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Welcome to the Navy, business executives

The business community is abuzz with the news that the U.S. Department of Health and Human Services (HHS) is moving to bar a drug-company CEO, Howard Solomon, from doing business with Medicare, Medicaid, and other government programs.

The reason: The CEO’s company, Forest Laboratories, was guilty of unlawful drug-sales practices. Debarment would be a crippling blow for the company; in effect, the government is telling the company, if you want to keep doing business with us, you have to fire your CEO.

Predictably, the company argues that it’s unfair to punish an individual executive when he was not personally accused of any wrongdoing. The government is taking the opposite view: Even if the CEO wasn’t personally involved in any wrongdoing, it happened on his watch, so he should be held accountable. An HHS lawyer testified before Congress last month that the agency intends to expand its use of debarment “to hold responsible individuals accountable for corporate misconduct.”

This all has a very familiar ring to it: It’s an integral part of the culture of the U.S. Navy. The commanding officer of a Navy vessel knows that he (or she) is absolutely accountable for what happens on his ship, whether or not he is personally culpable.

Suppose a Navy ship collides with another vessel. The captain can expect to be relieved for cause — a career-ending event — even if the collision happened in the middle of the night while he was sound asleep: it was his responsibility to make sure his bridge watch team was trained to anticipate and avoid the collision. Ditto if the ship runs aground: It was the captain’s responsibility to keep the ship safely away from the rocks and shoals.

This principle is encoded in Article 802 of Navy Regulations:

The responsibility of the commanding officer for his or her command is absolute, except when, and to the extent to which, he or she has been relieved therefrom by competent authority, or as provided otherwise in these regulations. The authority of the commanding officer is commensurate with his or her responsibility. While the commanding offlicer may, at his or her discretion, and when not contrary to law or regulations, delegate authority to subordinates for the execution of details, such delegation of authority shall in no way relieve the commanding officer of continued responsibility for the safety, well-being and efficiency of the entire command. [Emphasis added.]

For examples of this principle being applied, see the various JAG investigation reports posted on-line.

I like what the government is doing with the Forest Laboratories CEO. Maybe the prospect of being “relieved for cause” for egregious corporate behavior, even when you’re not personally culpable, will give business executives a greater incentive to steer well clear of rocks and shoals.