NCJ Number
46065
Date Published
1978
Length
16 pages
Annotation
THE LAW HAS TO CARRY MORE OF A BURDEN FOR CONTROL OF CORPORATE BEHAVIOR THAN IT DOES FOR PRIVATE BEHAVIOR BECAUSE CORPORATIONS HAVE FEW BUILT-IN MORAL CONTROLS WHILE POCKETBOOK CONTROL IS OFTEN INEFFECTIVE.
Abstract
CORPORATE OFFICIALS EXPERIENCE SOME OF THE PEER GROUP PRESSURES WHICH PROVIDE SOCIAL CONTROLS FOR INDIVIDUALS, BUT GENERALLY, THE MAJOR SANCTIONS SOCIETY CAN CALL ON TO CONTROL HUMAN BEINGS ARE UNAVAILABLE FOR CORPORATIONS. THE DEATH PENALTY OR IMPRISONMENT IS IMPRACTICAL FOR A CORPORATION. EVEN IF THE CHARTER IS REVOKED, A SIMPLE CHANGE OF NAME AND $50 IN FILING FEES CAN START A NEW CORPORATION. TO DATE, MOST CORPORATE CRIMINAL BEHAVIOR HAS BEEN DETERRED BY FINANCIAL THREATS. THE THEORY BEHIND THIS IS EITHER THAT VIOLATION OF THE LAW WILL LOOK LIKE A 'BAD BARGAIN' OR THAT THE PENALTIES WILL CUT INTO PROFITS AND CAUSE STOCKHOLDER DISSATISFACTION. IN GENERAL, CONTROL IS SPREAD SO THINLY OVER SO MANY STOCKHOLDERS THAT DISSATISFACTION IS HARD TO GENERATE. ALSO, A $7 MILLION PENALTY FOR VIOLATION OF AN ANTIPOLLUTION ORDINANCE IS SMALL COMPARED TO THE $300 MILLION IN SALES A DIVISION OF GENERAL MOTORS MAY MAKE ON A NEW CAR MODEL. PROFITS ARE IMPORTANT TO A FIRM IN THE EARLY STAGES WHEN SURVIVAL IS UPPERMOST, BUT AFTER A FIRM BECOMES ESTABLISHED, OTHER OBJECTIVES BECOME IMPORTANT -- GOOD WORKING CONDITIONS, AND GOOD SALARIES FOR TOP MANAGEMENT. LEGAL PENALTIES WHICH STRIKE ONLY AT PROFITS ARE SEEN AS A NUISANCE, MORE LIKE AN ACT OF GOD, SELDOM MORE THAN A FOOTNOTE IN THE ANNUAL REPORT. CORPORATE LAWYERS COMPLAIN THAT THEY ARE THE 'NO' MEN, NOT TAKEN SERIOUSLY BY TOP MANAGEMENT, OFTEN DISLIKED BY EMPLOYEES. AS PRESENTLY STRUCTURED, LEGAL PENALTIES AGAINST CORPORATIONS HAVE LITTLE DETERRENT EFFECT. AN EXAMPLE USES THE MARKETING OF A HYPOTHETICAL DRUG: THE MANAGER INTRODUCING A NEW DRUG HOPES IT WILL HAVE NO ILL EFFECTS BUT HE MAY NOT ORDER FURTHER TESTING BECAUSE HE WANTS TO BEAT THE COMPETITION; A SUCCESSFUL INTRODUCTION WILL MEAN A LARGE SALARY INCREASE; OR THE NEW PRODUCT WILL INCREASE THE MANAGER'S STATUS IN THE CORPORATION OR THE INDUSTRY. IF THE DRUG PROVES DANGEROUS, RECALL AND LEGAL ACTION WILL NOT AFFECT THE MANAGER'S STATUS BECAUSE OTHER EXECUTIVES VIEW THE LAW AS CAPRICIOUS AND FEDERAL REGULATION AS A NUISANCE. AT WORST, THE MANAGER WILL STAY AT THE SAME SALARY LEVEL. THUS, UNDER PRESENT CONDITIONS, PENALTIES AGAINST CORPORATIONS ARE NOT ONLY ECONOMICALLY UNCOMPELLING, THEY IGNORE SOME OF THE CRITICAL MOTIVATIONS BEHIND HUMAN BEHAVIOR IN CORPORATIONS. (GLR)