Weekend Reading: The Monitorship Muddle — Time for a Fresh Approach

By: Stephen J. Scott , Founder & CEO of Starling

This piece first appeared in Starling Insights' newsletter on February 23, 2025. If you are interested in receiving our newsletter, among many other benefits, please consider signing up as a Member of Starling Insights.

"Trust but verify" was a dictum made famous by US President Ronald Reagan. When it comes to corporate reform, however, we might do better to ask: "Who verifies the verifiers?"

This question has taken on renewed urgency as regulatory bodies grapple with how best to oversee institutional reform efforts. The traditional answer — appoint an independent monitor — is increasingly subject to criticism, even as the practice grows increasingly common. A groundbreaking new analysis suggests it's time to fundamentally rethink our approach.

In a recent article published in the University of Illinois Law Review, Todd Haugh , Associate Professor of Business Law and Ethics at the Indiana University - Kelley School of Business , and Hui Chen , a former Compliance Counsel Expert at the U.S. Department of Justice (DOJ), make a compelling case for reform of corporate monitorships. The current system, they argue, is both unnecessarily expensive and ineffective.?

Their examination comes at a critical moment, as the future of traditional monitorships comes under question in a second Trump administration.?

The Price of Prevention

In 2008, the first Congressional Hearing regarding monitorships was held, Haugh and Chen recount. The hearing was originally intended to "shed light" on deferred prosecution agreements (DPAs). However, most of the questions revolved around the process by which John Ashcroft, the former US Attorney General who now headed a law and consulting firm, was selected as the monitor for biomedical device manufacturer Zimmer Holdings by his former employee, then US Attorney for the District of New Jersey Chris Christie.

Further questions were raised about the fee structure of the engagement. Ashcroft received a $750 thousand flat monthly fee, alongside an $895 hourly rate for several team members and $250 thousand in monthly expenses. In total, Ashcroft billed Zimmer between $28 and $52 million."This is a ransom note not a billing statement," one legislator remarked.

But the eye-watering fees weren't the only problem. Despite the reforms implemented under Ashcroft's watch, Zimmer soon found itself in trouble again for bribing foreign officials. This led to another monitorship, followed by yet another when the company violated that agreement. The revolving door of monitors raised an uncomfortable question: Are we paying millions for sustainable change, or merely renting the temporary appearance of compliance?

Seventeen years later, we're still asking the same questions.

Pricey window-dressing

These concerns are not limited to Ashcroft or Zimmer — there has long been debate as to the process surrounding monitor selection and the efficacy of monitorships in driving lasting change. "All the while, the use of monitors has steadily increased," Haugh and Chen observe, "not just in the corporate crime context, but across other state and federal agencies and even internationally—anywhere 'structural reform' of an organization is needed."?

This expansion has occurred despite mounting evidence that the traditional monitorship model is flawed. Moreover, we continue to see lawyers appointed to monitorships that aim at culture change, when there are good grounds to question whether such professionals are equipped with the training needed to succeed in such tasking.

As we argued in a September 2024 Weekend Reading, "When you need to get people dancing to a new tune, you want a musician, not a mechanic." The tendency to appoint law firms as corporate monitors reflects a misunderstanding of what drives organizational change. While lawyers excel at establishing fact patterns and documenting compliance frameworks, they typically lack the behavioral science expertise needed to affect lasting cultural transformation.

"With all respect for their many diverse skills and legal expertise," we noted then, "there is simply no reason to believe that lawyers can be expected to deliver capabilities that even highly trained behavioral scientists struggle to master." And yet we continue to default to legal expertise when cultural challenges demand attention.

Consider the trajectory: In October 2021, Deputy Attorney General Lisa Monaco signaled an even greater embrace of monitorships, announcing that the DOJ would favor their use in any resolution involving "a significant amount of trust on the part of the government." This marked a sharp departure from the more circumspect approach taken during the previous administration, suggesting that political winds, rather than demonstrated effectiveness, may drive monitorship policy.

