While I was surfing the net on Corporate Law books, an interesting book titled, Who Moved my Soap?: the CEO's Guide to Surviving in Prison by Andy Borowitz, caught my attention. He talks about different rules including, “Bringing Six Sigma to Sing Sin”.
 As you are aware, “Six Sigma” is a business management strategy originally developed by Motorola, USA in 1981. Sing Sing Correctional Facility is a maximum security prison in the Village of Ossining, Town of Ossining, New York, United States. Further, he talks about a rule called, “Prison Cell Feng Shui” which is a Chinese term in Chinese philosophy that governs spatial arrangement. “Feng Shui” means basically wind and water. He describes how to set up a cell in the most optimal way, a way that encourages learning and success.
This book is a hysterically funny take on the recent spate of corporate scandals and intended as a satirical guide for the convicted CEOs. What is most interesting is that this book is a green-light for the transgressing officers on the gravity of non-compliance with applicable laws, rules and regulations. Further, the well known statement, “Compliance efforts are not just a necessary evil but an investment for the long term” rebuts the general perception that compliance obligations are an administrative burden and to be overlooked.
As “compliance with laws, rules and regulations” is a non appealing subject, the author of this article selected the above topic, though the real purpose of this article is to discuss the importance of compliance. Compliance is meeting obligations under “applicable laws, regulations and company standards etc.” “Compliance” is used with respect of mandatory standards and regulations, whereas “conformance” is used with respect to voluntary standards and specifications.
Further, though the businessmen are very good at the unabashed use of the law, the numbers of CEOs of the top companies who serve imprisonment suggest that overlooking compliance obligations is not prudent.
For example, Jeff Skilling, former CEO of Enron serving 24 years for fraud, insider trading, and other crimes related to the collapse of Enron; Bernie Ebbers, former CEO of WorldCom, serving 25 years for accounting fraud that cost investors over $100 billion; Sanjay Kumar, former CEO of Computer Associates, serving 12 years for obstruction of justice and securities fraud; and John Rigas, former CEO of Adelphia Communications, serving 25 years for bank, wire, and securities fraud related to the demise of Adelphia. Therefore, there are a range of business benefits to be gained from sound compliance practices, including avoiding fines, protecting reputation, streamlined business processes, quality improvements, business intelligence, risk mitigation, and, lower costs.
However, in June 2010, the U.S. Supreme Court handed former Enron Corp. CEO Jeffrey Skilling a partial win when it ruled that the so-called honest-services fraud statute used to convict him did not apply to his case. Skilling appealed to the 5th U.S. Circuit Court of Appeals, alleging his conviction was flawed because the honest-services fraud statute conviction was improper and because he was not allowed a change of venue. The 5th Circuit affirmed Skilling’s conviction. But a majority on the Supreme Court ruled in Skilling v. United States that the honest-services statute, 18 U.S.C. §1346, should be confined to bribes and kickbacks given to criminal defendants by third parties.
Miller case recognizes the importance of compliance. In Miller v. McDonald (In re World Health Alternatives, Inc.) (Bankr. D. Del. April 9, 2008), the United States Bankruptcy Court for the District of Delaware held that corporate officers, and, in particular, the general counsel, can be held personally liable for corporate fraud and related wrongdoing, even if they do not have personal knowledge of, involvement in, or benefit from the underlying wrongful activities.
The path to avoiding such liability is clear: senior management must take steps to ensure that appropriate compliance programme structures and activities are in place and operating. Further, in Sri Lanka, Section 526 of the Companies Act 2007 provides relief for officer action reasonably.
Where in any proceeding for negligence, default, breach of duty, or breach of trust against an officer of a company or a person employed by a company as auditor (whether he is or not an officer of the company), it appears to the court hearing the case that the officer or person is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that he has acted honestly and reasonably, and that having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused for the negligence, default, breach of duty or breach of trust, that court may relieve him, either wholly or partly, from his liability on such terms as the court may think fit.
Therefore, despite the general view that plethora of laws, rules and regulations discourage qualified persons from accepting directorships; still company officers acting in good faith are impregnable under Section 526 of the Companies Act 2007.
(The writer who is based in the US could be reached at ruwani_d78@yahoo.com). |
E-mail
