Corporate Crime and Punishment

I seem to recall reading of a requiremnt imposed during the Roosevelt Administration imposing criminal charges on managers whose decisions violated the law or who failed to meet deadlines for fixing problems and someone was hurt. This was mostly health and safety violations, if someone was hurt before the deadline "oh well", if they were hurt after the dealine and the court decides the delay contributed to the injury or death, then every manager who could have fixed the problem and did not was up on criminal charges.

Criminal charges on individual staff members of the corporation is always a challenge. They have to meet the beyond a reasonable doubt standard. Given that the higher ups can always afford great lawyers as well as shield themselves through layers of scapegoats, it is very difficult to charge them with anything criminal except in the most egregious cases.

Taking aways the part of their bonus related to the illegal conduct on the other hand is a little easier to manage since it's part of the overall fine to the corporation. Also since the bonus was due to illegal activity they never should have earned it in the first place and there is a long legal tradition of confiscation of gains from illegal activity.

biochem wrote:

I seem to recall reading of a requiremnt imposed during the Roosevelt Administration imposing criminal charges on managers whose decisions violated the law or who failed to meet deadlines for fixing problems and someone was hurt. This was mostly health and safety violations, if someone was hurt before the deadline "oh well", if they were hurt after the dealine and the court decides the delay contributed to the injury or death, then every manager who could have fixed the problem and did not was up on criminal charges.

Criminal charges on individual staff members of the corporation is always a challenge. They have to meet the beyond a reasonable doubt standard. Given that the higher ups can always afford great lawyers as well as shield themselves through layers of scapegoats, it is very difficult to charge them with anything criminal except in the most egregious cases.

Taking aways the part of their bonus related to the illegal conduct on the other hand is a little easier to manage since it's part of the overall fine to the corporation. Also since the bonus was due to illegal activity they never should have earned it in the first place and there is a long legal tradition of confiscation of gains from illegal activity.

Brought up on criminal charges, not convicted. Defending against such charges is its own fine. But you cite the original problem that led to its doing nothing. Difficulty in effective prosecution.

biochem wrote:There's been several articles in the paper lately addressing this subject. The gist of which is that when a corporation is convicted of criminal activity, the corporation pays a large fine. But by the time the slow wheels of justice have turned, the individuals who actually made the decision(s) to break the law have moved on to greener pastures and thus are not punished at all. Therefore, the people being punished aren't actually the people who committed the crime.

One way to correct this discrepancy is to hold the individuals and those supervising them directly responsible. My suggestion is that when a corporation is convicted of a crime that in addition to the corporate fine, the individuals responsible for that department be fined their bonus + 20% of their salary for the year(s) the crime took place. The supervisors should be fined the proportion of their bonus that is related to that department.

Example 1 - The Boston office commits a crime then the people in charge of Boston loose 100% of their bonus, the Northeast US supervisors lose 30% of their bonus, the US supervisor loses 5% of his bonus and the global CEO loses 0.5% of his bonus for the year(s) in question.

Example 2 - The northeast, southeast and northwest regions are all involved in the same criminal activity. The local and regional supervisors all lose 100% of their bonuses. The US supervisor loses 75% of his bonus and the global CEO loses 30% of his bonus for the year(s) in question.

This would punish people proportionally relative to their level of responsibility. No one expects the global CEO to micromanage every local office and thus a purely local problem would result in very little punishment at that level. On the other hand I do expect the CEO to stop any widespread malfeasance, so in that case the punishment is significant.

I would love to see this put in place on all of those bonuses that the VW executives fraudulently collected over the years by selling illegal cars. Sure they lost their jobs but they've collected so much money already that they can now retire to the Caribbean Island of their choice and sip margaritas for the rest of their lives.

biochem wrote:I would love to see this put in place on all of those bonuses that the VW executives fraudulently collected over the years by selling illegal cars. Sure they lost their jobs but they've collected so much money already that they can now retire to the Caribbean Island of their choice and sip margaritas for the rest of their lives.

It's not just VW that's been at it. Preliminary tests on Mercedes-Benz, Mazda, Honda and Mitsubishi's diesel cars all show higher NOx emissions than their official limits. As do Renault, Nissan, Hyundai, Citroen, Fiat, Volvo and Jeep.

VW's the only one with confirmed defeat software(i hate device, makes it sound like a component they bolted onto the cars) which detects when a test is being performed and adjusts its engine accordingly. But every manufacturer designs their cars to pass the tests and to hell with real world performance. Indeed, many of them are fitting voluntary defeat devices openly, in the form of eco buttons, gear change notifications and so on.

