Friday, July 13, 2012

The Foolishness of Corporate Prosecutions

I recently did an op-ed for USA Today, in which I argued that aggressive prosecution of corporate executives is not sound policy.  I was limited to 350 words, so I'm going to expand some on the thoughts here.

First of all, I don't think of this as a particularly controversial position.  I've worked in the corporate world, in companies large and small, for nearly 20 years.  I have a pretty good bead on the benefits and failings of corporate life (as often chronicled here).  But it certainly brought out the torch-and-pitchfork crowd in the commentariat.  You'd think I was advocating baby murder or slapping puppies.

MOST CORPORATE CRIME IS DIFFERENT.  Apart from the most brazen and rare examples (e.g., embezzlement, lying to regulators), corporate crime is not the same as crimes such as murder, or armed robbery or rape.  I'm not talking about outcomes, I'm talking about things like culpability (did someone have criminal intent) and even whether a crime was actually committed.  It's not remotely as black and white as a crime where you've got a body at the end of a smoking gun.

People sputter about "corporate criminals,", but the vast majority of the time they are dealing with an outcome they don't like and groping for a criminal sanction. They want someone to PAY. But there's no body, no abused victim, no missing jewel cache. Just an outcome that feels wrong. 

And it there's a chance it could be determined to BE wrong. There are thousands of federal statutes, applicable to business, that carry criminal sanctions. But these are almost never malum in se crimes, where any functioning member of society is expected to know right from wrong. To make matters worse, these malum prohibitum crimes are far more complex - and vague - than their counterparts in the non-business world. These aren't speed limits and DUI thresholds we're talking about. Which raises issue #2 . . .

ENFORCEMENT IS CAPRICIOUS.  It's not that corporate executives can't be expected to comply with the law. The issue is vagueness and how the rules are applied. As criminal defense lawyer (and hater of the term "white collar crime") Scott Greenfield points out, corporate execs under investigation will find themselves subject to the whims of prosecutors - who almost never have business experience - who will try to fit otherwise routine corporate action (or inaction, or ministerial sloppiness) into the rubric of criminal offenses:

There are cases where individual corporate executives make discrete decisions to engage in crime, usually a deliberate fraud or bribery.  But these cases are exceedingly rare. The reason the threat of prosecution doesn't work is because the executives aren't committing crimes at all, and certainly not in their own minds.  They are making business decisions which, when held under a microscope and viewed by a kid from Justice who can only see black and white, has no clue how businesses function and no history in an industry, scrutinizes their decisions as to whether they're the decisions she would make. If not, then it's a Crime!

NO DETERRENT EFFECT - OR NOT THE ONE WE WANT.  There's little surprise that capricious enforcement of vague crimes doesn't have a deterrent effect.  And if we want to get to the deterrent, if we prosecute so aggressively that corporate execs are hiding from their own shadows, where does that get us?  Do we want an American business culture where the Chief Compliance Officer reigns supreme, and the anal retentive obsessions of the grocery clerks takes precedence of moving fast, innovating and taking smart risks?

America has been the world's biggest, most successful economic engine for the last century.  Our standard of living has risen to heights unrivaled anywhere.  We continue to drive innovation for the rest of the planet.  Prosecute aggressively enough, and we risk shutting that off - even as the rest of the world is sprinting to catch us. Or as Greenfield put it:

And if you're wondering where American jobs went, or why prices are out of control, or why products no longer work, or why there is no cure for your child's disease, consider the implications of people screaming criminal enterprise at corporations that may be far from perfect, but also far from criminal.

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