Following the Enron and Worldcom scandals, the US responded by passing the Sarbanes-Oxley (SOX) law in July 2002, which requires inter alia CEOs and CFOs of companies listed in the US to certify the accuracy of their accounts with the SEC. It increases penalties for violations by up to 25 years in prison, by flouting the principle of the territoriality of laws. Its extra-territorial effect goes well beyond the borders of the US since it applies not only to US-listed companies but to their subsidiaries worldwide.
In France, SOX raises many legal, as well as cultural, difficulties. The challenge consists in finding adequate control mechanisms that allow fulfilling SOX requirements but that are compatible with French rules and practices.
This has lead to Codes of Ethics being created or expanded to cover the employees of non-US entities, regardless of the country they work in.
Such Codes of Ethics, similar to the French r�ement int�eur (internal rules, which are required in companies with more than 20 employees, and deal with health, safety, disciplinary rules and sanctions, and whose introduction and modification must follow certain consultation procedures), are often seen in France as a constraint, have already given rise to a few high-profile failures and to a certain resistance by the French authorities.
For instance, in March 2004, the CEO of Boeing, who was based in France and had introduced a Code of Ethics prohibiting any sexual relationship between employees, was forced to resign as he had himself had a sexual relationship (consenting) with an executive of the group. The Code of Ethics proved its efficiency, since the information was obtained by an internal whistleblower and he was soon ousted for non-compliance with the Code of Ethics. Although the CEO could hardly assert the unlawfulness of the Code, as having introduced it himself, questions were legitimately raised concerning the compatibility of such rules with such fundamental principles of French law as the right to privacy, the principle that sanctions must be commensurate with the offense or questions concerning the proper limits to employers power of control.
The arrangements for the introduction of a new form of regulation of working relationships have also been problematic. By way of illustration, the pharmaceutical group Novartis was ordered by a French court, following summary proceedings brought by its works council in October 2004, to remove its Code of Ethics from its intranet site since neither the works council nor the labor inspector had been previously consulted, as is required for any modification to internal rules.
More recently, debates have focused on the employee whistleblowing provisions of SOX. In May 2005, CNIL, the French data protection authority, refused to authorize plans by MacDonalds France and CEAC to introduce whistleblowing hotlines due to the risk of malicious or false charges, finding that their very principle is contrary to the law on data processing and civil liberties since they could lead to an organized system of workplace denunciations.
However, on 15 November 2005, CNIL radically altered its position by stating it was not opposed in principle to whistleblowing hotlines as long as the rights of the individuals complied with privacy laws, including the right of access to the data, the right to modify erroneous and incomplete information. Therefore, companies with a “legitimate interest” to implement such hotlines or similar means, i.e. French companies listed on the American market and companies in the banking and credit industry are since December 2005, only required to make a declaration in a set format to CNIL to be compliant, without any prior control being necessary – this assumes however that the company strictly follows the requirements of CNIL. All other companies still require prior authorization and will be screened by CNIL.
The use of whistleblowing hotlines cannot be obligatory but encouraged by the Company. Also, rather than making such lines anonymous, CNIL recommends that the identity be kept confidential as this both secures the interests of the employee and avoids abusive denunciation. The interests of the individuals whose names are cited for the process should also be protected. Finally, the hotlines should be used for serious matters involving, banking, finance and accounts control, or anti-corruption measures, but also the physical and mental integrity of employees, such as cases of moral or sexual harassment.
These recent developments are attempts to reconcile SOX provisions with French law and may avoid in the future the pitfalls of incompatible international rules, but the restrictions asked by CNIL may not suit all.
France already has many mechanisms to sound the alarm on misconduct in companies. These include trade unions and works councils right to notify the employer about conditions they believe represent a serious danger or obtain clarifications about facts that may adversely effect the companies performance, the right to formulate claims by staff delegates and to cause meetings to be held on sensitive topics, the introduction of a workplace committee on health, hygiene and working conditions, which can also deal with matters in connection with moral or sexual harassment, the right of direct expression of employees, need for approval of internal rules by staff representatives and by the labor inspectorate, not to mention the specific control procedures under French law introduced by the NRE law (law on new economic regulations).
In a nutshell, Codes of Ethics inspired by foreign concepts, while at times conveying laudable ethical principles, can be counterproductive in that they further burden the system without materializing any real improvement in efficiency. A better fit between the two systems is clearly needed.
Ming Henderson-Vu Thi
Kramer Levin Naftalis Frankel LLP,
Paris, France.
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I couldn’t understand some parts of this article of Ethics Gone Astray – Sarbanes Oxley – France : the international medical market place, but I guess I just need to check some more resources regarding this, because it sounds interesting.