Libertarian History/Philosophy

Corporate Crime Still Sucks

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The Manhattan Institute is hosting an interesting debate on the subject "Criminalizing Corporate Conduct: How Far Is Too Far?" John Hasnas takes the radical position that there "is no justification for criminalizing any corporate conduct" (as opposed to criminalizing the conduct of individual corporate employees). Mike Seigel presents the contrary point of view (or, in his words, "I disagree with just about everything John has said so far"). Much of the discussion focuses on a favorite topic of intra-libertarian debate: the nature of the corporate form itself. You can read the whole thing here, checking back for further entries as they're posted.

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  1. I’m not sure I understand the need for all the big words. In one example Mr. Seigel used, if a car company builds exploding cars, there is a difference between the criminal liability and civil liability. The corporation may be on the hook for monetary damages in a civil suit but you can’t put the blue oval in prison for building a Pinto. Am I wrong? This seems to me to be a needless argument.

  2. I think what they are arguing about is imposing fines or possibly other kinds of penalties on corporations.

    Aside from the philosophical problem of imposing criminal punishments in the absence of moral agency, criminal punishment of corporations is collective punishment, as the punishment impacts everyone (employees, shareholders, possibly other stakeholders as well), regardless of their actual culpability.

  3. If corporate entities are not capable of acting with any level of moral responsibility (Hasnas likens them to infants), then why shouldn’t they have the free speech rights of an infant, and be heavily regulated by the government? Why do we engage in the legal fiction that the corporate entity is separate and apart for any reason at all? Why not just scrap the corporate laws altogether? The reason is because corporations work. And they work because there are checks and balances on what they can do. And when they go too far, they have both civil and criminal liability, just like a person would.

    If we are going to seriously recognize that a corporation is a separate entity from the shareholders, directors, officers and employees that make up a corporation, then we have to recognize that punishing the corporation is not punishing the people who we so strenuously claim are separate and apart.

  4. I agree that the phrase “moral responsibility” has no place in a legal discussion. That being said, I find the proposition that we need to fetter out each individual’s contribution to corporate malfeasance to be simply silly.

  5. Jesse,

    It is either centers upon or on, or revolves around. The center cannot hold, nor cannot it revolve “around” itself. 😉

    __________________________

    When you fine, tax, etc. a corporation you merely pass on that fine, tax, etc. to consumers, unless you are going to get intimately involved with the workings of that corporation (and even there, you would have all the costs to society of such micromanagement). I think of it is a popular, but hidden tax.

  6. Seward: D’oh! I’ll fix that.

  7. “When you fine, tax, etc. a corporation you merely pass on that fine, tax, etc. to consumers.”

    Not necessarily true. There has to be room to pass the cost along. They can’t just raise the price because they have competitors who aren’t fined. Many times, the fine will be paid for in reduced bonuses, reduced salaries, not going with that extra ad campaign, etc.

  8. I agree that the phrase “moral responsibility” has no place in a legal discussion.

    So, punishment (defined as penalties that go beyond restitution to those actually damaged by wrongful acts) should be meted out with no reference to moral responsibility at all? Millenia of legal doctrine and moral philosophy should be discarded?

    That being said, I find the proposition that we need to fetter out each individual’s contribution to corporate malfeasance to be simply silly.

    Nobody is arguing that. What Hasnas is arguing is that criminal penalties should be imposed on the individuals that act criminally, but that the corporation can and should be held civilly liable for any damages that it causes.

    If we are going to seriously recognize that a corporation is a separate entity from the shareholders, directors, officers and employees that make up a corporation, then we have to recognize that punishing the corporation is not punishing the people who we so strenuously claim are separate and apart.

    The argument is, I think, that we treat corporations as legal persons only for certain restricted purposes, not for every purpose (they aren’t allowed to vote, for example). Separately, corporations are not appropriate subjects for criminal sanctions, because criminal sanctions should only be imposed for morally culpable behavior.

