Should The Behavior of Top Management Matter?

47 Pages Posted: 17 Oct 2002  

Vikramaditya S. Khanna

University of Michigan Law School

Abstract

Recent events, such as the Enron, Worldcom, and Global Crossing debacles, have brought to the forefront the issue of corporate and organizational wrongdoing and the involvement of top management in it. To date, the law's response to the knowing or reckless involvement of top management in corporate wrongdoing has been primarily two-fold. First, it increases the sanction imposed on top management. Second, it increases the sanction imposed on the corporation (i.e., the shareholders). This paper examines the second response.

The second response can be examined in multiple ways depending on the analytical perspective being utilized. In this paper I consider the question from three perspectives. First, whether our current law can be justified under a deterrence-based approach to corporate criminal liability. This is the bulk of the paper as that has been where much of the literature in the corporate crime area has developed. Second, whether our current law can be justified under an expressive approach to corporate criminal liability. Third, whether our current law might reflect an attempt to place most of the risk of liability on the corporation, which is generally a better risk bearer than top management. My conclusions are that our current law is difficult to justify under any of these approaches and that it is likely imposing costs on society. This suggests that our current law is in need of reform.

JEL Classification: K2, K22

Suggested Citation

Khanna, Vikramaditya S., Should The Behavior of Top Management Matter?. Georgetown Law Journal, Vol. 91, 2003; Columbia Law and Economics Working Paper No. 210; Boston Univ. School of Law Working Paper No. 02-18; Harvard Law and Economics Discussion Paper No. 382. Available at SSRN: https://ssrn.com/abstract=339940 or http://dx.doi.org/10.2139/ssrn.339940

Vikramaditya S. Khanna (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-615-6959 (Phone)

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