In last week's class, we discussed how firms are structured and organized, and we discussed the notion of "person" as it relates to the corporation.
In 1909, the Supreme Court decided New York Central & Hudson River R.R. Co. v. United States, which held that corporations are subject to criminal punishment for offenses committed by their employees.
A century later, the application of the criminal sanction to business organizations is taken for granted.
Professor Hasnas argues that New York Central decision was a mistake. What do you think-- explain your argument.
MSBA511 - Applied Financial Management, exploring our vocations in business with a vision of service to God and community.
Professor Hasnas has excellent points as to why the NY Central decision was a mistake, and in the end, he provides practical solutions that he says go against his argument and the principle of the matter, but that may actually change some things for the good. I disagree with the law: that corporations should be strictly liable for the offenses of their employees committed with in the scope of their engagement. I also believe that Hasnas is in part motivated to make his argument because he truly cares about the individual citizens in society and about the real freedom individuals must have. That freedom is only real if the individual person not only experiences some of the natural rewards for good behavior, but also receives the natural due-punishment for bad behavior.
ReplyDeleteHe relates a cultural background that may have helped predispose the Supreme court to punish corporations for offenses committed by their employees, such as the inherent built in bias in our system as reflected by William Blackstone: "Better that ten guilty men escape than that one innocent should suffer". Yet, often in punishing the corporation, many innocent suffer, such as the financial fine that is passed on to innocent stockholders, and customers in the form of increased prices, or perhaps with such an expense in a fine, innocent employees will need to be laid off. So, to what extent is an employee, a brother’s keeper? To what degree should the employee discourage criminal behavior in the corporation? While it is good for a government to encourage a corporation to teach and ensure ethics and good policies as much as possible, the human person has free will for which ultimately he/she should give an account if a choice is criminal. It is a matter of justice and accountability. If the focus is placed on punishing the individual employee who actually committed the crime, instead of punishing the corporation, then, the punishment may result in an act of deterrence so that other employees from other companies will learn from the criminal's consequences.
I like how John Hasnas sets out necessary conditions for applying a criminal sanction: 1. Criminal sanctions may be applied only when doing so advances a legitimate purpose of punishment, such as retribution, deterrence, and rehabilitation. (The innocent—which greatly make up a corporation—are unable to be rehabilitated. Punishment infringes on their liberty.) 2. . . . when doing so does not create an unacceptable risk of prosecution error or abuse!!!! 3. . . . only where necessary to address a public harm.
Since corporations do not have bodies or minds, and since they are in part made up of many people, some of which, if not all of which, are going to be innocent (in reality although maybe not theoretically), they cannot be punished like people. How may a corporation experience deterrence, rehabilitation, and retribution justly without making the innocent suffer? Only the human person can act in a morally blame worthy way. I agree that retribution is only good to punish the individual person.
Therefore, even if every employee and even if every stockholder of the corporation was guilty, each individual person should be liable for their own offenses and to some extent for the offenses they encouraged or for which they were responsible in fellow employees. Even in this case, the corporation may not be pursued, but every individual must be pursued. Punishing the corporation does not make the individual accountable in the same way as punishing the individual. I like the example Hasnas used when he mentioned how the Nazis would punish townspeople in which sabotage happened so those townspeople would deter future saboteurs. That example highlights the intrinsic injustice of the NY Central Standard.
My questions: If it is not right for the government to punish corporations, then would it be wrong for the government to reward corporations, such as by rewarding financially? Would this still be an unjust outsourcing of the law’s power? We all are responsible to some degree for one another, in that if our fellow employee is doing something blatantly wrong, we should not turn a blind eye. Should the individual be rewarded instead of the corporation?
ReplyDeleteThat is why the NY Central Standard's "purpose is not punishment but to enforce corporation and outsource the cost of law enforcement." It is a matter of economics, not justice. It is a matter of shifting the powers. I agree that the law is “inherently abusive”. While I want my employer encouraging me to be virtuous, I do not want my employer policing me. This is in part how a country becomes an informal police state. Instead, a much more positive environment, such as leading by example, giving incentives and rewards, and even having regular parties, among good employees, is very affective.
Although going against basic, excellent principles, I like his practical solution, the mid-range position that may actually have an effect. After all, the law has been in place since 1909, and is unlikely to be reversed anytime soon. He offers the great solution that the corporation should receive some kind of punishment IF it has not fostered good ethics or reasonably tried to teach and enforce certain policies among employees. While there is some place for “policing” by any manager or corporation, the research Hasnas stated shows that the corporation’s attention should be given especially to establishing great employee respect and trust, as these things really encourage good employee behavior.
Renee, thanks for the very thoughtful and in depth response. For the most part, I am in agreement with Renee and Professor Hasnas. I do not believe a corporation as a whole should be held completely accountable for the actions of its employees. As stated in the video, a corporation is an inanimate object--It doesn't have a body or a mind, therefore, how can it be tried by a jury?
ReplyDeleteProfessor Hasnas makes the point that there is a liberal bias in The United States concerning justice. William Blackstone suggests this argument in what is called "Blackstone's Formulation." This principal states that it is "better that ten guilty persons escape than that one innocent suffer."
