Ruling could signal an end to ‘slap on the wrist’ penalties
The landmark court decision last month that saw Enron’s former chair and ex-CEO convicted of several counts of fraud, which could result in 20-year prison sentences for both men, signals a new ethical era in corporate accountability.
“What the jury said is that the CEO and the chairman are ultimately responsible for what happens in the company,” said Julie Freeman, president of International Association of Business Communicators (IABC), a San Francisco-based communications professional network. “Ultimately unethical behaviour won’t be tolerated and those responsible will be held accountable.”
However, Canadian courts still lag behind their United States counterparts in tough sentences for corporate malfeasance.
“In some respects, Canada has a bit of a softer approach toward white-collar crime than they are starting to have in the United States. And that may have to change and I think it’s starting to,” said Chris Bart, principal and lead professor for the Directors College, a joint venture between Hamilton’s McMaster University and the Conference Board of Canada.
According to IABC’s recent survey, The Business of Truth: A Guide to Ethical Communication, ethics is a hot topic in businesses around the world. Of the more than 1,800 participants from the United States, Canada, New Zealand, Israel and Australia, 70 per cent said their organization makes it clear to employees what is ethically acceptable and what isn’t.
However, there is still room for improvement, as only 46 per cent of respondents said their firms encourage discussion of moral dilemmas and censurable conduct.
“The general principals are certainly being promoted,” said Freeman. “But are specific situations being widely discussed? The results suggest maybe not.”
Even more disturbing in light of Kenneth Lay, Enron’s former chairman, and the company’s ex-CEO Jeffrey Skilling hiding company debt, inflating profits and selling stock before the fraud was revealed, costing countless jobs and $2.1 billion US in pension assets in 2001, the ethical lines blur when it comes to corporate gain. While 68 per cent of respondents said a manager at their company is reprimanded if he acts unethically for personal gain, only 51 per cent said a manager is reprimanded if he acts unethically for corporate gain.
Canada isn’t immune to the effects of corporate greed. Canadian media mogul Conrad Black was charged in the U.S. with eight counts of mail fraud and wire fraud relating to the alleged diversion of millions of dollars from newspaper publisher Hollinger International.
And the federal sponsorship scandal indicates that the tide is turning against those who defraud taxpayers.
In the scheme to shore up support for the federal government, several communications executives have been accused of over-billing Ottawa, to the tune of $100 million.
After pleading guilty to 15 counts of fraud, amounting to $1.5 million, Montreal advertising executive Paul Coffin was originally given a two-years-less-a-day conditional sentence, to be served in the community. However, the Quebec Court of Appeal overturned the lower court’s decision and sentenced Coffin to 18 months in jail.
In May, Justice Fraser Martin of the Quebec Superior Court sentenced the head of advertising firm Groupaction, Jean Brault, to 30 months in jail for five counts of fraud, totalling $1.6 million.
“The days of people being slapped on the wrist for white-collar crimes and being given suspended sentences are gone. We’re going to see more and more white-collar crime attracting the same degree of punishment, depending on its scale, as somebody who has committed first degree murder,” said Bart, who also wrote the management book A Tale of Two Employees and the Person who Wanted to Lead Them.
This is already happening in the U.S. Last year telecommunication giant WorldCom’s former CEO Bernard Ebbers was sentenced to 25 years in prison, effectively a life sentence for the then 63-year-old, for nine felonies relating to the company’s $11-billion US accounting fraud.
When ethical behaviour isn’t the norm, it leads to a whole host of consequences for society, said Bart.
“You have a complete breakdown in the social mechanisms that we rely on that smooth the path of business. Business in particular becomes so much more complex when you don’t know who to trust or what to trust and we have to develop ever more sophisticated mechanisms to verify whether or not what somebody is telling us is true,” he said.
“The only problem of course is that you can’t legislate ethics and it’s foolhardy to think so.”
Instead, ethics must be encouraged. Not only must unethical behaviour be punished, but ethical behaviour should be rewarded, he said.
“More laws are not the answer. The laws are there to lay out the boundaries within which society and citizens are expected to behave,” he said. “We need monitoring and detection systems that will provide insurance that the behaviours are in fact being carried out.”
