Shaming in Corporate Law
David A. Skeel Jr.
University of Pennsylvania Law School; European Corporate Governance Institute (ECGI)
Symposium, Norms and Corporate Law, University of Pennsylvania Law Review, 2001
Along with the burgeoning legal literature on norms has come a renewed interest in the use of shaming sanctions as an alternative to standard forms of punishment. Shaming enthusiasts such as Professor Dan Kahan have argued that shaming sanctions can be used either as an independent sanction, or to supplement sanctions such as fines that might not otherwise convey an adequate amount of moral disapproval. Shaming skeptics worry that shaming sanctions will lead to idiosyncratic or unpredictable enforcement.
This Article focuses on the role that shaming can or could play in corporate law. Although this Article is not the first to consider corporate shaming, it seeks to extend the literature in at least two respects. First, the Article provides the most detailed examination to date of what we might call the "anatomy" of corporate shaming - the role and limitations of the enforcer; the enforcement community (or audience); and, most interestingly in corporate law, the target, which can be the firm itself, individual managers, or both. Second, the Article significantly expands the focus of the shaming inquiry. The existing literature, both in the corporate context and elsewhere, has focused almost entirely on the use of shaming sanctions as a penalty for violating a criminal or certain kinds of civil laws (such as non-criminal environmental provisions). From this perspective, the enforcer is always a court. Yet private parties also shame wayward directors and firms. In the corporate law context, shareholder activists and the financial press have made frequent use of shaming techniques. Each time CalPERS publishes a list of underperforming firms, for instance, one of its central goals is to shame the offending firms. To more fully understand corporate shaming, the Article therefore considers both private and judicial enforcers.
The Article explores three "case studies" of shaming in particular detail: the use by CalPERS and the financial press of "rosters of shame;" shareholder activist Robert Monks and Nell Minow's more aggressive shaming campaigns, which included a full-page Wall Street Journal advertisement shaming the directors of Sears by name; and the decision of the Delaware chancery court in a case stemming from alleged Medicaid and Medicare violations by Caremark Industries. For private enforcers like CalPERS and other shareholder activists, I suggest that the SEC could facilitate shaming by forcing offending firms to bear some of the costs of shaming efforts. Even in the absence of such changes, these shaming efforts seem likely to continue to prove quite effective as a device for prodding recalcitrant boards into action. For judicial shaming, I consider how shaming could be fit into the kinds of multi-faceted liability schemes that have been proposed in the literature on corporate criminal and tort liability.
JEL Classification: K14, K22
Date posted: December 7, 2000