Corporate Culture and Criminal Liability

Company’s Corporate Culture and Criminal Liability:

The globalization of a company’s operations and human resources requires the examination of several issues. One such issue is whether the company’s values and culture are consistent with the standards of global corporate conduct. In this regard, I sometimes encounter the following issue in my work.

Can a company’s corporate culture result in corporate criminal liability?

The answer is “yes, and increasingly so”. Many countries have strengthened their criminal laws to expand the scope of corporate criminal liability. Australia and Spain are two examples. Academics are debating whether corporate conduct should be subject to the jurisdiction of the International Criminal Court. In a related manner, the United Nations Human Rights Council¬†argues that business enterprises have a responsibility to respect human rights. These developments should not be examined as separate and distinct incidents. Rather, they reflect a set of standards against which company conduct is judged. Corporate culture is increasingly becoming a factor in making that judgment and in determining corporate liability. Traditionally, it has been difficult to hold corporations criminally liable for their conduct. Criminal liability typically requires both a criminal act and criminal intent. Individuals can act with criminal intent. However, can a company — an organization of thousands of dispersed individuals– act with criminal intent? In the past, companies argued that the criminal act of an employee reflected that individual’s criminal intent, not the company’s. As a result, the employee went to jail, the company did not. Now, the counter-argument is that corporate culture encouraged and tolerated the criminal acts of the employee. The employee may still go to jail, but the company will also be punished. This trend toward corporate criminal liability, however, is not merely the result of a new legal argument. Rather, it reflects the changing nature of the company-society relationship.¬† As companies globalize, they expand in scope, consume more resources, and have a greater impact on society. Governments, the traditional representatives of society, have difficulty responding, especially with respect to company operations beyond their own borders. In the meantime, society continues to suffer from several problems, many worsened by population growth, migration, resource depletion, environmental degradation, etc. The result is an imbalance in the company-society relationship as well as a perception that globalization has unfairly benefited companies to the detriment of society. This imbalance and perception lead society to scrutinize company operations and seek ways to expand the scope of company liability. Increasingly, corporate culture is part of that scrutiny and liability. Obviously, companies should understand and respond to this trend. A company should define its values and culture so that others do not misunderstand and maliciously interpret these values and culture.

A company should consistently implement its values and culture through various corporate systems. A company should provide employees at each level of the organization with the competencies needed to conform to these values and culture. Executives should be aware of the standards of global corporate conduct. They should understand the role of company values and culture in satisfying those standards. Executives should possess the skills needed to communicate these values and culture with accuracy and credibility. Ideally, that communication will inspire others and generate goodwill. Furthermore, executives should ensure that corporate systems are aligned to reinforce company values and culture. Managers should possess the skills and confidence needed to apply these values under company systems and through daily communication. Managers should be aware of the difficulties in applying values and aware of the strategies used to overcome these difficulties. Employees should understand how these values and culture are tied to the future and success of the company.

They should believe that management is committed to pursuing these values. Employees should be able to distinguish practices consistent with and inconsistent with these values.

Employees should be provided with the tools to manage their conduct accordingly as well as address practices inconsistent with these values. Sadly, the response of many companies is inadequate and counter-productive. Although companies commonly define and publish their values, these values are often merely defined by one department and ignored by others. Corporate culture is often not driven by management, but is the culmination of workplace conduct tolerated by management. Companies still rely excessively on cross-culture training to prepare management for managing a diverse workforce. This training often leads to an “us vs. them” mindset which undermines the dissemination and sharing of values. This mindset also leads to the stereotyping of others based on their culture (i.e. race and nationality). In many cases, that stereotyping constitutes illegal discrimination and a violation of human rights. An outsider may argue that such stereotyping as well as the resulting discrimination and human rights violations were encouraged and tolerated by the company’s corporate culture. Managing corporate culture in a global and diverse company is a daunting task. Nevertheless, it is an essential component of globalizing company operations. And, it will be subject to greater scrutiny in the years to come.

Curtis Herron is a license California Attorney providing training and other services to companies in their efforts to globalize operations.

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