If Canada doesn’t ensure companies behave ethically, it could cost the economy as investors put their money into countries with stricter enforcement, said Bart. “We need to treat this as a serious issue. People with money will not be as willing to invest in our economy or our firms as they would otherwise.”
“What the jury said is that the CEO and the chairman are ultimately responsible for what happens in the company,” said Julie Freeman, president of International Association of Business Communicators (IABC), a San Francisco-based communications professional network. “Ultimately unethical behaviour won’t be tolerated and those responsible will be held accountable.”
However, Canadian courts still lag behind their United States counterparts in tough sentences for corporate malfeasance.
“In some respects, Canada has a bit of a softer approach toward white-collar crime than they are starting to have in the United States. And that may have to change and I think it’s starting to,” said Chris Bart, principal and lead professor for the Directors College, a joint venture between Hamilton’s McMaster University and the Conference Board of Canada.
According to IABC’s recent survey, The Business of Truth: A Guide to Ethical Communication, ethics is a hot topic in businesses around the world. Of the more than 1,800 participants from the United States, Canada, New Zealand, Israel and Australia, 70 per cent said their organization makes it clear to employees what is ethically acceptable and what isn’t.
However, there is still room for improvement, as only 46 per cent of respondents said their firms encourage discussion of moral dilemmas and censurable conduct.
“The general principals are certainly being promoted,” said Freeman. “But are specific situations being widely discussed? The results suggest maybe not.”
Even more disturbing in light of Kenneth Lay, Enron’s former chairman, and the company’s ex-CEO Jeffrey Skilling hiding company debt, inflating profits and selling stock before the fraud was revealed, costing countless jobs and $2.1 billion US in pension assets in 2001, the ethical lines blur when it comes to corporate gain. While 68 per cent of respondents said a manager at their company is reprimanded if he acts unethically for personal gain, only 51 per cent said a manager is reprimanded if he acts unethically for corporate gain.
Canada isn’t immune to the effects of corporate greed. Canadian media mogul Conrad Black was charged in the U.S. with eight counts of mail fraud and wire fraud relating to the alleged diversion of millions of dollars from newspaper publisher Hollinger International.
And the federal sponsorship scandal indicates that the tide is turning against those who defraud taxpayers.
In the scheme to shore up support for the federal government, several communications executives have been accused of over-billing Ottawa, to the tune of $100 million.
After pleading guilty to 15 counts of fraud, amounting to $1.5 million, Montreal advertising executive Paul Coffin was originally given a two-years-less-a-day conditional sentence, to be served in the community. However, the Quebec Court of Appeal overturned the lower court’s decision and sentenced Coffin to 18 months in jail.
In May, Justice Fraser Martin of the Quebec Superior Court sentenced the head of advertising firm Groupaction, Jean Brault, to 30 months in jail for five counts of fraud, totalling $1.6 million.
“The days of people being slapped on the wrist for white-collar crimes and being given suspended sentences are gone. We’re going to see more and more white-collar crime attracting the same degree of punishment, depending on its scale, as somebody who has committed first degree murder,” said Bart, who also wrote the management book A Tale of Two Employees and the Person who Wanted to Lead Them.
This is already happening in the U.S. Last year telecommunication giant WorldCom’s former CEO Bernard Ebbers was sentenced to 25 years in prison, effectively a life sentence for the then 63-year-old, for nine felonies relating to the company’s $11-billion US accounting fraud.
When ethical behaviour isn’t the norm, it leads to a whole host of consequences for society, said Bart.
“You have a complete breakdown in the social mechanisms that we rely on that smooth the path of business. Business in particular becomes so much more complex when you don’t know who to trust or what to trust and we have to develop ever more sophisticated mechanisms to verify whether or not what somebody is telling us is true,” he said.
“The only problem of course is that you can’t legislate ethics and it’s foolhardy to think so.”
Instead, ethics must be encouraged. Not only must unethical behaviour be punished, but ethical behaviour should be rewarded, he said.
“More laws are not the answer. The laws are there to lay out the boundaries within which society and citizens are expected to behave,” he said. “We need monitoring and detection systems that will provide insurance that the behaviours are in fact being carried out.”
If Canada doesn’t ensure companies behave ethically, it could cost the economy as investors put their money into countries with stricter enforcement, said Bart. “We need to treat this as a serious issue. People with money will not be as willing to invest in our economy or our firms as they would otherwise.”
