Testing Compliance

43 Pages Posted: 8 Mar 2020

See all articles by Brandon L. Garrett

Brandon L. Garrett

Duke University School of Law

Gregory Mitchell

University of Virginia School of Law

Date Written: February 10, 2020

Abstract

How can compliance be tested? Corporations must comply with a dizzying array of laws and regulations. To accomplish this complex task, corporations increasingly turn not just to the legal department and outside counsel but also an in-house group composed of non-lawyer specialists who seek to educate and motivate personnel with respect to their obligations under the law and the corporation’s code of conduct. How can prosecutors, enforcers, companies, or the public know whether compliance is effective or merely cosmetic? In this Article, we argue that hope-based compliance — a mentality that leads insiders and outsiders to assess compliance programs by examining how many resources organizations are devoted to the effort and whether the programs appear well-intentioned or comply with accepted “best practices” within an industry — predictably arises from the incentives and practices evident under current laws. We describe the “compliance trap”: that efforts to validate compliance are not encouraged by enforcers or regulators. Such entities should want companies to share sound compliance practices to improve standards in industry. Individual companies, however, have incentives not to share information about compliance failures, lest they risk liability. Nor do companies have strong incentives to share information about compliance successes, lest competitors use their strategies too. Rather than address this problem, regulators and enforcers, as we will explore, have exacerbated it. We propose a set of legal reforms that would create the conditions for a move to evidence-based compliance. We describe a range of ways that companies can audit employees, using data analytics but also inexpensive and simple experimental approaches drawn from organizational psychology. We call for a scientific approach towards regulating compliance through testing, in which compliance data must be made public, and empirically validated.

Keywords: compliance, testing, validation, corporate crime

Suggested Citation

Garrett, Brandon L. and Mitchell, Gregory, Testing Compliance (February 10, 2020). Law and Contemporary Problems, Forthcoming , Duke Law School Public Law & Legal Theory Series No. 2020-14, Available at SSRN: https://ssrn.com/abstract=3535913

Brandon L. Garrett (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7090 (Phone)

HOME PAGE: http://www.brandonlgarrett.com/

Gregory Mitchell

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States
434-243-4088 (Phone)

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