    This second argument is one that libertarians should be very much in favor of – it is the argument against the state punishing someone just because what they did is “against the law” (mala prohibitum), requiring instead that punishment be imposed by the state only for acts that are actually bad (mala in se).

  9. “Separately, corporations are not appropriate subjects for criminal sanctions, because criminal sanctions should only be imposed for morally culpable behavior.”

    What we are doing is see-sawing between civil and criminal liability for certain corporate acts. Both mean that if a corporation does something wrong, it pays money to somebody or has some kind of injunction. We can argue about moral culpability, but it seems a bit strange to determine whether civil or criminal procedure applies based on the lack of moral culpability of a fake person. Also, we’re talking about a weird area of criminal law where jail/prison is not an option. It’s like civil liability with a different burden of proof (which is actually more favorable to the corporation), a sentencing judge rather than an awarding jury, and a different set of procedures. Maybe there should be a dedicated business court that does away with the criminal/civil distinction.

    And while we’re at it, does the same argument imply that punitive damages should be scrapped?

    “This second argument is one that libertarians should be very much in favor of – it is the argument against the state punishing someone just because what they did is “against the law” (mala prohibitum), requiring instead that punishment be imposed by the state only for acts that are actually bad (mala in se).”

    Well, it isn’t really a “someone” we’re talking about. We’re talking about an entity that is granted special privileges by the government, and shielded from normal tort and contract law by the government. So if you hold up the criminal law as it applies to people, applying it to corporations will never hold up. It can’t. But then you are granting an institutional license to engage in what is criminal behavior at the individual level. Conspiracy laws don’t come close to covering that problem.

  10. We can argue about moral culpability, but it seems a bit strange to determine whether civil or criminal procedure applies based on the lack of moral culpability of a fake person.

    Not just procedure, but penalties – fines, impoundment, etc.

    And while we’re at it, does the same argument imply that punitive damages should be scrapped?

    Yes, it does. The civil law is properly concerned with restitution, not punishment.

    We’re talking about an entity that is granted special privileges by the government, and shielded from normal tort and contract law by the government.

    This is exactly backward. A corporation as an entity is subject to normal tort and contract law – that’s what we mean when we say it is a “legal person”; it can sue and be sued. The “privilege” usually referred to for corporations is the limited liability accorded to their shareholders, which is not limited liability for the corporation itself.

    But then you are granting an institutional license to engage in what is criminal behavior at the individual level.

    Corporations exist only on paper. They don’t engage in any behavior. Their agents (ultimately, all individuals) do. No criminal behavior by an individual would be shielded if corporations were not the subjects of criminal law.

  11. “The “privilege” usually referred to for corporations is the limited liability accorded to their shareholders, which is not limited liability for the corporation itself.”

    You’re correct. It is the individuals that are granted special privileges by the government, and granted exemption from normal tort and contract law. But this occurs based on the formation of a fictional person.

    And, realistically, you cannot claim that all criminal law is based on a certain state of mind that a corporation is unable to exhibit. There are plenty of strict liability laws where mens rea is not required. Statutory rape, sale of tobacco to a minor, drunk driving, …. even parking violations.

    So if we’re going to accept that strict liability crimes are allowed, why are we haggling over mental state?

  12. It is the individuals that are granted special privileges by the government, and granted exemption from normal tort and contract law.

    Actually, they are only granted immunity from having to pay the corporation’s debts .

    If they commit a tort while acting for the corporation, they can be held personally liable (though plaintiffs’ attorneys usually go after the corporation for obvious reasons).

  13. “Actually, they are only granted immunity from having to pay the corporation’s debts.”

    And those debts can come from a judgment after a tort case. And those debts arise from contract law. And really, we’re talking about corporate criminal liability.

  14. And, realistically, you cannot claim that all criminal law is based on a certain state of mind that a corporation is unable to exhibit. There are plenty of strict liability laws where mens rea is not required. Statutory rape, sale of tobacco to a minor, drunk driving, …. even parking violations.

