From Free Will to Duties of Vigilance: Corporate Liability for Wrongdoing

Abstract

This piece examines a number of possible doctrinal approaches to corporate liability for wrongdoing and analyses their functional significance. It starts by identifying a starting point common to many jurisdictions whereby liability for wrongdoing on the part of those in some way connected with the company was attributed to the company itself. Vicarious liability generally worked well in relation to tortious (delictual) liability but proved controversial in many jurisdictions where criminal liability was at issue. Doubts about the appropriateness of vicarious criminal liability led to restricted corporate liability for serious crimes.

The article then identifies an increasingly common way of circumventing this problem in the criminal law area by shifting the basis of corporate liability onto an analysis of managerial failings which caused or facilitated the commission of a crime. Crucially, this analysis does not depend upon finding that any particular director, executive or employee of the company is individually criminally liable. It is enough to attribute managerial acts or omissions to the company and then to ask whether those are sufficient to constitute a crime on the part of the company.

In a third stage, companies are made liable on an accessory basis, namely, that the company displays a “corporate culture” which encouraged or permitted the commission of crimes by individuals associated with the company. In this stage, the commission of a crime by a connected person underpins the corporate liability, but the company is not liable for the individual crime on a vicarious basis but independently for “permitting” the crime to occur. The corporate culture analysis was most fully developed in Australia, but it has become more widespread, though normally only in relation to particular crimes, under the heading of “failure to prevent” liability.

“Failure to prevent” liability can be seen as the beginnings of a fourth stage, since the company now has an incentive to take steps to prevent crimes being committed within the organisation rather than just avoiding the creation of culture which permits infractions. The full development of the fourth stage is to be found, however, in corporate “duties of vigilance”. Pioneered in France but now proposed on a wide scale by the European Commission, the occurrence of a wrong is no longer a necessary element for corporate liability. It is enough that the company has no prepared, put in place and effectively operated a corporate strategy for assessing and reducing the risks of wrongdoing within the organisation. Liability can arise even though no infraction has occurred, on the grounds that the company has not discharge its vigilance duty.

Equally important, duties of vigilance are proposed or have been imposed beyond the criminal law so as to embrace breaches of international human rights and environmental standards as well as international economic crimes. It is argued that the implementation of this fourth stage requires much greater precision about how far companies are required to go in discharging their duties, especially when operating in countries which do not accept that a breach has occurred or that the standard is applicable in the jurisdiction.

Keywords: Corporate crime, vicarious liability, managerial failure, corporate culture, failure to prevent, duty of vigilance

JEL Classification: K14, K42, K33, K22