Authors
The economic and workplace upheaval associated with the COVID‑19 pandemic has placed unique and intense pressures on businesses and market sectors.
History has taught us that the more downward pressures there are on businesses, the more likely that bad employee and business partner behavior will occur. This kind of conduct can give rise to class action and regulatory liability.
At the same time, work-from-home protocols, travel restrictions and shifting demands within workplaces can put a strain on investigative priorities. However, proactive, focused and remedial internal review and investigation at the first sign of questionable behavior should continue to be prioritized as a powerful tool to mitigate and neutralize the pernicious effects of misconduct.
This article highlights issues that business leaders should be on the watch for, and how they should mobilize to address them in our changed and challenged workplaces.
Whether the bursting of the dot.com bubble at the turn of the century, the financial crisis of 2008 or the economic impacts of the current pandemic, major societal events can put multiple internal and external pressures on companies and their personnel. After the recession in 2008, white-collar crime, including fraud, spiked1. We have seen signs of a similar pattern emerging from the pandemic. Financial performance may be down. Share price may be languishing and volatile. Employees are under increased pressure, managing domestic and work stressors. Business partners are subject to similar issues. All these pressures can create a higher than usual impetus for bad judgement and business misconduct.
It is important for business leaders to acknowledge and be sensitive to these pressures and the potential misconduct that may result, including:
Corporate liability flowing from bad employee or business partner behavior generally comes in two forms: regulatory action and civil litigation, including class actions. Governments and regulatory agencies are often under public pressure to “do something” about bad behavior that affects consumers. Increased regulatory interest in investigating and prosecuting white-collar crime followed the 2008 financial crisis2. Similarly, regulators are likely to investigate the impacts of pandemic-related misconduct.
For example, securities regulators in the U.S. and in Canada have clamped down on businesses engaged in capital raising who have made bogus representations about COVID-19 medical treatments3. Regulatory investigations and prosecutions are usually a harbinger for civil litigation based on the same underlying conduct4. Finally, internal and regulator whistleblower programs increase the chances of any bad behavior being exposed5.
The legal impacts of exposed bad behavior can take many forms, including breach of public company disclosure obligations, violation of health and safety or employment laws as well as bribery and other corrupt business practices.
Interested in hearing more on this topic? Join authors Lisa Talbot and John Fabello in their July 30 webinar "Controlling corporate misconduct in a crisis". Register now.
One of the best defences to legal and regulatory liability associated with improper conduct is self-detection and remediation that is made possible through the early identification, investigation and assessment of potentially problematic conduct and its impacts.
While there may be an inclination to suspend or delay investigations until workplaces are “back to normal”, this is not advisable. Delayed action can lead to compromised or lost evidence and continued misconduct (and thus continued or increased risk exposure). It can also signal to potential bad actors that misconduct may be undetected or tolerated.
Companies should remain prepared to take steps to manage the risks posed by the pandemic and business disruptions. These steps include:
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1 Association of Certified Fraud Examiners, “ACFE Survey of Experts Finds Increase in Fraud During Economic Crisis”, April 16, 2009
2 See, for example, Ontario Securities Commission "Statement of Priorities for Fiscal 2010-2011”.
3 Cracking down on COVID-19 fraud: U.S. and Canadian securities regulatory enforcement update.
4 For example, civil litigation followed regulatory action in AIC v. Fisher, 2013 SCC 69.
5 Ontario Securities Commission, News Release dated June 29, 2018, “OSC Whistleblower Program contributing to a stronger culture of compliance”.
6 OSC Staff Notice 15-702, Revised Credit for Cooperation Program.