U.S. Public Corporations with a valid Ethics Compliance system may be shielded from the U.S. Securities and Exchange Commission rules under the principle of Qualified Immunity.
The United States Constitution, the supreme law of the land, was written on only 4 pages in 1787. Now, over 200 years later we are entrenched in thousands of pages of U.S. Laws and Regulations and over 80,000 pages of code within the Federal Registry. In a time mired by fraud, waste, abuse, and corruption, in both the public and private sectors, there is a beacon of light for Corporate Directors who want to serve their organizations in good faith, freely and independently, without undue process.
This beacon of light is the Federal Government’s Code of Ethics published in the Electronic Code of Federal Regulations under the auspices of TITLE 5: ADMINISTRATIVE PERSONNEL: PART 2635—STANDARDS OF ETHICAL CONDUCT FOR EMPLOYEES OF THE EXECUTIVE BRANCH, which defines the basic obligation of public service beginning with the following:
(a) Public service is a public trust. Each employee has a responsibility to the United States Government and its citizens to place loyalty to the Constitution, laws and ethical principles above private gain. To ensure that every citizen can have complete confidence in the integrity of the Federal Government, each employee shall respect and adhere to the principles of ethical conduct set forth in this section, as well as the implementing standards contained in this part and in supplemental agency regulations.
However, there is a caveat to the Federal Government’s Code of Ethics, which states:
(c) A violation of this part or of supplemental agency regulations, as such, does not create any right or benefit, substantive or procedural, enforceable at law by any person against the United States, its agencies, its officers or employees, or any other person.
The Federal Government Code of Ethics asserts that the term person, includes corporations, and there is nothing of substance to prohibit a corporation to seek a remedy at Equity, rather than at Law. Equity is the name given to the set of legal principles, in jurisdictions following the English common law tradition, that supplement strict rules of law where their application would operate harshly. Therefore, if a U.S. Corporation can demonstrate that their Ethics Compliance system is designed and operating to a higher standard of fitness than that of the federal entity trying to regulate them, the constructive argument for qualified immunity is plausible, reasonable, and compelling. Of course, the U.S. Corporation must be willing to voluntarily disclose the fundamental data required to substantiate the fitness of their Ethics Compliance system, with relevant, reliable, and sufficient information such as:
1) ETHICS CODE CERTIFICATIONS – A searchable index of records granting public access to the signed, acknowledged, and certified Code of Ethics for each Director, Officer, and Employee.
2) PUBLIC DISCLOSURE REPORTING – A searchable index of records granting public access to the Code of Ethics incident reports and opinions, including concurring and dissenting opinions, as well as orders, made in connection with the adjudication of matters relating to the Code of Ethics. Such records should include:
- Official incident report number (unique identifier)
- Date incident first reported
- Description of incident
- Official title(s) of person(s) involved.
- Supporting documents/summary findings
- Official opinion(s) rendered and its reasoning
- Date incident closed and made available to the public
- Person (and department) responsible to ensure proper handling of the incident report
This fundamental data is essential to form valid opinions regarding the adequacy of design and the effectiveness of operations within an Ethics Compliance system. In addition, this fundamental data serves as a significant basis to judge the duties of care and loyalty.
Business Integrity Alliance 