Crime and the Corporation: Making the Punishment Fit the Corporation
36 Pages Posted: 2 Sep 2021 Last revised: 8 Sep 2021
Date Written: September 7, 2021
Abstract
The debate over corporate criminal liability has long involved a fight between proponents who argue that corporate liability is necessary for effective deterrence and opponents who claim that it “punishes the innocent.” This article agrees and disagrees with both sides. Corporate criminal liability could play a critical role in establishing an effective deterrent to organizational misconduct, but today it largely fails. Currently, we have a system that combines Deferred Prosecution Agreements, Non-Prosecution Agreements, and extraordinarily generous sentencing credits for compliance plans that have failed, and the result is a system that is more carrots than sticks. The evidence seems clear that corporate fines seldom affect the company’s stock price (even when they are record penalties), that companies rarely self-report their misconduct (despite legal incentives to do so), and that courts impose penalties that can be easily absorbed as a cost of doing business.
This analysis leads many to favor a system that focuses only on corporate executives and dispenses with the corporation as a target of the criminal law. That would be an unmitigated mistake. Although executives are deterrable, corporate executives are much harder to identify and prosecute for a variety of reasons. In this light, the critical role of corporate criminal liability is that it can give the corporation a stronger incentive to self-report, monitor its employees, and turn in those responsible. But this requires that we extend leniency only for objective conduct that generates deterrence. A principal goal of this article is to provide a roadmap for how we can make the punishment fit the corporation. Leniency can be used as a tool, but should not be extended gratuitously.
Ultimately, to curb corporate misconduct, society must choose between either vicarious liability for executives (which is contrary to our tradition and should shock civil libertarians) or vicarious liability for shareholders (which they have had for a century and is always bounded by the ceiling of limited liability). Either choice will have its costs, but the latter is clearly preferable to the former.
Keywords: Corporate Governance, Corporate Criminal Liability, Deferred Prosecution Agreement, Probation, Recidivism
JEL Classification: G2, G3, G28, G38, G228, G230, G380, K4, K42
Suggested Citation: Suggested Citation