On March 11, 2008, Congress held its first ever hearing on corporate monitors. The hearing began with questions to John Ashcroft, the former U.S. Attorney General who then headed a law and consulting firm, about why he had been given a multi-million-dollar monitorship of the biomedical device manufacturer Zimmer Holdings, which had been under investigation for paying kickbacks to doctors.

Ashcroft’s firm had been appointed as Zimmer’s monitor by Chris Christie, the U.S. Attorney for the District of New Jersey, who was overseeing the investigation. Christie worked under Ashcroft as a Department of Justice prosecutor and advised him regularly. There was no bidding process and no public or judicial review of the firm’s expertise in monitoring health care companies like Zimmer.

According to an email from one of Zimmer’s attorneys to Christie’s office, the fee agreement for the monitorship required the company to pay a flat monthly rate with “no questions asked.” In the first five months of the engagement alone, Ashcroft’s firm billed Zimmer $7.5 million, which included a $750,000 monthly fee and $250,000 per month in expenses that included private air travel.

The total bill for the monitorship came to between $28 million and $52 million. Each payment request had only a single line item for services rendered. One congressman likened the arrangement to a no-bid contract, and another remarked, “This is a ransom note not a billing statement.”

It is difficult to know if the Ashcroft monitorship strengthened Zimmer’s compliance program and improved its anti-kickback efforts. One might reasonably question whether it did given that Zimmer was subject to another monitorship a few years later for bribing foreign officials, and then again when it violated that agreement.

Today, the enforcement landscape in the United States is radically different. Congress isn’t likely to hold a hearing on monitorships anytime soon, and corporate and white collar crimes are not even among the new attorney general’s enforcement priorities. In fact, the administration has been laser focused on shifting resources away from these areas to support prosecutions related to immigration and public safety. The enforcement of the Foreign Corrupt Practices Act, a frequent source of monitorships, has been declared by executive order as something that “harms the interests of the United States.”

In this environment, not only is the appointment of corporate monitors improbable, but the fate of existing monitorships is also in jeopardy. The ongoing Boeing saga in which the monitor selection provisions resulted in the rejection of a plea agreement provides a case in point, as does the just terminated Glencore monitorship.

Perhaps there is an opportunity here. In the 17 years since the Ashcroft hearing, the use of monitors has steadily increased, even as enforcement priorities have changed and controversies have persisted. Yet there has never been a fundamental rethinking of the standards by which monitorships are awarded, conducted, and evaluated.

For example, despite the enormous costs of monitorships, their success is uncertain, because the definition of success for monitors and monitorships is all but nonexistent. That foundational deficiency pervades the entire monitoring process. A de facto pause on monitorships may very well be needed to rethink the entire approach.

In a recent paper, we do just that – offering a first principles analysis of monitors and monitorships.

Our thesis is straightforward: The effectiveness of monitorships should be determined  by well-defined and measurable outcomes. Effectiveness depends on demonstrated behavioral change within the monitored organization – that is, whether the monitor has increased the ethical decision-making and behavior of employees over the course of the monitorship, thereby indicating that remediation is likely to continue once the monitorship ends. Success in achieving these outcomes will lead to public confidence in the partnership between the government and the company to reduce wrongdoing – a partnership that is entered into for the benefit of society, rather than for the financial interests of well-connected parties.

There is currently little, if any, consistency or transparency in how monitors are selected, how they operate, or how their effectiveness is defined or evaluated. The DOJ’s Criminal Division currently leaves the nomination of monitor candidates entirely to the company being monitored, with no requirement for an open solicitation process. Monitors are also almost always compensated directly by the monitored companies, and there are no public standards for – and rarely any public disclosures of – their fees. While monitor bills presumably no longer resemble ransom notes, incentives to overbill persist. And when it comes to the actual work of the monitor, there are no standard tools or approaches. Other than informally comparing notes and sharing best practices, which competitive forces limit, there is no institutional framework to ensure that approaches are consistent and knowledge is retained. Finally, and most importantly, there are no consistent metrics or methodologies by which to gauge the success of a monitor as measured against the outcome articulated by the parties.

We propose reforms to address how monitors are selected and compensated, and how monitorships are conducted and evaluated.

First, transparency in how monitors are selected and do their jobs is key. Despite its current uncertainty, the Boeing plea agreement and the monitorship selection process it proposed was a step in the right direction because it included public solicitation of monitor candidates. Greater transparency, however, is needed in how monitors will be selected and how they plan to change the behavior of organizations.

Second, monitors  should not be paid  hourly but in a way that rewards proven and measurable outcomes.

Third, consistent methodologies are needed to guide the conduct of monitorships. The credibility of the monitorship system is jeopardized when the approaches and standards vary widely from one monitorship to the next.

Fourth, the success of a monitorship must be defined in concrete, measurable terms and evidenced by supporting data. Monitors must start by understanding what data are indicative of an organization’s performance in the areas being monitored, and then mine that data for feedback. Scientifically valid methodologies should be used to measure and test behavioral change – establishing a baseline, introducing an intervention, and then testing again to see if conduct risk has been reduced.

To accomplish these reforms, we propose institutionalizing monitorships, beginning at the federal level. One option would be the creation of a federal interagency and interdisciplinary Office of Monitorships that would serve as a hub of innovation and information, reduce the negative incentives on monitor effectiveness, and professionalize the monitor function, all while operating under the ethos of measured effectiveness.

We do not expect our proposal to gain traction in the current environment—there is little appetite for doing anything other than reducing government. But our hope is to begin a dialogue so that when the time is right, we may collectively find a way to institutionalize and professionalize monitorships and ensure consistency in their selection, approach, accountability, and effectiveness.

This post comes to us from Professor Todd Haugh at Indiana University’s Kelley School of Business and Hui Chen at CDE Advisors LLC. It is based on their recent article, “Remaking Monitorships: A First Principles Approach to Monitor Effectiveness,” available here.