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The very real prospect of a jail sentence for directors of companies operating across national borders is adding new urgency to the once dull world of compliance.

A rising number of directors of European companies are either in a US jail or facing prison sentences because the US authorities hold them responsible for alleged infringements of US laws.

This week, Ian Norris, former chief executive of Morgan Crucible, the engineering group, who was the first foreign national to be sought by the US authorities on antitrust charges, launched his appeal in the High Court. This followed allegations of price-fixing involving Mr Norris – charges he denies.

According to Alistair Graham, partner of White & Case, the law firm acting for Mr Norris, about 19 foreign executives from close to 10 countries have been jailed in US prisons for allegedly violating US antitrust laws.

Scott Hammond, deputy assistant attorney general for criminal enforcement in the US Justice Department’s antitrust division, said in March: “We have done a pretty good job of turning up the heat on foreign nationals who target US businesses and consumers for antitrust crime.”

Governments elsewhere are following the US and tightening up rules on accountability and directors’ liabilities for corporate failures. Win Swenson, a Maryland lawyer and former regulator who set up Integrity Interactive, a web-based corporate ethics and compliance service, says: “There has been a major shift in standards to which boards are held. Companies and directors now stand in the shoes of employees in the US and overseas [jurisdictions].”

The risks are spurring companies to enlist outside help from firms such as Ernst & Young, KPMG and Integrity Interactive to make staff aware of ethics and compliance in the markets in which they operate.

There are manifest benefits in setting up these training programmes, says Mr Swenson. Governments in the US and Europe will reduce the penalties for corporate failure if companies are seen to have put compliance and ethical training in place beforehand. This is embodied in the US government’s corporate sentencing guidelines, he points out.

Mr Swenson, who had a hand in drafting these guidelines, now advises clients such as BP, Ford, Novartis, Shell and Coca-Cola. The business is picking up fast, he says: Integrity Interactive reckons it is taking on about 20 new clients a quarter.

On a practical level, companies trading across national barriers have to be aware of the jurisdictions they deal with. One of the first jobs that Ernst & Young does when it takes on a new client is map out the various regulatory regimes that apply to a business.

“Many companies have no idea of what rules there are. For example, in the US they don’t realise they are answerable to state as well as federal regulations,” says Sylvie Bleker-Van Eyk, Ernst & Young’s head of Integrity Services and Investigations department based in the Netherlands.

But a vital part of Ms Bleker-van Eyk’s job is to help companies foster a culture of corporate integrity to avoid future corporate failures. That means educating employees on the ethical principles, not just existing rules, says Ms Bleker-van Eyk. It also means instilling the right culture at the top of an organisation.

Philippa Foster Black at the UK-based Institute of Business Ethics explains: “The tone set from the top will cascade down the organisation and be played out at many different levels and in many different situations.”

She points out how getting the ethical tone wrong in an organisation cost companies their reputations, their customers’ trust and ultimately put people out of jobs. In the case of Arthur Andersen, the accountants, she says, “its integrity was undermined by the loss of reputation over the Enron scandal”.

A vital element of Ernst & Young’s training course is to present directors with employees’ views on what their bosses expect of them and behaviour they will sanction. That can mean confronting boards with uncomfortable truths, she says. “It holds up an unexpected mirror to the board.”

Put your ethics to the test

Win Swenson of Integrity Interactive has set six conundrums for board directors. Test your ethical stance

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