Functional Corporate Knowledge

63 Pages Posted: 7 Sep 2018 Last revised: 16 Apr 2019

Date Written: February 21, 2019

Abstract

The line between guilt and innocence often turns on what a defendant knew. While the law’s approach to knowledge may be relatively straightforward for individuals, its doctrines for corporate defendants are fraught with ambiguity and opportunities for gamesmanship. Corporations can spread information thinly across employees so that it is never “known.” And prosecutors can exploit legal uncertainties to bring knowledge-based charges where corporations were merely negligent in how they handled information. While knowledge as a mens rea has unique practical and normative properties that vary with a corporation’s size and industry, corporate law treats knowledge just like any other mental state and uses the same doctrine for all corporations. Commentators dissatisfied with that doctrine have overlooked an obvious resource: social epistemology, i.e. the formal study of group knowledge states. As a result, it has missed a crucial distinction—between knowledge and information—at the root of ambiguities and inefficiencies in the law and proposed reforms.

This Article is the first to draw on the tools of social epistemology and organizational science to develop a functional theory of corporate knowledge. Its goal is to validate the legislature’s frequent choice of knowledge as a mens rea while also inducing corporations of all sorts to process information at socially optimal levels. Critical to the analysis are the incentives corporations have to (mis)manage information, the public cost of corporate crime, and the private cost of corporate compliance. A functional approach to corporate knowledge would eschew the binaries of current doctrine in favor of a sliding test keyed to two factors: 1) “effort,” i.e. the cost of information management, and 2) “obviousness,” i.e. how peer corporations would perform with respect to the same information. The resulting theory is flexible enough to fine tune incentives for corporations of all sizes and industries while also intuitively capturing what culpable knowledge means in the corporate context.

Keywords: Corporate Crime, Compliance, Law and Economics, Collective Knowledge Doctrine, Criminal Theory, Information Management

JEL Classification: K14, K29

Suggested Citation

Diamantis, Mihailis, Functional Corporate Knowledge (February 21, 2019). William & Mary Law Review, Vol. 61, 2019. Available at SSRN: https://ssrn.com/abstract=3236254 or http://dx.doi.org/10.2139/ssrn.3236254

Mihailis Diamantis (Contact Author)

University of Iowa - College of Law ( email )

Melrose and Byington
Iowa City, IA 52242
United States

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