Unintended Consequences

Unintended Consequences

*****

A Law of Unintended Consequences

How We All Pay for Corporate Greed

By Tom Johnson

The fallout from the shenanigans of corporate executives treating their company's bank account as their own isn't over yet. We have all read the horror stories of companies such as Enron where it was reported that senior executives, knowing what was to come, cashed in their stock options while urging their employees to continue to buy company stock. When the truth was revealed, thousands of Enron employees were out of jobs and left with worthless 401(K) Retirement Plans. A stockholder buying $4,000 in Enron stock two years ago would have enough value in the stock today to pay for a good meal at McDonalds. These people have all paid a heavy penalty for the misdeeds of a few. But most of us are not employees or stockholders of Enron and we avoided that pain and suffering. Or did we?

Trouble is headed our way. On July 30th the Sarbanes-Oxley Act was enacted; fueled by the heat of our national indignation, this far reaching law scorched through the halls of Congress like a four alarm fire. The new law and all of its good intentions are now arriving at our doorstep with unintended negative consequences. What does it mean to the small business owner or the manager in any of the many businesses in the US that have gone untouched by scandal? Sarbanes-Oxley provides new and additional protection for whistleblowers against retaliation by their employers. It is not limited to publicly traded companies and fraud against shareholders, it protects the employee in ALL federal investigations - such as those conducted by the Department of Labor, OSHA, Wage and Hour, EEOC, Immigration and Naturalization Service and the National Labor Relation Board. Undoubtedly, this far-reaching law will be challenged in the courts. In the meantime, an unhappy or poor performing employee may find a defense against an employer's legitimate right to fire someone. The complaining employee cannot be fired, demoted or discriminated against.

But wait, there's more! The new legislation requires the employer to prove his case at the far higher level of “clear and convincing evidence”. Previously, the employee had to do the convincing. There are also new criminal penalties (up to 20 years imprisonment) that can apply to individuals in the company for retaliation against informants. These new criminal penalties apply in any federal case and not just in SEC probes.

Here is what I'd recommend the diligent manager and company do to defend against trouble.

Establish or review your internal reporting policy. Consider an Ethics Policy, complete with a protected reporting procedure.

Train your managers on the requirements of the new law and how this may change the way they manage. Good record keeping will be essential.

Examine your Performance Review system. Managers should not be afraid of taking action against a poor performer. If performance is well documented, bad actors won't be able to hide behind laws that shouldn't apply to them.

Check your policy and practice on document retention. Establish a procedure that is scrupulously followed. Obeying the law is essential but providing mountains of unnecessary data will certainly not benefit you.

Consult your insurance broker to see if Employment Practice Liability insurance is appropriate for your company. This coverage may provide you some degree of protection defending against claims when the company already has established policies and procedures.

Tom Johnson, president of Johnson Mallory Global, consults on ethics and performance management.

www.johnsonmallory.com

The Charlotte Business Journal, October 11, 2002

4026-F Providence Road Charlotte, NC 28211 phone: 704.891.2002

We invite and appreciate your comments and questions.

	'à la carte' PR
	Unintended Consequences *** A Law of Unintended Consequences How We All Pay for Corporate Greed By Tom Johnson** The fallout from the shenanigans of corporate executives treating their company's bank account as their own isn't over yet. We have all read the horror stories of companies such as Enron where it was reported that senior executives, knowing what was to come, cashed in their stock options while urging their employees to continue to buy company stock. When the truth was revealed, thousands of Enron employees were out of jobs and left with worthless 401(K) Retirement Plans. A stockholder buying $4,000 in Enron stock two years ago would have enough value in the stock today to pay for a good meal at McDonalds. These people have all paid a heavy penalty for the misdeeds of a few. But most of us are not employees or stockholders of Enron and we avoided that pain and suffering. Or did we? Trouble is headed our way. On July 30th the Sarbanes-Oxley Act was enacted; fueled by the heat of our national indignation, this far reaching law scorched through the halls of Congress like a four alarm fire. The new law and all of its good intentions are now arriving at our doorstep with unintended negative consequences. What does it mean to the small business owner or the manager in any of the many businesses in the US that have gone untouched by scandal? Sarbanes-Oxley provides new and additional protection for whistleblowers against retaliation by their employers. It is not limited to publicly traded companies and fraud against shareholders, it protects the employee in ALL federal investigations - such as those conducted by the Department of Labor, OSHA, Wage and Hour, EEOC, Immigration and Naturalization Service and the National Labor Relation Board. Undoubtedly, this far-reaching law will be challenged in the courts. In the meantime, an unhappy or poor performing employee may find a defense against an employer's legitimate right to fire someone. The complaining employee cannot be fired, demoted or discriminated against. But wait, there's more! The new legislation requires the employer to prove his case at the far higher level of “clear and convincing evidence”. Previously, the employee had to do the convincing. There are also new criminal penalties (up to 20 years imprisonment) that can apply to individuals in the company for retaliation against informants. These new criminal penalties apply in any federal case and not just in SEC probes. Here is what I'd recommend the diligent manager and company do to defend against trouble. Establish or review your internal reporting policy. Consider an Ethics Policy, complete with a protected reporting procedure. Train your managers on the requirements of the new law and how this may change the way they manage. Good record keeping will be essential. Examine your Performance Review system. Managers should not be afraid of taking action against a poor performer. If performance is well documented, bad actors won't be able to hide behind laws that shouldn't apply to them. Check your policy and practice on document retention. Establish a procedure that is scrupulously followed. Obeying the law is essential but providing mountains of unnecessary data will certainly not benefit you. Consult your insurance broker to see if Employment Practice Liability insurance is appropriate for your company. This coverage may provide you some degree of protection defending against claims when the company already has established policies and procedures. Tom Johnson, president of Johnson Mallory Global, consults on ethics and performance management. www.johnsonmallory.com The Charlotte Business Journal, October 11, 2002 4026-F Providence Road Charlotte, NC 28211 phone: 704.891.2002 We invite and appreciate your comments and questions.	Welcome Menu of Services Mission Site Map Calendar