Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, January 4, 2011

Monitoring Managers Through Corporate Compliance Programs

Posted by D. Daniel Sokol

Charles Angelucci, University of Toulouse 1 - Toulouse School of Economics (TSE) and Martijn A. Han, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE) have an interesting new paper on Monitoring Managers Through Corporate Compliance Programs.  I recommend reading this paper.

ABSTRACT: Compliance programs entail monitoring of employees’ behavior with the claimed objective of fighting corporate crime. (Competition) Authorities promote such intra-firm monitoring. In a three-tier hierarchy model, authority-shareholder-manager, we study the impact of monitoring on contracting within the firm and the authority’s optimal sanctions and leniency policy. We find that compliance programs are beneficial in the fight against corporate crime if and only if the managerial sanction is low. Moreover, when the shareholder blows the whistle, the authority optimally grants partial corporate leniency, while not granting individual leniency to the involved employees. Conversely, when the employee blows the whistle, the authority grants individual leniency if and only if the expected managerial sanction is either particularly high or particularly low. Finally, we find that the authority does not apply a discount on the corporate sanction for the mere fact of having adopted a compliance program. Our results thus contradict the Corporate Leniency Program, Individual Leniency Program and US Sentencing Guidelines on several dimensions.

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