Apple's experience with its antitrust monitor offers a particularly telling example of the model's shortcomings. While headlines focused on the tech giant's resistance to oversight, the more significant story emerged when the monitorship was terminated ahead of schedule. The reason? Apple had "created a 'meaningful antitrust compliance program' largely on its own," as Haugh and Chen note, "raising the question of whether the monitor was necessary in the first place."

This outcome highlights a fundamental paradox: Companies capable of implementing effective reforms may not need monitors, while those most in need of oversight may prove resistant to change regardless of monitoring. As the system currently functions, it appears to be produced by lawyers, to benefit lawyers, and it's not at all clear that it benefits anyone else — except, perhaps, to offer the appearance that "something is being done," and the more costly, the more "serious" the effort must be.?

If It Ain't Broke…

What's particularly striking about the current state of monitorships is how little the process has evolved since those contentious 2008 Congressional hearings. "[T]here has never been adequate consideration of the standards by which monitorships are awarded, conducted, and evaluated," Haugh and Chen argue.?

This observation cuts to the heart of why monitorships so often fall short of their intended aims. Neither government officials, business leaders, nor academic experts have articulated what success looks like in this context — a deficiency that pervades monitorships from start to finish.

Drawing on extensive research and practitioner experience, Haugh and Chen identify four critical shortcomings in the current monitorship model.

First, there is little to no consistency or transparency in how monitors are selected.?

In choosing a monitor, companies and prosecutors typically ask, "Who has done this before?" rather than "Who is the right monitor for this specific case?" While companies typically nominate three candidates among which the Criminal Division may choose, prosecutors have no role in generating these nominations.?

This creates an inherent tension: companies are incentivized to nominate monitors which they believe will be least intrusive, while prosecutors can only react to the options presented. And since lawyers often know best how to communicate with other lawyers, this leads to an over-emphasis on legal credentials at the expense of other, perhaps more critical, expertise.?

As corporate compliance functions increasingly draw on data science, behavioral psychology, and other disciplines to assess risks and influence behavior towards optimal performance, the traditional legal-centric approach to monitor selection appears increasingly antiquated.

Second, there are no widely recognized standards regarding the tools and techniques deployed by monitors in the course of exercising their duties.?

"[W]hile the agreements between prosecutors and companies often contain detailed provisions concerning past and future compliance obligations, there are usually no directives to the monitor much more specific than requiring it to 'assess and reduce the risk of any reoccurrence of the Company's misconduct' in various areas," Haugh and Chen explain.

With no consensus as to what constitutes an 'effective' monitorship, there are no tests for efficacy other than a lack of obvious recidivism. But an absence of evidence is not evidence of absence. That fact that we haven't seen further bad acts does not offer adequate assurance that bad acts have been discontinued — perhaps they've simply not been discovered?

Third, the direct payment of monitors by the companies they oversee creates obvious potential conflicts of interest.?

This problem is exacerbated by the lack of standardized fee structures or public disclosure requirements regarding such. A monitor employing third-party vendors and conducting comprehensive testing will naturally incur higher costs than one focusing mainly on policy updates with a small in-house team. But which approach better serves the public interest?

Third party vendors, eager to climb aboard the monitorship gravy-train and to ride it as long as possible, are eager to bring themselves into favor with the firms (typically law firms) that are awarded monitorships. One way of achieving this is to set fees lower than such vendors might prefer, in order to allow the monitor to apply a markup to such fees which the monitor may then pocket, as compensation for its management oversight of third parties.?

Fourth, and most critically, there exist no objective metrics by which to gauge whether monitors achieve their intended outcomes.?

As Haugh and Chen note, evaluations typically depend on "the personal views of the prosecutors involved, and they exist only in the memories of those participating in 'hallway conversation.'" This reliance on subjective assessment and institutional memory makes it impossible to develop evidence-based best practices or to demonstrate return on investment.

