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mandated that broker-dealers and investmentadvisers had to establish, maintain, andenforce reasonably designed written policiesand procedures, taking into considerationdetails of their operations in order to preventthe misuse of material, nonpublic information.It is telling that, despite these guidelines,prosecutions for insider trading often relynot on the core law but on auxiliary violationssuch as perjury. The reason is that mensrea, or criminal intent, is often particularlydifficult to establish, because the accusedcan often claim that he/she always intendedto engage in the transaction and that it wascoincidental that the move was made prior tointernal awareness of, as yet, nonpublic informationabout an anticipated large gain or lossin the stock.What do the codes say?Corporate codes of conduct have became morewidespread and somewhat more complexwith the passage of time and with the federalmandates discussed below, but their essentialnature does not differ much today from thecodes put in place during the half century thatfollowed the end of the second World War.The pioneer survey of corporate codes of conductwas undertaken in 1984 by Fried Frank,an international corporate law firm headquarteredin New York and with offices in,among other places, London, Hong Kong, andShanghai. The survey was updated three yearslater with about one-third of the companiesresponding. Subjects were companies listed byFortune magazine as the largest five hundredin the United States. Presumably, those whoresponded were the most likely to have codesin place (90% of them did), although organizationalprivacy and secrecy concerns may havelimited the response somewhat.A common thread in the codes was thedesire to protect the company from liability.Table 1, from the second Fried Frank survey,indicates the categories reported by thecompanies.TABLE 1: Issues addressed in corporate codes of conduct 13ISSUEPERCENTConflict of interest.......................................97%Gifts..............................................................87%Misuse of confidential information............. 83%Foreign corrupt practices .......................... 83%Political contributions ................................ 79%Insider trading .............................................73%Antitrust.......................................................64%Labor relations............................................ 27%Other........................................................... 29%Source: Siegel (2006:1603)Cressey and Moore also found what theycalled “a disproportionate degree of attention”accorded to conflicts of interest in the corporatecodes. They note that this discrepancy isparticularly pronounced in regard to nonindustrialfirms. They believe that a traditionalemphasis had been placed on preventing actsdirectly harming the company and that onlyrecently had concerns about public interestscome to the fore. 14The Federal Sentencing GuidelinesThe compliance code movement picked upconsiderable speed in 1991 with the introductionof the United States SentencingCommission’s Guidelines for the Sentencingof Organizations (FSGO), 15 a document thatset out criteria for aggravating or mitigatingstipulated penalties. The FSGO established“the most significant impetus toward internalcorporate policing.” 16 The most important mitigatingfactor was the presence of a program“to prevent and detect violations of law.” TheCommission issued what came to be calledthe “seven steps” for constructing a satisfactorycompliance effort. These steps call for aprogram that is “reasonably designed, implemented,and enforced so that it generally willCompliance & Ethics Professional May/June 2012+1 952 933 4977 or 888 277 4977 | www.corporatecompliance.org 57