Saturday, May 30, 2009

More emails on scholarship front

From: RDShatt
Sent: 5/27/2009 6:48:13 A.M. Central Daylight Time

Subj: Re: Beyond Moral Reasoning: A Review of Moral Identity Research and Its Impl...

Dear Professor Weaver,

Thank you. Professor Boatright also mentioned Professor Hasnas' book, and I wrote Professor Hasnas the below email yesterday.

I know I can be accused of having an "agenda" and I have been strident in trying to advance the same. I have toned down my main article, and I may even try to convert it to something that qualifies as scholarship. If I do that, I will pass it on to you. Again, thank you.

Robert Shattuck

In a message dated 5/26/2009 6:50:38 A.M. Central Daylight Time, writes:
Robert -- I don't know that anything we have written directly addresses your issues. But you might want to look into this book, by John Hasnas of Georgetown U: "Trapped: When acting ethically is against the law".

Gary R. Weaver, Ph.D.

From: RDShatt
Sent: 5/26/2009 4:26:13 P.M. Central Daylight Time
Subj: Trapped: When Acting Ethically Is Against the Law

Dear Professor Hasnas,

Ethics professors have referred me to you in the past, and Professor Boatright has recently referred me to you.

I listened to the April 17, 2006 Cato Institute online book forum about your book.

You, as a business ethicist, are importantly concerned about the application of the criminal law to corporations and how it should be utilized to affect corporate behavior. In the book forum you discussed at length the interplay with employees.

In the book forum, you said some other things that were of particular interest to me.

Speaking from memory, I think you said you thought it was wrong to hold a corporation criminally liable because it results in punishment of innocent parties. Also, you said that the only way to prevent corporate crime is to prevent employees from committing corporate crime. (Subsequently in the book forum you indicated there were situations in which the totality of employees' knowledge and actions could constitute a corporate crime but no single employee committed a crime.) Further, you said there were studies that showed a "command and control" approach to employee behavior had only modest effect, and an approach of more autonomy and respect for the employee can produce better results, including less willingness of employees to tolerate deviance by other employees.

In the book forum Ms. Alice Fisher mentioned the adverse effect on business competitors when a corporation breaks the law and is not caught and punished.

The book forum gave me a greater appreciation of issues and concerns related to the application of the criminal law to corporations and how it should be utilized to affect corporate behavior.

For a couple of years I have been interested in issues and concerns about the application of the civil law to corporations. I believe the civil law greatly affects corporate behavior, and I think that how it does so is worthy of investigation and consideration by business ethicists. I think things you said in the forum that I mentioned above are relevant to my civil law issues. I would be interested in whether there are studies that have relevance to my civil law issues or whether there are studies that could be done. My civil law issues are complicated by the fact that the civil law, unlike the criminal law, has a compensation objective, as well as a deterrence objective.

I continue to look for scholarship that addresses my civil law issues.

I believe I have previously given you the link to my article that discusses my civil law issues. Here it is again: Does the Civil Liability System Undermine Business Ethics?

Thank you for your attention to this email.

Robert Shattuck

From: RDShatt
Sent: 5/25/2009 9:58:37 A.M. Central Daylight Time
Subj: For what is worth: Prof. Boatright's book review

Dear Professor Laufer,

I have also gotten hold of Prof. Boatright's review of your book Corporate Bodies and Guilty Minds. For what it is worth to you, I append two emails I sent to Prof. Boatright related to his review.

Robert Shattuck

From: RDShatt
To: jboatri@luc.eduSent: 5/24/2009 5:55:40 A.M. Central Daylight Time
Subj: I honed in on these statements

Dear Professor Boatright,

From my angle, I particularly noted three statements in your book review.

First, the statement:
In practice, the complexity of organizational behavior and the secrecy around it
make it very difficult for prosecutors to obtain evidence of wrongdoing and to
identify the individuals responsible.

I agree, and I consider it a very significant problem that needs addressing.