Such a set up does not serve the interest of prosecutors ostensibly concerned with protecting the public interest, because they cannot know that the monitorship they ordered produced much of anything besides fees collected by the monitor. Nor does such a set up serve management of an organization genuinely interested in driving change: how can they know whether they've been successful?

Without any objective criteria by which to gauge success, we're left reliant upon poor proxies: how "good" a monitor is believed to be (largely evidenced only by having served as monitor previously), how long the monitor has been in place, and how much money the firm has spent placating the monitor. It is hard to conjure a system better suited to corporate extortion.

The ROI of Oversight

Prosecutors defend monitorships as necessary tools for achieving sustainable cultural change without unduly harming innocent stakeholders (unless you count shareholders who suffer their purses being plucked). Critics argue that these extrajudicial agreements allow agencies to extract substantial fines while avoiding both the rigors of trial and the public benefits of formal adjudication, and pose monitorships as an improper interference in corporate governance.

Until recently, debates over monitorship effectiveness have been largely theoretical. But recent research provides empirical evidence to inform the discussion. Through econometric analysis, researchers have shown that companies under monitorship demonstrate 18-25% fewer legal violations as compared to peers without monitors. These improvements are largely found to dissipate with a monitor's departure, so the data suggests that monitors drive improved compliance practices during their tenure, but struggle to catalyze lasting cultural change.

In sum, monitorships appear to produce a somewhat effective policing function, rather than serving the remedial function that they are established to serve. Nevertheless, the government's position remains steadfast: monitorships provide net positive value and should continue. This stance relies on faith rather than evidence: as Haugh and Chen point out, there has never been a thorough analysis of monitorship efficacy. It's akin to doctors directing patients to take medications that have never been proven safe and effective through clinical trials.

A First-Principles Approach

At the heart of Haugh and Chen's proposed reforms lies a profound insight: the fundamental task of a corporate monitor should not be to impose compliance protocols but, rather, to "effectuate a lasting corporate culture that empowers the individual ethical decision making of employees."?

This represents a significant departure from traditional thinking about monitorships and points to a more scientifically grounded approach to organizational change initiatives.?

"Individual ethical decision-making begets individual ethical behavior," Haugh and Chen explain, "which in turn aggregates across the workforce into a positive company culture, with corporate compliance flowing from there." This perspective aligns with current research in the behavioral sciences, which emphasizes the critical role of social networks and peer influence in setting conduct norms.

This new model demands a different skill set than traditionally sought in monitors. Legal expertise, while valuable, must be complemented by deep understanding of behavioral science, cultural assessment frameworks, and data analytics capabilities.?

The insight that "corporate culture is at the heart of legal and ethical failures in companies," as Haugh and Chen argue, demands a paradigm shift in how we approach monitorships. Rather than imposing "top-down homogeneous compliance protocols" — the current approach — we must instead focus on catalyzing behavioral change from the ground up and select monitors who have demonstrated an ability to drive such change and an ability to evidence success.

This emphasis on empirical evidence represents a decisive break from the subjective assessments that have historically characterized monitorship evaluation, and demands a number of reforms on the part of prosecutors, monitors, and monitored companies.

The current opacity surrounding monitor selection and operation undermines both legitimacy and effectiveness. Haugh and Chen thus call for a shift toward greater transparency throughout the monitorship lifecycle. Companies should be required to document not just candidate qualifications, but their entire selection methodology — including search parameters, evaluation criteria, and rationales for candidate inclusion or exclusion.

This enhanced transparency would serve multiple purposes. First, it would provide valuable insight into how companies contemplate the monitorship role, and what demonstrated qualities and capabilities they prioritize in candidate selection. Second, it would create an empirical basis for evaluating whether selection criteria align with monitorship objectives. And third, it would allow for comparative analysis across different monitorships, helping to identify and establish best practices in monitor selection, thus leading to greater professional standards.

The transparency mandate should extend to prosecutors as well, they argue. Their monitor selection decisions, currently shrouded in bureaucratic opacity, should be supported by clear articulation of decision criteria and reasoning. This would help establish precedent for future selections while providing companies with better guidance for candidate nomination.