    “Strict liability crime” is as much a category error as “punitive civil damages”. The only one of those crimes I have any qualms about getting rid of is statutory rape.

  15. Aside from the philosophical problem of imposing criminal punishments in the absence of moral agency, criminal punishment of corporations is collective punishment, as the punishment impacts everyone (employees, shareholders, possibly other stakeholders as well), regardless of their actual culpability.

    Red herring. Shareholders aren’t forced to hold shares in a company, and providing disincentives for investing in criminal corporations seems pretty reasonable. A metaphor: How would you respond if I said criminal prosecution of the bread-winner in a single-income family “collectively punishes” the family? You’d laugh me off the internet. (The whole internet!)

  16. It might make sense to simply abandon the myth of shareholder ownership and recognize management as de facto residual claimants. Common stockholders have no contractual right to any definite return, and their control over the board is largely fictitious; so in fact the corporation is less accountable to them than even to bondholders. In actual fact, the corporation is a free-floating mass of unowned capital controlled by a self-perpetuating managerial oligarchy. Treating the corporate entity as something distinct from management, severally or jointly, just gives them plausible deniability for hiding behind the corporate form.

  17. “‘Strict liability crime’ is as much a category error as ‘punitive civil damages’. The only one of those crimes I have any qualms about getting rid of is statutory rape.”

    It may be an error, but its part of the rules that we’re governed by. We have these rules because, some think, they work. Even if they aren’t consistent with the philosophy, they just flat out work. (It’s a different debate about whether they actually work, I’m just talking about the foundation for their existence). I’m interested though: why is statutory rape different from the others? Is it because the act is so heinous that mental state doesn’t matter? Or is it more along the lines of an absolute duty to correctly ascertain someone’s age before sex? If you’ll protect hot, nubile, delicious teen sluts from themselves, why not other citizens? Should corporations only be criminally liable for terrible things done to children?

  18. Red herring. Shareholders aren’t forced to hold shares in a company, and providing disincentives for investing in criminal corporations seems pretty reasonable.

    But the criminal penalties will be borne, in some part, by shareholders who bought with no reason to know the corporation was engaged in criminal activities.

    It may be an error, but its part of the rules that we’re governed by.

    I know. The notion of strict liability crimes and punitive civil damages are of recent vintage, and I think they are wrong, attempts to circumvent due process and the proper roles of civil and criminal justice.

    I’m interested though: why is statutory rape different from the others?

    Just a gut reaction; the “strict liability” of statutory rape arises from a couple of presumptions that are not rebuttable (that a minor can’t give good consent to sex, and that the perp knew she (its always a she) was a minor).

    On reflection, I don’t have any principled objection to making those presumptions rebuttable, so I guess you can add statutory rape to the list of strict liability crimes that shouldn’t be strict liability.

  19. If they commit a tort while acting for the corporation, they can be held personally liable.

    That is only true for intentional torts involving malice, or where the employee is acting outside the scope of their employment. For example, if my boss asks me to engage in an work-related act that turns out to be negligent, the company is the only party held liable. But if I’m at the office and, say, post something defamatory about a leftist troll on H&R on my workplace computer rather than doing my job, I would likely be a liable party for that action (possibly in addition to the company but on different grounds).

  20. RC Dean: thanks for sparring on this issue. It’s apparently a bit too deep (i.e., boooooring) for the rest of HnR.

  21. That is only true for intentional torts involving malice, or where the employee is acting outside the scope of their employment.

    I don’t think so. Employees generally aren’t named in tort suits, but its not because they are immune from liability if acting within the scope of their employment. Its because the plaintiff wants the deep pocket (the corporation), and the employee is probably judgment-proof anyway. In fact, the employer’s liability is “vicarious” liability, meaning it is derived from the primary liability of the employee.

    Plus, if you name the employee as a defendant, he is guaranteed to be a hostile witness.

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