As a humanitarian (as I would guess most of you are), the thought of one suffering for actions not taken is devastating. It is less just than ten guilty people escaping persecution. Hasnas uses this argument to supplement his point: If an entire corporation were punished, rather than individuals, surely there would be innocent people being negatively affected.
As I relate this to present-day current events, I cannot help but think of Bear Stearns, Goldman Sachs and CitiGroup, for example and feel contempt towards them. By "them" I mean the corporations--Not the individuals. In the example of the financial crisis, it is evident that many executives understood the risky behavior in which they were partaking. These employees were not acting as individuals in their personal lives, but rather as representatives of a company. I do believe there needs to be some responsibility taken by corporations that have been involved in widespread corruption. Whether it be fines or the loss of a license, as Professor Hasnas suggests, retribution needs to take place. The individuals, however, cannot be let off the hook and should be required to face a jury as individuals.
Punishing an innocent person for the sake of a guilty one is, by its very nature, illogical and unjust.
ReplyDeleteJustice, as a sort of equality between men, helps to regulate our actions and maintain order within society. A more modern definition offered by the legal jurist Hans Kelsen states “Justice is primarily a possible, but not necessary, quality of social order regulating the mutual relations of men.” Although one is prompted to argue that it is indeed a necessary quality, the idea that justice regulates our relations still applies. It would not only be preferable to pursue such an idea but it would also be profitable (from an economic standpoint). When it is removed from the social order, the things on which we place a premium, such as equality and liberty, become harder to pursue. James Madison once claimed that: “Justice is the end of government. It is the end of civil society. It ever has been, and ever will be pursued, until it be obtained, or until liberty be lost in the pursuit.” It would not be unfair, then, to assert that the notion of justice is of paramount importance to the prolonged life of society.
If we ignore the active pursuit of this thing, and think of it merely as accidental to the nature of society, then there can be little hope for any amount of sustained equality between men.
That being said, to pursue a course of action that would cause an injustice to one in the name of "justice" is the opposite of justice. It takes away equality, destroys individual liberty, and subverts that very thing in whose name it is being done.
I completely agree with Professor Hasnas. A corporation does not commit a crime; it is the people within it that do. Therefore, it is those people that need to be punished and not the corporation itself. However, punishing a corporation ultimately punishes those guilty members. The problem with this is that it punishes a lot of innocent people. If we lived in a society where that was acceptable then the law would make sense. However, as Meredith pointed out we do not.
ReplyDeleteThank you Meredith and Sara. Meredith, I like how you pointed out the example of widespread corruption in a corporation as an instance where it would seem to make sense to then go ahead and punish the corporation and the individuals, because at that point, when corruption is so widespread, everyone may be affected negatively either directly or indirectly, and therefore it seems to make sense that punishment for that negativity should follow directly or indirectly. When individuals come together to form a community for example, and if that community as a whole is, let's say, destroying their natural environment in such a way that is very irresponsible and will take a few generations to restore, it makes sense to fine/punish that community, even if there were some individuals in that community who perhaps were not only innocent, but went out of their way to clean up the environment after others. Sure, it is unjust that those few innocents be punished, but because we live in an imperfect world that prevents us from identifying those few innocents with proof, it seems like a greater justice to punish that community.
ReplyDeleteI am thinking of the example in the Old Testament where God had the option of destroying Sodom and Gomorrah in the Book of Genesis. In the end of the story, God does deliver those who were innocent out from the cities. Therefore, he punished the community because 100% of them were guilty. Yet, the few who he delivered from punishment were "punished" indirectly by having to move out of the city, as moving is an inconvenience to say the least. Community affects us no matter what. In as much as we live in community, we will always, to some extent, suffer the injustice of harmful effects from negativity or punishments that were imposed on others, just as we may enjoy positive effects by accident, and it seems then that it would be an injustice to receive the positive affects, but I accept it as part of being in community. Nevertheless, we may at least try to minimize those negative effects as much as possible, just as God tried to minimize the negative affects from the punishment on Sodom and Gomorrah, from harming Lot and his daughters.
Becket, I was blown away by your response. I totally agree. Thank you.
I agree that it is unfair to penalize an entire corporation for one person’s wrong doing. I feel that Renee, Beckett, Sara and Meredith made very strong points and used excellent examples from the presentation. With that said, I find it interesting that the corporation is “a “person” distinct from its owners. Corporations can sue and be sued, enter into contracts, issue debt, borrow money, and own assets, such as real estate.” If a corporation is capable of possessing all of these legal rights, they should also be obligated to conduct their business morally and subject to law. According to Professor Hasnas, there are no controls that could possibly ensure that every person in the corporation behaves accordingly under the moral laws they have set. Yet, there should be checks and balances in place to ensure that individuals in an organization are unable to obtain enough power to endanger the shareholders and the corporation as a whole.
