Ethics policies and compliance training are essential for all employers to mitigate penalties for unethical or illegal activities. The Federal Sentencing Guidelines require employers to promote an organizational culture of ethical conduct and compliance with the law. Without effective compliance programs, employers convicted of crimes cannot reduce penalties. Employers must have standards to prevent and detect criminal conduct, allow whistleblowing without retaliation, and provide ethics training for all employees. Small to medium organizations are especially at risk for lacking formal ethics programs. New Jersey is also proposing reforms that would require organizations conducting business with the state to have business ethics guides and allow penalties for private firms' ethics violations.

1. Ethics Policies and Training Essential for Employers
John J. Sarno, Esq.
Penalties for unethical or illegal activities are onerous and the absence of ethics policies and
compliance training will increase these penalties dramatically. Effective November 1, 2004, the
Federal Sentencing Guidelines (guidelines used by federal courts to impose criminal penalties on
organizations) has required all employers, regardless of size or whether they are privately or
publicly owned, to promote an organizational culture that encourages ethical conduct and a
commitment to compliance with the law. In the absence of an effective compliance program,
employers who are convicted of, or plead guilty to, a crime will be unable to mitigate penalties.
According to the Guidelines, an employer must have standards and procedures to prevent and
detect criminal conduct. This includes policies permitting employees to bring wrongdoing to
management’s attention without retaliation. In also includes ethics training for all employees
Research conducted by the Ethics Resource Center indicates that while most large corporations
have ethics infrastructures, small to medium-sized organizations are especially at risk for ethical
misconduct. Employers with fewer than 500 employees are less likely to have formal ethics
programs in place. The absence of these programs means that these organizations are waiving
their opportunity to argue for a reduced penalty should they be found guilty of a crime.
Government contractors, whether privately or publicly-owned, may have a heightened
responsibility to have policies in place. Firms doing business with the federal government are
subject to the Federal Acquisition Regulations (FAR). Among other things, contractors must
demonstrate “good character” by refraining from unethical or illegal practices.
Additionally, it appears that Acting Governor Codey is serious about enacting meaningful ethics
reform laws in New Jersey. In a comprehensive report submitted to the Governor in March,
2005, it was recommended that any organization conducting business with the state of New
Jersey or providing goods or services under a contract with the state, including professional
service firms and nonprofit organizations, must have a Business Ethics Guide. Additionally, the
report recommends that the State Ethics Commission be granted new powers to impose penalties
on private firms for ethics violations. It is likely that these reforms will be enacted by the end of
2005.
In addition to code of conduct policies, an employer should conduct appropriate due diligence
when hiring persons who will exercise significant authority. Compliance training should
promote enforcement of the employer’s code of conduct. In addition, an employer should have a
procedure to detect wrongdoing through monitoring, auditing and a complaint procedure.