NCJ Number
78107
Journal
Michigan Law Review Volume: 79 Issue: 3 Dated: (January 1981) Pages: 386-459
Date Published
1981
Length
74 pages
Annotation
This article argues that a sensible approach to corporate misbehavior must punish the firm as well as the individual decisionmaker; three approaches to misbehavior are considered in detail.
Abstract
The literature on corporate sanctions repeatedly observes that fines imposed on convicted corporations have historically been insignificant. Low rates of apprehension and potentially high rewards that characterize much of corporate criminal behavior make severe penalties necessary, but the fact that severe penalties fall heavily on innocent or less culpable parties makes them seemingly unfair. In addition, the expected penalty must be considered in light of the probability of apprehension and conviction; thus, the deterrent effect is questionable. These facts suggest that penalties should be focused on the decisionmaker rather than on the corporation. However, this approach is inadequate without simultaneous corporate punishment because an executive could find that the expected punishment cost is exceeded by the cost of internal corporate sanctions which would befall him if he refused to violate a legal norm. Thus, both the corporation and the decisionmaker must be addressed. Three proposed approaches to misbehavior are suggested, including the equity fine, the use of adverse publicity, and the fuller integration of public and private enforcement. The equity fine permits the imposition of much more severe penalties than are possible under a cash fine system. In addition, the amount of the equity fine could be graduated, increasing substantially with each succeeding criminal conviction. Public stigmatization through the use of adverse publicity can trigger internal corporate reform. Finally, public and private enforcement mechanisms should be integrated for optimal effect. The article includes 200 footnotes.