Some early actions by the Trump administration have led corporate legal departments to question the extent to which they need to invest in ethics and compliance at this time, based on a perceived reduction in enforcement risk:
- A presidential action issued in February paused enforcement of the Foreign Corrupt Practices Act, stating “overexpansive and unpredictable FCPA enforcement against American citizens and businesses . . . for routine business practices in other nations . . . wastes limited prosecutorial resources that could be dedicated to preserving American freedoms” and “actively harms American economic competitiveness.”
- The administration reportedly has shifted Department of Justice resources away from corporate white collar crime to target drug cartels and illegal immigration. Turnover and reorganization seem to be placing a strain on the DOJ. Outside of priority areas like immigration, the overall risk of some type of federal enforcement action against a business entity likely is relatively lower than during the prior administration.
- The U.S. Commodity Futures Trading Commission issued a staff advisory noting that immaterial “supervision or non-compliance issues” should not be referred to the CFTC’s Enforcement Division and should instead be handled by an appropriate “Operating Division.”
But we have long counseled that — irrespective of enforcement risks — investments in ethics and compliance programs are crucial to companies’ bottom lines. Tesla’s 71% decline in net earnings and 9% decline in revenue in Q1 2025 are reminders that companies must be vigilant about reputational risks and brand damage. While a decline in Elon Musk’s popularity with the company’s customer base — not a compliance lapse — may explain Tesla’s stumble, it nonetheless illustrates that customers will punish brands for conduct they find objectionable.
Indeed, research demonstrates that “consumers across all generations care about what retailers say and how they act,” with one research participant noting, “Consumers have the power to bring about success or failure to companies. They are more than buyers — they are active stakeholders and want to feel a sense of shared purpose.” Ethisphere Institute publishes a list of businesses that apply and are selected for recognition on its list of “World’s Most Ethical Companies,” and contends that businesses selected for its list financially outperformed “a comparable index of global companies by 7.8 percentage points” over the past five years. While arguments can be made about the selection process, benchmarks and inability to show clear causal relationships with any survey tool like this, major companies pursue Ethisphere’s certification, suggesting businesses understand that perception of their conduct may affect their success.
Some studies have shown consumers consult their ethical beliefs when making purchasing decisions and that they punish brands “most noticeably when there was negative news surrounding social discrimination, corruption, and employment discrimination. Overall, the average reputation shock triggers a 5–10 percent drop in customer sales that extends for at least six months.”
Other research draws connections between employees’ satisfaction, the degree to which they believe their organizations behave ethically and businesses’ financial performance. The Ethics Resource Center’s National Business Ethics Surveys (NBES) suggest companies that message a commitment to maintaining an ethical culture decrease the pressure employees may feel to engage in misconduct and increase the likelihood that they will speak up and identify potential concerns early when remediation costs are lower. Surveys also show that companies that tie their businesses to positive values tend to have happier personnel. An analysis by the Society of Corporate Compliance and Ethics notes that the top 20 publicly traded “Best Companies to Work for in the U.S.” produced better returns over the preceding decade.
Companies positioning themselves for an eventual sale or public listing can have an especially strong case for bolstering their ethics and compliance programs, as sophisticated buyers and underwriters likely will conduct some level of compliance diligence to reduce the likelihood they are buying liabilities. Reduced compliance risk can become a differentiator during negotiations, and potential issues usually are less expensive to address proactively. Consequently, it is never too early for a business to address compliance risks because implementing systems before growth is easier than changing well-established processes.
Compliance Questions to Consider
A company’s values, reputation and brand image can affect its bottom line, so it can be short-sighted to view ethics and compliance programs merely as cost centers.
In evaluating whether current investments in compliance are sufficient, we recommend that companies consider the following:
- Does the business have a formal compliance program and, if so, has it evaluated whether the program meets the Department of Justice’s published expectations, as updated in September 2024?
- Has the business conducted a compliance risk assessment within the past three years and responded appropriately to key areas of potential concern?
- Is the business preparing for a deal, financing, or a similar transaction that could involve scrutiny of their compliance function or controls?
- Did the business receive a subpoena or other information request directed to the company or its personnel from a regulator, prosecutor, or other government agency?
- Does the business have information about unaddressed concerns in hotline reports, whistleblower complaints, auditors’ reports, media reports, etc.?
- Does the business need to conduct an internal investigation or review to ascertain whether its employees or agents engaged in misconduct?
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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