistleblower rules under Dodd-Frank assert a litany of ill effects that they believe will accrue under the law. As outlined in the recent congressional testimony of Ken Daly, president of the National Association of Corporate Directors, the potential for enormous bounties might lead corporate insiders to let instances of fraud go undetected without reporting them internally, only to later bring them directly to the SEC in the hopes of securing a large financial award.1 Similar concerns were expressed by the U.S. Chamber of Commerce and others, who cautioned that some aspects of the Dodd-Frank rules might “undermine the functioning of effective corporate compliance programs by relegating them to the sidelines in the process of identifying and remedying violations of securities laws.”2 Both the National Association of Corporate Directors and the Chamber of Commerce took the position that corporate employees ought to be required to report instances of suspected fraud internally within their companies as a condition for subsequent eligibility for whistleblower bounties under Dodd-Frank. And as one commentator recently observed, future SEC enforcement actions (particularly under the Foreign Corrupt Practices Act) make the possibility of future high-value whistleblower payouts seem likely. “Then the floodgates will truly open.”3 

A contrasting viewpoint has been offered by advocates from the whistleblower community. According to results from the latest iteration of the National Business Ethics Survey, the prevalence of observed misconduct in the corporate workplace remains widespread, yet more than 40 percent of those occurrences are never disclosed to anyone by the witnessing employees. Of those instances that are disclosed by an employee, most are reported directly to an immediate supervisor and not via a formal compliance mechanism.4 In a somewhat different vein, recent empirical studies of successful qui tam claimants under the FCA suggest that a substantial majority actually do try to report misconduct internally within their own companies and only blow the whistle as a last course of action.5 These kinds of findings illustrate a basic tension in the ways in which different people view the corporate compliance function. 

Among many executives and directors in the business community, compliance programs are viewed as basically effective ex ante and threatened by new external whistleblower awards. Some whistleblower advocates and other commentators, on the other hand, suggest the opposite—that many employees lack trust in internal compliance and reporting channels and that most would be only too happy to use them if they felt safer and better protected in doing so. A complementary observation has been put forward by some leading members of thecompliance profession—namely, in too many corporations, compliance and ethics programs are either broken or hollow, and much more needs to be done to make those programs truly effective.6 In a 2009 RAND symposium, significant discussion focused on the lack of a strong, independent chief ethics and compliance officer (CECO) as a key indicium of a weak or failing program. As the author of one invited white paper opined, “A well-implemented compliance and ethics program doesn’t spring from the void ex nihilo—it requires a strong leader to engage others in the organization, including powerful senior managers, to surface and resolve issues and challenges, and to make a culture of transparency, accountability and responsibility areality.”7 

The debate over whistleblowing under Dodd-Frank invokes radically different viewpoints about the psychology of employees who come forward to reveal misconduct. Is the decision to report primarily opportunistic and strongly motivated by perceptions about the potential for large financial reward? Or is the decision inherently risky, such that a person’s career, family, and home may be placed in jeopardy by coming forward? Without seeking an objective answer to these competing visions, it is important to recognize that the Dodd-Frank regime is premised on the idea that both viewpoints may simultaneously be true. In other words, incentives for whistleblowing may be desirable precisely because it is difficult, risky, and unpalatable for employees to come forward, and it is frequently easier for them simply to remain silent. Meanwhile, are employees’ decisions about external whistleblowing likely to be influenced by access to robust internal reporting mechanisms, together with a culture of ethics and trust in the workplace? This is a nebulous question to try to address with empirical data. It seems intuitive, though, that a hypothetical stampede of whistleblower claims under Dodd- Frank might more likely occur in a world in which instances of corporate fraud and opportunistic behavior are widespread, internal compliance mechanisms are not trustworthy, and commitments to honesty and fair dealing are not viewed as basic attributes of the corporation or the employment relationship..

In some basic sense, the superficial debate over whether the Dodd-Frank whistleblower provisions are a good idea conceals some underlying points of broad agreement. Corporate fraud and misconduct are bad things. Compliance and ethics programs are intended to protect companies themselves, as well as the community at large, from bad behavior. An ideal world is one in which the occurrence of misconduct in corporations is low, in which employees trust internal reporting mechanisms, and in which those mechanisms make external whistleblowing largely superfluous. These are points that reflect the shared interest of the corporate community, regulators, and employees and that move beyond the basic debate over government bounties and external whistleblowing. That debate has largely been rendered moot by the final SEC whistleblower rules under Dodd-Frank, which were promulgated in May 2011 and establish that internal reporting of fraud is not required for subsequent eligibility for an SEC whistleblower award. Given the new reality of the external whistleblower rules, the key question for all stakeholders becomes, How can internal reporting mechanisms and compliance and ethics (C&E) programs broadly be made more effective, in a way that minimizes the need for external whistleblowing? Furthermore, are there ways to ensure that the corporate community and regulators can work together toward this end and that compliance programs are neither sabotaged nor “bumped to the sidelines” by by Dodd-Frank?

I would like to ask you: Whether or not interested parties are willing to speak out (or can be forced to speak out), do you think my project about entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing raises issues and questions equally deserving of exploration in the business ethics field as does whistleblowing?

If so, could the Center be talked into expanding the scope of its report "An Early Assessment of the Civil Justice System After the Financial Crisis" to address entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing? 

Thank you.

Sincerely,
Rob Shattuck