An Enron Lesson: The Modest Role of Criminal Law in Preventing Corporate Crime
40 Pages Posted: 9 Jan 2009
Date Written: January 6, 2009
Will increased penalties for white collar crimes, as provided in the Sarbanes-Oxley Act, deter corporate misconduct? This analysis of theories of law-abiding behavior and conduct at Enron shows why enhanced criminal punishment is not effective in preventing corporate misconduct. The rational choice model presumes that would-be criminals rationally calculate the risks and benefits of criminal conduct, which implies that increasing criminal sanctions is an effective prevention tool. But as the conduct at Enron shows, personal characteristics of executives, such as judgment biases and excessive optimism, can impair the capacity to calculate accurately the risk of punishment. The second model of law-abiding behavior posits that individuals obey the law because of unconscious instincts, based on social norms internalized at an early age. Although criminal punishment is not likely to create law-abiding norms, it can result in law-abiding behavior. However, a corporate culture with its own norms - such as Enron's - can subvert even that minimal result. A more effective method of controlling corporate misconduct utilizes the deterrent value of private remedial suits and government administrative actions, in addition to criminal enforcement. Unfortunately, the current system hamstrings civil plaintiffs and regulatory enforcement. A three-part approach would deliver a single, consistent message to the corporate sector and reserve the power of criminal law as a last resort.
Keywords: administrative enforcement, civil suits, corporate crime, corporate culture, criminal law, deterrence, norms, punishment, rational choice, regulatory law, Sarbanes-Oxley Act, white collar crime
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