Cosmetic Compliance and the Failure of Negotiated Governance

Abstract

Across a range of legal regimes—including environmental, tort, employment discrimination, corporate, securities and health care law—United States law reduces or eliminates enterprise liability for those organizations that can demonstrate the existence of “effective” internal compliance structures. Presumably, this legal standards rests on an assumption that internal compliance structures reduce the incidence of prohibited conduct within organizations. This Article demonstrates, however, that little evidence exists to support that assumption. In fact, a growing body of evidence indicates that internal compliance structures do not deter prohibited conduct within firms and may largely serve a window-dressing function that provides both market legitimacy and reduced legal liability. This leads to two potential problems: (1) an under-deterrence of corporate misconduct, and (2) a proliferation of costly—but arguably ineffective—internal compliance structures.