Corporate Governance Regulation Through Non-Prosecution

47 Pages Posted: 2 Sep 2016

See all articles by Jennifer Arlen

Jennifer Arlen

New York University School of Law; European Corporate Governance Institute (ECGI)

Marcel Kahan

New York University School of Law; European Corporate Governance Institute

Date Written: September 2016

Abstract

Over the last decade, federal corporate criminal enforcement policy has undergone a significant transformation. Firms that commit crimes are no longer simply required to pay fines. Instead, prosecutors and firms enter into pretrial diversion agreements (PDAs). Prosecutors regularly use PDAs to impose mandates on firms creating new duties that alter firms’ internal operations or governance structures. DOJ policy favors the use of such mandates for any firm with a deficient compliance program at the time of the crime. This Article evaluates PDA mandates to determine when and how prosecutors should use them to deter corporate crime. We find that the current DOJ policy on mandates is misguided and that mandates should be imposed more selectively. Specifically, mandates are only appropriate if a firm is plagued by “policing agency costs” — in that the firm’s managers did not act to deter or report wrongdoing because they benefitted personally from tolerating wrongdoing or from deficient corporate policing. Moreover, only mandates that are properly designed to reduce policing agency costs are appropriate. The policing agency cost justification for mandates that we develop thus calls into question both the extent to which mandates are used and the type of mandates that are imposed by prosecutors.

Suggested Citation

Arlen, Jennifer and Kahan, Marcel, Corporate Governance Regulation Through Non-Prosecution (September 2016). University of Chicago Law Review, Forthcoming, NYU School of Law, Public Law Research Paper No. 16-38, NYU Law and Economics Research Paper No. 16-31, Available at SSRN: https://ssrn.com/abstract=2833902

Jennifer Arlen (Contact Author)

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

HOME PAGE: http://https://its.law.nyu.edu/facultyprofiles/profile.cfm?personID=20658

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Marcel Kahan

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States
212-998-6268 (Phone)
212-995-4341 (Fax)

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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