Testing conditions allowed manufacturers to remove the rear seats(if made to be removable - heavier than fixed seats!), wing mirrors, alternator, all but barely one litre of fuel, spare tyre and tools, tape over the body gaps, fit the entry-level eco-tyres. Hardly showroom condition.

All of that should end. And cars should subsequently be tested with at least two people(or 80-kilo dummies) sitting in them, 50 kilos in the boot, radio and AC on full blast. Find out how bad everything is when pushed to their maximum and then work on bringing that down.

The problem is, if they did that, it would rapidly become apparent that every vehicle, petrol or diesel, wasn't hitting its targets. For now, only diesel's NOx emissions are under scrutiny.

Civil charges. Criminal charges. Capital charges. Take the person responsible, give them a gun with one bullet and leave them in their office.

If that does not work, start cutting off the fingers of the persons kids or close family? Then the handgun with one bullet. Would this work today?

Probably not. But ... long ago and far away there was accountability for ones bad actions. Very permanent accountability. Very permanent indeed.

It had a very sobbering affect on bad bad behavior. Make the punishment fit the crime. Until this is done, bad behavior will just continue.

biochem is right that criminally prosecuting the managers who are individually responsible for the misbehavior of the company is already possible.

Unfortunately biochem is also right that that's hard to do because the state needs to prove reasonable doubt. And the managers' usual defense is 'I didn't know'. Hard to prove otherwise.

We see that again with Martin Winterkorn the ex-VW CEO right now who claims to 'not have known' and 'having nothing to blame himself for' (snort).
Prosecuters have had the VW HQ in Wolfsburg raided last week and seized computers and files. But my bet is they won't be able to prove Winterkorn knew - because I think it's actually likely he didn't.

The problem in these cases is the way big international companies are structured:

Once they reach a certain size they have not one but several layers of management (read: bureaucracy).
And whenever they get in trouble their 'solution' is a reform in which they add yet another level of management to the various ones that are already there. (I know that from my cousin who works in the mid-management of a big international company, not VW though).

That means the upper management gets more and more removed from the technical questions being solved by the engineers (and from reality).

The 2nd problem which exacerbates the above situation is that once the upper management is sufficiently removed from the real work being done in the company they tend to adopt a very strict and mostly one-way form of communication with the lower levels. They ignore and discourage criticism being passed from the bottom up and instead only exert pressure which gets passed down through the management levels.

No one in the intermediate management levels wants to be seen as the weak link in the chain so every level simply passes the pressure on to the people below them and keeps inconvenient truths from the people above.

In short: the company's internal communication structure gets optimized for sucking up and kissing ass while criticism gets discouraged.

The end result is what we see in the VW case.

As far as I understood the press releases so far the upper management simply seems to have decreed price, performance, fuel consumption and environmental standards the they want the motors to have.
The engineers at the bottom tried to make it work but could not (seemingly since its impossible to match all four decreed criteria performance, fuel use, environment COMBINED WITH THE DECREED LOW PRICE.)

Instead of having a line of communication allowing the engineers and lower management to pass that truth upwards they probably simply got told (either by their next higher level in the bureaucracy or by on of the intermediate levels above those): MAKE it work! That's what you are being paid for!
So they did. (In this case by activating the Bosch software that was already there for testing purpuses and had come with the expressive instruction that using it on the road would be illegal.)

And the Winterkorns in their lofty heights may never even have heard about it. (He may have known anyway of course. I hope they somehow can prove it. but I would not be surprised if he really did not - because the companies are STRUCTURED that way.)

So yes: Taking away bonuses is a good idea I think. Though it still does not feel satisfactory. But it is a start.

What really would need to be done is get the big companies to have an internal communication and management mechanisem that actually works. That's a whole of a lot more difficult to implement than the taking away of bonuses though.

biochem wrote:There's been several articles in the paper lately addressing this subject. The gist of which is that when a corporation is convicted of criminal activity, the corporation pays a large fine. But by the time the slow wheels of justice have turned, the individuals who actually made the decision(s) to break the law have moved on to greener pastures and thus are not punished at all. Therefore, the people being punished aren't actually the people who committed the crime.

One way to correct this discrepancy is to hold the individuals and those supervising them directly responsible. My suggestion is that when a corporation is convicted of a crime that in addition to the corporate fine, the individuals responsible for that department be fined their bonus + 20% of their salary for the year(s) the crime took place. The supervisors should be fined the proportion of their bonus that is related to that department.

Example 1 - The Boston office commits a crime then the people in charge of Boston loose 100% of their bonus, the Northeast US supervisors lose 30% of their bonus, the US supervisor loses 5% of his bonus and the global CEO loses 0.5% of his bonus for the year(s) in question.

