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Monday, March 8, 2010

Can corporations be subject to jail or execution? Should they?

Over at The Archdruid Report, there's an interesting take on corporate responsibility:

The kernel of that is in two points:

First, something which I would agree with, but use somewhat different wording:
Still, the most obvious difference between corporate persons and natural persons these days is that the corporate kind are noticeably more antisocial. They pursue their purposes – primarily, making money – with a single-mindedness and a lack of concern for consequences that, in natural persons, would be accurately labeled psychopathic; they’ve proven themselves consistently willing to lie, cheat, steal, and kill whenever the likely return on these acts outweighs the risk of punishment.
Can you force an insane person to be committed to a mental institute? Used to be yes; now it seems to be no. Can a psychopath be locked up if they present a danger to others? Can a corporation that acts in a manner that causes danger to others be locked up? What does it mean to be locked up?

One popular proposal would subject corporations to regular review by some independent body which could annul the charter of any corporation that refused to be properly housebroken, forcing its dissolution. What would keep this body honest in the face of the fantastic potential for corruption, the proponents of this notion do not say, but there’s another issue here: we’ve actually got a tolerably effective way of responding to antisocial behavior; we just don’t apply it to corporate persons the way we do to natural persons.
Sadly, I have no solution to the corruption issue, and fear that this cure would be worse than the disease. What about review by the courts? Archdruid has an even better answer at that point:
This is why natural persons who are convicted of felonies, by and large, can’t get away with just paying a fine; they go to jail, or if the crime is heinous enough and it happens in a jurisdiction with capital punishment, they die. While it has its failings, this approach to antisocial behavior generally works a good deal more effectively than the wergild principle.

From this perspective, the problem with corporate persons is simple enough: the only risk they run in breaking the law is that they have to pay wergild, and that doesn’t constrain antisocial behavior any more effectively now than it did in Anglo-Saxon times.
A little history since I'm taking away some context: "the earliest version of English common law, from which our American legal system descends, operated entirely on the basis of fines. The principle of wergild, as it was called, gave each person a cash value". If you can pay the fine, you can get away with anything. We've had similar things in this country at times; pay a fee to support the war, and avoid the draft ("There's no difference between a conscript and a convict"), etc.

Archdruid even goes so far to recommend jail, or dissolution (death) for corporations that break the law. Jail consists of the government taking over the corporation, possibly firing people at the top, stock losing all value (dividends, voting rights, etc) during this time. Profits go to the government. Death even includes creditors getting zero; all assets sold at auction, funds going first to victim restitution, etc.

Is this a good idea? I like the idea -- the kernel is great. But the execution is horrible.

Consider one company at the start of this whole economic mess. A bank, that was in the business of "junk loans". Instead of junk bonds, many of which would be worthless, you had junk bond funds -- lots and lots of junk bonds, so that even with some worthless, the whole group paid well. Now take that same approach to home loans. Lots of loans, many worthless, sold and packaged as a group.

One Monday, that investment bank was $120 per share. Employees there were required to keep their retirement package in, at least in part, company stock.

By next monday, the banking regulators had shut it down. They turned down a $4 per share offer, for a $2 per share offer. They wanted the death of the bank to hurt.

But they wound up hurting people whose job required them to invest in that bank, more than people who had the choice to invest in that bank.

What's the problem?
1. Lack of information. Had the true state of Bear Stearns been known, there's no way it would have had a share value of $120.
2. Lack of choice. Employees that are forced to choose from a company's choice of stock investment options are unfairly hurt by this.

Archdruid also makes the same mistake that the SCOTUS made -- the confusion between "corporation" and "Corporation that exists to make profit". Note that I'm also trying to distinguish "Corporation that makes profit on behalf of shareholders, publicly traded". A private corporation really does look like a group of people getting together as a group to excersize the rights of people as a group.

Maybe private corporations need to lose the liability limits that public corporations have. More rights comes with more responsibilities. Isn't that what we teach our children?

Is that what corporations are today? Children that have no parents?

1 comment:

Rhandom said...

There are organizational structures other than a legal corporation that allow for collective excercise of individual rights.

As far as the "required to invest in the corporation" bit, that should be illegal. If a corporation chooses to award shares as part of their compensation program it is one thing, but to require investment in the corporation as part of the ordinary employees' retirement plans should be flat out illegal as it presents potential conflicts of interest at the executive level exactly as was seen in the Enron debacle.

If the punishment of corporations is encoded into law, then it is likely that protections for ordinary employess will either be encoded with it or will be fought for over decades as so many other employee rights were.