"Limited liability" would be a thing of the past, under a bold new initiative to punish shareholders and managers for corporate crimes by imprisonment or, in lesser cases, the confiscation of shares.
"Corporations want to be human," said Governor and likely Presidential
candidate George W. Bush yesterday at Yale University's law school, "and
we owe it to them to help them."
>Bush described the corporate urge to become human as "compassionate
avarice," and said that it was "not entirely about getting richer."
"One would have to be very cynical indeed to think that corporations, when
they won protection as 'persons' under the 'Freed Slave' Amendment, were thinking only of their own wealth," Bush said. He was referring to the 14th Amendment, which had been designed to protect the rights of freed slaves, and which was used {HYPERLINK "http://www.ratical.com/corporations/TCoBeij.html"}in 1886 to establish corporations as "natural persons" under the law.
"Corporations clearly just want to join our fine species, and an epic enterprise like that is not to be taken lightly." Bush said that corporate "limited liability," whereby shareholders are not responsible for crimes committed in their name, prevents corporations from being responsible. The only way to change that, Bush said, is to start punishing shareholders in corporations that commit crimes. (See end section for specific examples of the punishments Bush is proposing.)
"We've got to get tough on crimes committed by corporations, just like we've tried with teenage kids. 'Tough on crime' policies don't work with humans, but corporations are much more rational, much more cause-and- effect-driven. They can be intimidated into behaving correctly."
Good for markets?
While some experts dispute whether corporations can ever actually have a conscience or become human, Bush said he has "experienced a consensus" that punishing corporations for the crimes they commit will at the very least have a positive effect on the market.
"Everyone agrees that government regulation makes markets sluggish," said
Bush. "Government regulation has been necessary because it's the only
controls we have. But if each shareholder and manager is personally
responsible for corporate crimes--including safety errors and all the way
down to lies about quality--then you've automatically got market controls
of the process. And not only will government regulation be unnecessary,
but you'll also eliminate the need for several layers of management,
further increasing profit margins."
>Bush easily dismissed concerns that personal liability for corporate
crimes might discourage individual investors from taking a risk. "People
love to gamble," he said, "and this will make it all very real."
For those who do not thrive on such risks, Bush suggested that the mutual fund industry would easily adapt to manage complex decision-making processes, just as it has in the past. "The prime mechanism of regulation will be shareholder judgement, delegated or not. If investment in one company is likely to land you in jail, you'll invest in another instead. Mutual fund companies will find it an exciting challenge to obtain and keep investor confidence, and this challenge will reinvigorate the industry, and in fact the whole concept of investment."
Appropriate punishments
When Bush spoke about proper punishment regimens for corporate crimes, he tellingly began with what is not punishment.
"Fines are not punishment, they do not build character," Bush said.
"What's a ten-million-dollar fine to a giant corporation? Fines seldom if
ever affect the pocketbooks of shareholders or managers, those who make
the decisions or power the machine. But hitting pockets and people
directly is a totally different thing."
>"We must remove the burden for controlling corporations from big
government and regulation--such as fines--and place it squarely on the
judiciary," Bush said.
Bush outlined his unique two-tiered punishment program, which would punish corporations for legal infractions according to their severity. Bush explained that there would be two "suites" of punishment, for levels of crime roughly corresponding to misdemeanors and felonies. In one "suite"--for "misdemeanors" like bilking taxpayers of seven-figure dollar amounts, overcharging consumers, attempting monopolies, and contributing to simple human troubles like asthma and brief bouts of homelessness--punishment would take the form of short- or long-term share confiscation. Dividends of confiscated shares would pay for remedial actions, where possible, as well as public-good programs like the education of human prisoners.
"My own brother was a player in the Savings and Loan scandal," Bush said, "but he's prepared to face the consequences. Remedies for serious problems re never easy, especially when they hit at the root."
The second punishment "suite," for "felonies"--causing major diseases, committing homicide, contributing to national disasters in the U.S. or abroad, large-scale bilking of taxpayers, etc.--would involve direct punishment of the managers and shareholders in question.
The Governor used Union Carbide's 1984 Bhopal massacre, in which thousands of villagers were killed by lethal gas, as an example of a crime
that would be classified as a "felony." Others included the German
industry forced-labor cases, the Mattel sweatshop fires, etc. (While
retroactive prosecutions based on new laws are usually not permissible,
these crimes might be, based on the pending Pinochet case, as well as the
>Nuremberg cases of 1945.)
In the Union Carbide example, the Governor took out a pocket calculator
and tallied up figures. Each death would cost the company a "negligent
>homicide" charge, for approximately twenty years of incarceration each.
Twenty years multiplied by 2000 equals 40,000 years in prison, with
aggravating factors such as a lack of remorse or compassion tripling the
total.
his penalty would be divided among Union Carbide executives--including
middle management, and including those who were not with Union Carbide at
the time, but now are. Also affected would be shareholders, each of whom
>could expect to spend from a few weeks to several years in prison,
depending on the size of their investment. (This would apply even to those
who had invested via "mutual funds," without knowing the precise
direction of their investments.)
A minimum penalty could be set by a judge--so that an investor with even a
fraction of a share would be liable for that minimum, say two weeks in
jail. A maximum penalty could be set as well.
>Although Bush addressed with ease most questions concerning the punishment
programs, he admitted that several major problems remain to be solved.
The death penalty, for example, while often merited in corporate crime
cases, had no obvious application--"We're can't talk about 'little deaths'
here," said Bush, making an obscure bilingual pun better left
untranslated.
Also, the issue of global markets poses. "These changes and penalties will
have to be agreed on by a global governing body like the WTO, not only here at home in Texas and America. Otherwise they may create a better market here, but the changes will be irrelevant in the bigger picture. And
influencing such a powerful and state-independent body like the WTO is an
involved process."
Despite these problems, Bush and his team remain confident that their
corporate-punishment program will greatly improve the human landscape. "We
>feel certain that in this case as in all other free-market cases, the
search for the right combination will do nothing but benefit consumers."