The Challenge of Holding Big Business Accountable

Abstract

In July 2021, a sweeping executive order committed the entire U.S federal government to reining in big business. Dozens of proposed bills at the state level similarly target big business for stricter regulatory treatment. But unlike in past decades, today’s calls to break up and intensely regulate big business do not hinge on harms to consumers qua consumers. Instead, today’s anti-bigness sentiment rests to a large extent on the claim that big is bad because it is ungovernable. Giant corporations with market power treat legal requirements as mere recommendations, and routinely engage in behavior that harms our civil liberties and degrades the environment as long as it maximizes their own bottom line, or so the argument goes. But the big is ungovernable claim as currently construed is underdeveloped. In fact, many theoretical and empirical analyses suggest that big means better governability. If “big is ungovernable” is popular not because of the merits but strictly because of a strong anti-bigness sentiment, we could end up with bad policies negating economies of scale.

This Article provides a comprehensive assessment of how size and market power create governance problems, and a blueprint for how to ameliorate these problems. Super-big corporations have (1) power to shape the regulatory framework that governs them, and (2) a fragmentation of knowledge within them that makes it harder to detect and stop transgressions of the framework. These features dilute not just the expected legal sanction but also moral constraints and the prospect of market discipline for misbehaving. For example, super-big corporations can leverage their market power to force their customers, workers, and suppliers to sign class action waivers and gag clauses, thereby diluting both legal and reputational sanctions for misbehaving. And the fragmentation of knowledge within super-big corporations makes it harder for law enforcers to detect culpability, and easier for individuals working within these corporations to behave badly without feeling guilty about it.

Recognizing the limitations of laws, markets, and morals to govern big business has concrete policy implications. At a general level, the analysis here can provide an intellectual structure for rethinking criteria for breaking up or downsizing firms according to governability. At a more specific level, the Article questions the desirability of oft-made proposals such as increasing the severity of sanctions. Solutions to bigness-control problems instead have to directly address the power problem, such as by making class action waivers unenforceable, and the information problem, such as by recalibrating corporate law’s director oversight duties.

Keywords: Bigness, Antimonopoly, Corporate Wrongdoing, Corporate Deterrence, Corporate Governance, Market Discipline, Morals, Regulatory Capture, Mandatory Arbitration, Class Action Waivers, Director Oversight Duties, Whistleblowing, Reputation, Antitrust, Corporate Law, Willful Blindness, Moral Wiggle Room

JEL Classification: K20, K21, K22, L40, G38