Example 2 - The northeast, southeast and northwest regions are all involved in the same criminal activity. The local and regional supervisors all lose 100% of their bonuses. The US supervisor loses 75% of his bonus and the global CEO loses 30% of his bonus for the year(s) in question.

This would punish people proportionally relative to their level of responsibility. No one expects the global CEO to micromanage every local office and thus a purely local problem would result in very little punishment at that level. On the other hand I do expect the CEO to stop any widespread malfeasance, so in that case the punishment is significant.

I appreciate that was an attempt at developing some kind of practical deterrent to corporate crime, but you may have inadvertently just served to further illustrate the magnitude of the problem with how society deals with this by limiting the proposed consequences of criminal activity by these people to, at the high end, "no bonus for you this year" while they still retain their jobs, their freedom, their regular salary... and the risk/reward calculation that if they try again and get caught the worst case scenario is they collect their regular paycheck and somewhere between 0 and 100% of their bonus and if they don't get caught they get that plus whatever they score from their criminal activity.


It's basically incentive in favor of violating the law.


How about "the Boston office committed a crime, everyone involved goes to jail for sentences of length proportional to their involvement", do not pass Go, do not continue to collect a paycheck, and we'll work out the appropriate fines to tack on top of that...

On several occasions, over many years I personally know of people who either committed suicide or died prematurely, as a consequence of losing all their savings and or house to white collar thieves such as this. These thieves then use the "little" people's cash to live the high life.

Thus it is reasonable to say that these creeps do as much damage as a mass shooter, and penalties should be similar.

What really would need to be done is get the big companies to have an internal communication and management mechanism that actually works. That's a whole of a lot more difficult to implement than the taking away of bonuses though.

Actually if you take away their wrongfully earned bonuses, they'll have a very personal incentive to see to it that minimal wrongdoing takes place under their watch. Right now there is no incentive for them to do so. In fact the incentive is in the opposite direction. If they don't know, they can't be charged with a crime even if they are benefiting from the commission of one. So if they suspect a crime is occurring, right now they are incentivized NOT to investigate. Change the incentives and they will find a way to develop an internal communication and management mechanism that actually work.

How about "the Boston office committed a crime, everyone involved goes to jail for sentences of length proportional to their involvement", do not pass Go, do not continue to collect a paycheck, and we'll work out the appropriate fines to tack on top of that...

Not mutually exclusive to the civil penalty of taking away their wrongfully earned bonus. You can do both.

However the problem with criminal charges alone is that (in the USA at least) they must be PROVEN beyond a reasonable doubt. In practice proving malfeasance beyond a reasonable doubt has proven a very hard standard to meet and very very few of the guilty white collar criminals are ever convicted criminally.

However, there is a long legal tradition that one is not allowed to profit from a crime even if they did not know that their income was from criminal activity. So by also having the civil penalty of confiscating wrongfully earned bonuses, there is at least some consequence. Not as emotionally satisfying as seeing them in jail, but far better than having them get away with it entirely.

On several occasions, over many years I personally know of people who either committed suicide or died prematurely, as a consequence of losing all their savings and or house to white collar thieves such as this. These thieves then use the "little" people's cash to live the high life.

Thus it is reasonable to say that these creeps do as much damage as a mass shooter, and penalties should be similar.

We do need to increase the criminal penalties for that type of white collar crime. The slap on the wrist most of these guys get when criminally convicted is insufficient. Madoff's life sentence is the exception, we need more sentences like that.

biochem wrote:

How about "the Boston office committed a crime, everyone involved goes to jail for sentences of length proportional to their involvement", do not pass Go, do not continue to collect a paycheck, and we'll work out the appropriate fines to tack on top of that...

Not mutually exclusive to the civil penalty of taking away their wrongfully earned bonus. You can do both.

However the problem with criminal charges alone is that (in the USA at least) they must be PROVEN beyond a reasonable doubt. In practice proving malfeasance beyond a reasonable doubt has proven a very hard standard to meet and very very few of the guilty white collar criminals are ever convicted criminally.

However, there is a long legal tradition that one is not allowed to profit from a crime even if they did not know that their income was from criminal activity. So by also having the civil penalty of confiscating wrongfully earned bonuses, there is at least some consequence. Not as emotionally satisfying as seeing them in jail, but far better than having them get away with it entirely.

Alright, if we're excepting criminal penalties...

Fired for cause. No severance. No nothing. And publicly announced what got them fired for the benefit of any future employers in the industry who might consider them for a job.

We're talking about criminal activity here. Bonuses are, well, bonuses. They're *supposed* to be rewards for exceptional performance, not the default expectation if you manage to muddle through without committing a crime in the course of doing your job. Withholding them for a year as the penalty for criminal conduct is a joke consequence.