A baseline framework should establish minimum qualifications that extend well beyond traditional legal expertise. While legal knowledge remains important, effective monitorships require a broader skill set that incorporates principles of culture and behavioral risk management as well as organizational governance. As Haugh and Chen observe, the legal-centric model often leads to an over-reliance on rule-making and punishment — approaches that behavioral science research suggests are insufficient for driving lasting cultural change.

Perhaps the most crucial element of Haugh and Chen's proposed framework is their emphasis on metrics. Current reliance on subjective assessment and informal feedback mechanisms provides little basis for evaluating monitorship effectiveness or for comparing outcomes across different engagements.

Instead, clear metrics should guide every stage of a monitorship. Prior to an engagement, monitor candidates should provide specific, measurable outcome targets. Reporting on progress against these targets should continuously assess both immediate compliance improvements and monitor sustainable cultural change throughout the project and beyond.?

These metrics should be aligned with broader DOJ policy objectives while remaining specific enough to provide meaningful guidance for individual monitorships. Regular review and refinement of these metrics would help ensure their continued relevance and effectiveness.

To implement and sustain these reforms, Haugh and Chen propose establishing a dedicated "Office of Monitorships" within the government. This Office would serve as a center of excellence for monitorship practice, maintaining permanent interdisciplinary staff focused on developing and refining methodologies for organizational change.

The Office would facilitate public-private partnerships, bringing together business leaders, legal experts, government officials, and academic scholars to advance monitorship practice. Through regular convenings and research initiatives, it would promote innovation in monitoring tools and techniques while building institutional knowledge about what works in driving sustainable organizational change.

Lessons Beyond Monitorships

While Haugh and Chen have sought to provide a roadmap for addressing the deficiencies in corporate monitorships, the problems they identify are not unique. Regrettably, such challenges are common to several different layers of oversight, including governance, risk management, and audit. But perhaps most striking are the parallels between their critique of corporate monitorships and ongoing challenges in banking sector supervision.

Consider the common threads:

First, both systems rely heavily on subjective judgment in determining success. Just as monitor effectiveness is often evaluated through informal "hallway conversations," banking supervisors frequently assess institutional culture through inherently subjective mechanisms that lack empirical rigor. This subjectivity makes it difficult to establish benchmarks, compare outcomes across institutions, or demonstrate sustained improvement over time.

Second, both domains demonstrate an overreliance on "tone from the top" as a primary lever for behavioral change. While leadership commitment is undoubtedly important, research in organizational psychology and behavioral science suggests that peer influence networks often prove more powerful in shaping day-to-day conduct. Yet neither monitorships nor banking supervision has fully embraced this insight.

Third, both systems suffer from a critical expertise gap. The legal-centric approach that dominates corporate monitorships finds its parallel in banking supervision's focus on traditional prudential metrics. Both would benefit from greater integration of behavioral science, network analysis, and data analytics capabilities — tools essential for understanding and influencing organizational culture.

Fourth, misaligned incentives plague both domains. Just as monitors face potential conflicts when compensated directly by the companies they oversee, banking supervisors must navigate complex political and institutional pressures that can distort oversight objectives. These misalignments often result in a focus on short-term compliance over sustainable cultural change, and an emphasis on the inputs to good governance rather than the throughputs upon which success rests.

Finally, and perhaps most importantly, both systems lack standardized tools and metrics for assessing cultural change and predicting future conduct risks. This measurement gap makes it impossible to demonstrate effectiveness, to develop evidence-based best practices, or to justify continued investment in cultural reform initiatives.

Critics might argue that, since monitorships cannot be shown to be effective, they should be discontinued. Similar arguments have been voiced recently in connection with supervisory efforts aimed at driving more effective non-financial risk governance in the banking sector.

But rather than do away with systems that are of questionable effectiveness, perhaps we might instead look to make them more effective?