ReplyDeleteI also found the example of KPMG very interesting. The Department of Justice accused the company of illegal tax shelters and threatened indictment. When faced with these charges the corporation pleaded guilty, paid a hefty fine and turned over the “individuals” that were guilty of the fraud. This was an interesting example because it showed that if a corporation pleads guilty they expunge themselves from guilt and are able to blame one specific person instead of the company policy. These individuals are then unable to preview the company documents and unable to find an employee to testify because policy states “no agent of the company will make any statement inconsistent with the company”. Therefore, the same rules set forth to defend the individuals, ultimately convict them. Although many of the individuals are in fact guilty, it makes it very hard to defend the one of ten that is innocent.
The New York Central decision was a mistake. I agree with Professor Hasnas and my classmates in believing that we are ”legitimizing mistakes by repeating them”. The application of the criminal sanction to business organizations is certainly taken for granted. Criminal law‘s purpose is to punish people who deserve it. Where there is a legitimate purpose for punishment, there is not much risk, and a
ReplyDeletepublic harm is being addressed, criminal responsibility justifies such deserved punishment.
Blackstone's formulation: “Better that ten guilty men escape than that one innocent should suffer.” Although liberal,corporate criminal liability does not serve any retributive purpose. It does not help the public interest. Because the corporation is considered a person, distinct from it's owners, it is unfair to penalize an entire corporation for one person’s wrong doing. It is impossible to ensure that every person in the corporation behaves morally and ethically. If it was possible to control people in this way the world woiuld be a very different place.
I feel like corporations are partially liable for their employees behavior. If not, why not hire the person you know will get the job done no matter what and then later on play innocent. If the employee is on their own personal time than I don't believe that the corporation is legally liable but think about this. If the mayor of D.C. is caught drunk driving during his personal time, what does the newspaper print? I guarantee you that it states, MAYOR OF DC CAUGHT DRIVING DRUNK (or something similiar). The fact of the matter is that whether or not corporations are legally liable they will be held liable be the media for their employees' actions.
ReplyDeleteGreat thread going on here - and I think I'm still on the fence. On the one hand, I agree with the general sentiment that how can the entire organization be blamed for an individual's (or small group of individuals')criminal actions. Especially in large corporations where there are thousands of employees, it seems unfair, almost not practical to hold it criminally accountable. And yet, management (in all its levels) is supposed to sueprvise its employees and hold them accountable. Failure to do so is a mark against how the company is run.
ReplyDeleteUltimately, you need to look at the specific situation. If the criminal action in question persisted for years or incurred great damages, then you must look at the company and scrutiize their practices and how they conduct business. I think this court ruling allows for this sort of scrutiny, whereas surrendering all responsibility might have lead to greater corruption.
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ReplyDeleteWell said, Nicole. I agree with your comment 100%. Although individuals are and should be held accountable for their own actions, the corporation should also be responsible for their employees' actions if conducted 'on the clock.' Our society associates who you are with what you do. Therefore, if someone does something in association with their company, it is the corporations responsibility to handle the situation as much as the individual.
ReplyDeleteWow everyone brings up good points and I hate to fall into "group think" with this post but after this video, I generally agree with the majority here. I'll address a few points from everyone to break it down a little.
ReplyDeleteI'll address Nicole's comment first. It's funny because the other day our boss said that we are now representatives of our organization and the actions we take will no longer look like "Amelia Eanes did something bad". It is now "Amelia Eanes, CUA student, NetApp employee, DC OCP intern did something bad". So obviously, if I do something criminal, NetApp and it's entirety should not be punished (nor should the DC government, nor should CUA). Why shouldn't they? Because it's absurd to think that the President of my company would have any knowledge of my criminal act....right?
Smooth transition into Steph's comments-- If I committed these acts on the clock, FOR my company (i.e. did something morally wrong and illegal to make a sale) and my superiors had the knowledge I was doing it for the company, then YES of course they should be punished because my bosses are an accessory to a crime which is punishable by law. What about the other employees? Well that depends on their position and involvement in the crime.
In any case, whether it was Me vs the Court or My Company vs the Court (like KPMG), I think it is important to point out though, that although my company would not be "punished" and only the parties responsible would be (KPMG example), my company's name would be tainted at least for the next year (or 2 or 3...). In the world's own way, whether we believe a corporation in it's entirety should be punished or not, the negative publicity (BP) will do enough damage for at least a few years and that corp will spend copious amounts of funds trying to gain back the public's respect.
So although this answer is not "I agree" with Professor Hasnas on the NY Central decision being a mistake, I think it is clear that I am leaning toward agreeing with him along with all 15 other classmates...(aside from Francisco, who's on the fence).
This video was very insightful as he brought up this interesting topic. I did not know about this case. My first reaction was common to those of others. Innocent employees should not be punished for actions of others in the company. But, the argument of companies being held liable for the actions of their employees can actually be understandable especially in corrupt societies where big corporations hold great influence. To avoid being dragged into this, employees should always be aware of the company they are getting into and those they work along side. Its like when you were younger and you had to be careful as to who you chose as your friends. There is always that risk of being dragged down with someone's bad decision. As to whether or not a company should be punished due to a single or several employees bad decisions must be based on whether or not those decisions will greatly affect the society and the future of the company. I do believe that innocent people should not be punishable for others mistakes but I see the other point.
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