Corporations and the criminal code
A version of this article was first published: BizNews - January 2000
Ever since the death of Julius Caesar, people have been warned to “beware the Ides of March”. Corporations might be advised to pay special heed to this warning in the year 2000 as 15 March is the nominated date on which provisions in the Commonwealth's Criminal Code Act (1995) – affecting the criminal liability of corporations under Commonwealth law – will come into effect.
This legislation has been on the statute books for nearly five years – with the clock ticking during a 'countdown' to commencement that has been designed to allow everybody to prepare for the application of some interesting new concepts that have been added to the law. While companies will need to seek professional legal advice in order to obtain a full and proper understanding of how this evolution in the law will affect them, it may be useful to offer a layman's guide to a few of the more significant changes that have been introduced with this legislation.
First, the purpose of the Criminal Code Act (1995) is to codify a number of general provisions governing the way in which criminal offences, arising under Commonwealth law, should be dealt with by the courts. In this, its principal aim is to define the circumstances in which criminal responsibility will be ascribed to individuals and/or corporations and to establish principles relating to the burden and standard of proof that will apply when assessing criminal responsibility.
Part 2.5, Division 12 of the Act codifies a number of principles relating to the criminal responsibility of corporations. For example, the Act makes it clear that the deeds of any single employee, when acting within the actual or apparent scope of their employment, will be deemed to be the action of the corporation as a whole. It also establishes that a body corporate may be found guilty of any offence, including one punishable by imprisonment.
Finally, it should be noted that the provisions of the Act apply to offences under every piece of Commonwealth legislation. This means that the Act defines the basis for determining corporate criminal responsibility under legislation covering matters as diverse as tax, the environment, corporations law and trade practices.
While this codification pretty much reflects the common law, other provisions extend the law into some interesting territory. The most interesting of these relate to section 12.3 which defines 'fault elements other than negligence' being those of knowledge, intention or recklessness.
The key point here is that when it comes to knowledge, intention or recklessness, the courts will be asked to determine whether the corporation “expressly, tacitly or by implication authorised or permitted the commission of the offence”. The legislation then goes on to outline the means by which such an authorisation may be established. And it is here that things get interesting because the legislation goes beyond matters of what individual directors or 'high managerial agents' did or did not do.
In addition to this, it introduces the idea that 'corporate culture' may be a determining factor in establishing the criminal responsibility of corporations.
In prosecuting an alleged offence, the prosecution will be asked to prove that “a corporate culture existed within the body corporate that directed, encouraged, tolerated or led to non-compliance with the relevant provision (of the law)” or that “the body corporate failed to create and maintain a corporate culture that required compliance with the relevant provision (of the law)”. Corporate culture is later defined as “an attitude, policy, rule, course of conduct or practice existing within the body corporate generally or in the part of the body corporate in which the relevant activities takes place”.
It is probably the case that news of this change in the law will send a shiver down the spines of some. It will certainly generate some additional work for lawyers. However, I think that it would be a mistake to see the development of this law as requiring a defensive, 'legal' approach to compliance. Indeed, while respecting the need for a prudent set of controls, I would strongly argue that a limited, rules-based approach to compliance would ultimately prove to be ineffective and self-defeating.
Rules, regulations and systems of surveillance can never be so finely tuned as to cope with the level of complexity evident in nearly every modern corporation and its surrounding environment. Furthermore, the expense of this style of compliance program is usually totally prohibitive. Fortunately, most people studying risk management have moved on to support an alternative approach.
The thing needed in today's conditions is an organisation that can efficiently and effectively govern itself with a fair measure of self-regulation in which individuals take personal responsibility for applying the corporation's ‘ethical compass’. This then allows flexible responses to changing conditions – but with well-defined cultural boundaries based on a clearly articulated ethical framework that is consistently applied across every part of the organisation.
Beyond this it is highly undesirable that an ethical culture be built on negative sentiment – such as the need to have a defence should the issue of criminal responsibility ever arise. The thing needed is a positive commitment to a set of core values and principles that help the organisation to answer the questions, "Who are we? What do we stand for?".
Of course, it is possible to motivate people with the ‘fear of the lash’. However, it is only unhealthy cultures that tend to emerge from such conditions. The real prize is to be had by those who offer the promise of a positive workplace in which people can make meaning as they pursue that part of their life based around work.
Given all of this, I hope that the Ides of March, in 2000, will be embraced as an opportunity for positive change and that the legislation will be seen as nothing more than a convenient lens for concentrating the mind on how best to develop a corporate culture that allows all of the corporation's stakeholders to flourish. Unfortunately, the task of creating such a culture is not a matter of applying a ‘quick fix’.
However, there is no mystery to be found in the process for developing a robust ethical environment in corporations. Indeed, there is a growing range of people able to offer practical assistance based on extensive experience. One of these is, of course, St James Ethics Centre.