No Good Deed Goes Unpunished: The Need for a Safe Harbor for Aspirational Corporate Codes of Conduct?

64 Pages Posted: 23 Aug 2007 Last revised: 19 Nov 2009

Date Written: May 17, 2008

Abstract

The Federal Organizational Sentencing Guidelines, the Sarbanes-Oxley Act and other laws and regulations encouraged U.S. corporations to adopt codes of conduct and compliance programs. Usually these laws and regulations offer corporations lower penalties if they adopted codes of conduct and compliance programs to encourage them to engage in self-policing.

These efforts seemed to have failed in the case of Enron. As a result, Congress enacted the Sarbanes-Oxley Act that changed the dynamic by requiring public corporations to disclose if they had a code of conduct and if not, why not. The Sarbanes-Oxley Act assumed that the market would punish corporations that failed to adopt codes of conduct with lower prices for their stock. Many U.S. corporations have adopted corporate codes of conduct because of the incentives built into the Organizational Sentencing Guidelines, the Sarbanes-Oxley Act and other laws.

Most of the existing codes of conduct, however, merely require businesses to comply with their present legal obligations. U.S. corporations are reluctant to adopt codes of conduct that contain aspirational goals that exceed their legal requirements, because of concerns that the failure to achieve the aspirational goals set forth in these codes of conduct would make the corporations targets for litigation and because the added costs might make them less competitive than businesses that do not adopt such policies and procedures.

This article examines the ways in which the law shapes what rules and procedures go into codes of conduct. It suggests a way of creating a safe harbor for codes of conduct that espouse aspirational goals that would overcome or minimize the legal disincentives to adopting aspirational goals in business codes of conduct. Finally, it will analyze why enacting this safe harbor would, on balance, be beneficial to the businesses involved and to society as a whole.

Keywords: codes of conduct, codes of ethics, social responsibility, corporate governance

JEL Classification: F2, K22, K33, L50

Suggested Citation

Brown, Elizabeth F., No Good Deed Goes Unpunished: The Need for a Safe Harbor for Aspirational Corporate Codes of Conduct? (May 17, 2008). Yale Law & Policy Review, Vol. 26, No. 2, 2008, Available at SSRN: https://ssrn.com/abstract=1008959

Elizabeth F. Brown (Contact Author)

affiliation not provided to SSRN

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