Keeping Compliance & Legal Separate

Last week we had a popular post about why ethics and compliance officers don’t necessarily need to be lawyers to do a good job. Now we have a vivid example of why the entire ethics and compliance function should be separate from legal, courtesy of a debacle at Disney over a wrongful death lawsuit.

You may have seen the headlines already. Earlier this year a New York man filed a wrongful death lawsuit against Disney because his wife had died from an allergic reaction while eating at a restaurant at a Disney theme park. Disney’s lawyers then filed a motion to dismiss the lawsuit because the man, Jeffrey Piccolo, had signed up for trial of the Disney+ streaming service in 2019 — and by accepting the terms and conditions for that trial, Disney’s lawyers argued, Piccolo had waived all rights to sue Disney in court in favor of binding arbitration. 

Needless to say, Disney’s argument didn’t last long. Piccolo’s lawyers noted that by the company’s logic, roughly 150 million people who’ve tried Disney+ over the years should never be allowed to sue Disney for anything. Public outcry ensued, and Disney retreated from its position last week.

And now compliance officers have yet another example of what can go wrong when a company does something that’s legally permissible but ethically awful. 

Disney tried to paper over its retreat with the typical PR pablum. The chairman of Disney Parks released a statement declaring that “with such unique circumstances as the ones in this case, we believe this situation warrants a sensitive approach to expedite a resolution for the family who have experienced such a painful loss. As such, we’ve decided to waive our right to arbitration and have the matter proceed in court.”

A day late and a dollar short, Disney. Your lawyers submitted their original argument against Piccolo’s right to sue months ago. They put that argument in a court filing. People on the company’s legal team actually believed this was an acceptable argument to make, and would have kept pushing it if Piccolo’s lawyers hadn’t shotgunned the cold-blooded implications of that argument across the internet. Only when Disney got nailed in the court of public opinion did it decide to do the right thing in the court of law.

Again, Legal vs. Ethical

This sorry episode from Disney raises several issues we can ponder through an ethics and compliance lens.

First, it underlines the importance of performing an ethics analysis on your litigation strategy. That is, sure the legal team can devise some clever argument to achieve the company’s objective of winning litigation, but shouldn’t someone consider whether that argument is ethical, too? Shouldn’t someone consider whether it accords with the company’s ethical values? (Fun fact: Disney once touted “decency” as one of its core values, but the word is no longer mentioned on the Disney website.)

I suspect most people, including senior management types, would say yes, a company’s ethical values should factor into its litigation strategy — but who, specifically, gets to make that assessment? Because if the legal team itself does, then legal is reviewing its own work. That’s a conflict of interest at best, and makes honest analysis nearly impossible. 

Some independent voice — like, say, the ethics and compliance officer — should do it.

There’s more here, too. Even if the company has an excellent ethics team that performs a crackerjack analysis of litigation strategy, what good is that exercise if the compliance team is subordinate to legal? Legal would still have the discretion to overrule whatever ethical flags might be raised, when that’s really the CEO’s decision to make. After all, he or she is the steward of corporate culture and ethics, not the general counsel.

Second, this episode makes you wonder about the speakup culture within Disney, because one of three things happened here:

• Nobody on Disney’s legal team thought that its position was ethically dubious;
• Some people thought the argument was ethically dubious, but didn’t raise concerns about it;
• Some people thought the argument was legally dubious and did speak up, but they were overruled.

None of those scenarios is good. If Disney decided that a lifetime ban on lawsuits thanks to a Disney+ account was too cold-hearted to pursue — why did the company need four months to reach that conclusion? Why did nobody raise that concern before Disney lawyers included it in a court filing? Or if somebody did, who decided to proceed with that strategy anyway? Clearly someone did, until outsiders called out that strategy for its callous ethical underpinnings.

Again, one can’t help but wonder, who was the advocate for Disney’s corporate culture throughout this drama-rama? 

Ethics & Compliance Is Not Legal

Compliance officers talk all the time about how other corporate functions — sales, procurement, marketing, R&D, manufacturing — need to work within a company’s ethical values. The legal function should be no different. 

Except, how does that work when the compliance department is part of the legal function? By definition, that arrangement means ethical considerations can be superseded by other concerns, such as effective litigation strategy. 

This is why, whenever possible, the ethics and compliance function should be separate from the legal function. It needs the autonomy and independence to ask the tough questions that hold organizations accountable to their ethical values, and that accountability must apply to all functions across the whole enterprise. Legal shouldn’t have some special status “above” ethics and compliance, but that’s exactly what is implied when ethics and compliance is part of the legal function.