Corporate Corruption and Reform Undertakings: A New Approach to an Old Problem

Abstract:     
Over the past few years the Securities Exchange Commission (SEC) and Department of Justice (DOJ) have finally started making serious efforts at enforcing the United States' anti-bribery laws against corporations. These efforts will not be effective against the worst offenders, however, if they do not address the issue of corporate ethical culture. Over time, the use of improper payments can become embedded in a corporation's culture. The organizational actors treat payments of bribes, or the use of agents the company suspects of paying bribes, solely as economic issues and not as legal and ethical issues. Through the DOJ's use of deferred prosecution and non-prosecution agreements and the SEC's use of settlement agreements, these agencies are attempting to address these root causes of corruption in many corporations. These agreements typically require corporations to adopt more effective compliance programs and to retain independent corporate monitors to oversee the implementation process. This article analyzes the potential effectiveness of these agreements through a New Governance perspective and develops the idea of a Reform Undertaking. Based on the essential features for effectiveness that this article identifies, Reform Undertakings have a lot in common with the currently used deferred prosecution agreements and SEC settlements, but there are also significant differences. Of primary importance is the role of the third party independent monitor. This Third Party should serve not as a simple monitor or as an all-powerful czar, but must take on facilitating and problem solving roles. These are roles which require significantly different sets of skills and characteristics than someone serving a monitoring role or a czar role. Overall, through the use of a New Governance perspective, this article identifies essential features of Reform Undertakings that can more effectively tackle the root cause of persistent corrupt behavior by corporations - the corporation's ethical culture - than alternative regulatory mechanisms.

Keywords: Bribery, Compliance Programs, Corporate Culture, Corruption, Deferred Prosecution Agreements, FCPA, New Governance, Organizational Ethics

JEL Classifications: K14, K20, K22, G38, L50, M14, D23

Accepted Paper Series