Beyond Reproach

Many observers have said that confidence in corporations and the stock market will return as soon as a few executives go to jail. That may be true, but even with the current investigations and indictments, it could be six months before anyone goes to jail. Does anyone want to wait that long for confidence in our American corporations to return? Probably not.

Our own community’s recent history provides an important lesson relevant to the current crisis of confidence that corporations and their leaders face. During the last decade, federal prosecutors brought dozens of cases against public officials, convicted and sent them to jail for public corruption crimes. In nearly every case, the official operated in a culture that did not discourage their actions but instead enabled them to carry out their crimes. One former Kansas City councilman—now convicted—routinely promoted projects that were a few dollars under a threshold amount that would have required additional scrutiny prior to ratification of the expenditure. The full council approved the schemes every time they came up for a vote with little or no additional review.

Even after some of the politicians started getting indicted and even convicted, there remained a high level of public cynicism. That was in part because very few of the honest public servants—and there were many—demonstrated their integrity with specific explanations of how they did things differently than their convicted brethren. Too many said at the time, "There are a few bad apples in every bunch." Their mistake was in failing to recognize that the public thought the entire barrel of apples was rotten.

In my judgment, each corporate leader should immediately take the action necessary to change corporate culture and establish his or her independent credibility. Corporate leaders who wait for prosecutions or congressional action to restore public confidence may be making a mistake. Many experts familiar with corporate governance and accounting believe there will be additional revelations as corporations issue financial restatements following the SEC’s Aug. 14 deadline for executives of the nation’s largest corporations to personally certify the accuracy of their public filings. Is there any question what will happen to confidence in the system if these predictions come true?

Not everyone is going to be bold and change all the policies that are generating most of the controversy. But there are steps that can restore credibility. It is not enough to simply state, "We have looked at our books and found nothing wrong." Bring in an outside review of your corporate governance by credible and independent voices. Once you are confident of how your organization operates, be proactive and communicate in a way that not only distinguishes you from the bad guys, but also defines how you approach these issues. Attack the cultural barriers within your organization by choosing and communicating the ethical standards you will use in everyday management, including promotion and compensation. This commitment must be more than window dressing. It will not work if your organization’s commitment to doing things the right way is only a manual on a shelf without employee buy-in. Otherwise it may be difficult for the corporation to convince anyone, including federal prosecutors, of its commitment to sound business ethics.

Finally, every organization should look for opportunities to demonstrate its core values by exceeding the minimum standards. Even if the corporation is not obligated to certify its public filings, it should still consider performing the same type of due diligence that is necessary for a certification. Can your employees say, "We were not required by law to do this level of review but felt we owed it to our shareholders and employees to be right about everything we say and do"? That kind of statement not only restores confidence in your organization, but also makes it very difficult for anyone to suggest you are just another Enron.

Stephen L. Hill Jr., is the former United States Attorney for Western Missouri and is now a partner at Blackwell Sanders Peper Martin. He leads the firm’s Government Compliance group and may be reached at 816.983.8162.