Blind Justice

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Repairing the System

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.

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.

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.

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