Social Science tell us that situational pressures, more than personal ethics, drive our decisions. Remember the volunteers in a Yale study who willingly “tortured” people when directed to do so by authority figures.
It seems that almost every day we read of some corporate rip-off of unsuspecting consumers. If we have any hope of controlling these fraudulent practices our laws must put in place incentives for corporations to encourage ethical behavior and prevent illegal acts. It’s all about setting the right reward-penalty structures for corporate actors. The law’s goal should be to encourage low-level employees to disclose illegal acts and impose substantive punishments on those executives who fail to act when they are best situated to stop those acts.
The tricky part is when to use carrots and when to use sticks. I think that “carrots” are the right tool for encouraging lower-level employees to report pressures to engage in fraudulent behavior, but that criminal punishment, including jail time, must become a realistic possibility if we hope to get the attention of the responsible top level executives.
The story of Patricia Williams is a good example of the importance of legal protections encouraging low-level employees to report pressures to engage in unethical practices. http://www.nytimes.com/2016/11/25/business/my-soul-feels-taller-a-whistle-blowers-20-million-vindication.html?_r=0
Ms. Williams worked for the Wyndham corporation, a Fortune 500 company that markets times shares to consumers. She discovered that many of her colleagues were making false statements to clients in order to meet unrealistically high sales goals. Williams first alerted the corporation through approved channels, but that only provoked her supervisors to harass her. So she filed a whistle-blower suit and four years later a jury awarded her $20 million dollars in lost wages, compensation for psychological distress, and punitive damages.
This is all good news as far as it goes. But it’s not clear how much, if any, Wyndham has changed its sales practices. That’s why I think we also need to bring a “stick” into play. It appears that there was a three- level process at play at Wyndham. The top officials set the sales goals; the intermediate supervisors told the sales personnel that, if necessary to meet the goals, they should employ a TAFT strategy with clients–“Tell Them Any Fricking Thing.” The sales personnel made the false claims. To change this corporate culture, the law has to target the guys at the top. You can’t allow them to hide behind claims of ignorance.
Towards this goal, last year’s 8th Circuit opinion in U.S. v. DeCoster may be helpful. It holds that corporate officers can be held criminally liable if they fail in their supervisory responsibilites. http://www.foodsafetynews.com/2016/07/8th-circuit-approves-jail-sentences-for-egg-men-in-2-1-ruling/#.WGpubFMrL3g
DeCoster involved the sale of contaminated eggs by a large company. The officers convicted stipulated that, while they were not aware the eggs were contaminated, they had authority to detect the contamination and prevent the sale of the eggs. The District Court found that lower level employees at the concern had “felt comfortable” ignoring USDA regulations, and might have felt some pressure to do so. Three month sentences were ordered for the responsible executives.
Admittedly DeCoster is a departure from the traditional criminal law approach of only punishing people for acts they take with a “guilty mind.” Now a corporate officer can be imprisoned for negligently failing to prevent actions he or she may not have known of.
Still it seems to be a necessary extension of criminal liability if the law is going to effectively deter fraudulent practices. For law to avert its gaze as officers use the corporate form to immunize themselves from responsibility for predatory practices they at least tolerate undermines confidence in the law’s capacity — or even willingness – to protect average Americans.
The old saying “Justice is Blind” starts to take on a new and sinister meaning.