Second, the statement:
It has also been spurred by a tension in public policy between encouraging
risk-taking in business that advances the economy and regulating corporations to
prevent the inevitable abuses, . . ..
This statement is in reference to imposing vicarious liability on the corporation. I think the tension is relevant as well to holding employees liable.

Third, the statement:
For legislators, regulators, and prosecutors who have created the new
cooperative model of law enforcement, and also business ethicists who promote
this model, the book provides a sobering contrary assessment.
I think judges as well should read the book.

One statement from the Michael article caught my attention, to wit:
Third, despite references to promoting ethical conduct, the Sentencing
Guidelines actually define a "compliance and ethics program" as one "designed to
prevent and detect criminal conduct'""* and would seem narrowly satisfied by a
program limited to criminal activity rather than also to ethical or even civil
law issues.
I think the impact of the civil liability system on corporate behavior is as significant as the impact of the criminal law, and business ethicists should be scrutinizing the civil liability system as closely as they are scrutinizing the criminal law.

Thanks again for sending me the materials.

Robert Shattuck

From: RDShatt
Sent: 5/23/2009 1:03:00 P.M. Central Daylight Time
Subj: A question for you, and my answer to the same

Dear Professor Boatright,

Your book review says:

To explain further, ultimately the only actors that can be deterred are
individuals;organizations can be deterred only by influencing the behavior their
agents. The relevant difference between sanctioning organizations and individuals
is whetherindividuals will be deterred directly by the application of the
criminal law or indirectlyby creating incentives for shareholders to monitor
employees. In other words,is it better to have government prosecutors or the
shareholders' representatives bethe first line of defense in preventing
wrongdoing? The answer to this questionwould seem to be a matter for
cost-benefit analysis: which approach can producethe greatest amount of
deterrence at the lowest cost? Although there are largecosts in government
prosecution of individuals, the sanctions against risk-neutralshareholders would
have to be relatively high to induce them to impose, indirectly,the same level
of discipline against risk-averse employees that could be achieveddirectly by
criminal prosecution. If compliance programs cause a risk-shift from organizations to individuals, this effect may be desirable to the extent
that the greaterlegal liability of individuals achieves more deterrence at lower
cost than imposingthe preponderance of risk on organizations.

My question is: To try to deter employees, do you think it is a realistic and potentially fruitful to advocate a course of action of trying to impose "sanctions against risk-neutral shareholders . . . to induce them to impose, indirectly, the same level of discipline against risk-averse employees that could be achieved directly by criminal prosecution" ?

I think not.

First, I don't know what kind of high cost sanctions against shareholders you are talking about. A criminal conviction of a corporation can destroy a corporation and destroy shareholder value, and huge corporate fines can reduce shareholder value. Shareholders take that risk and have taken that risk, and there have been cases in which very significant financial risk of loss has been realized (e.g., Merck and Vioxx, which was admittedly in civil context but I don't see that making much of a difference for shareholders). I am not aware that financial loss or risk of financial loss has resulted in shareholders taking action to impose discipline on the corporation's employees. Are you aware of any examples of shareholders, as a result of actual financial loss or the risk of financial loss, taking action to impose discipline on a corporation's employees?

Second, I think that to acheive that level of discipline on the corporation's employees requires the same type of sanctions the criminal law imposes (jail, fines, etc.) or other drastic sanctions, such as employment termination.

For lower level employees, the corporate codes of ethics and the corporations' enforcement of them should be sufficient to provide the needed level of employee discipline, and shareholder action and involvement would seem unnecessary overkill and unncessarily cumbersome.

The crux of the problem is with respect to corporate wrongdoing that is effectuated with the involvement of higher level management. Let's take Merck and Vioxx. There has been a multi-billion dollar liability imposed on Merck to the detriment of the stockholders. What is it suggested that the stockholders do or be able to do to impose discipline on Merck officers and employees? It would seem that there would need to be investigations and tribunals to determine whether there were wrongdoing officers and employees who should be sanctioned. This will cost money. Do the shareholders need to vote on whether Merck will spend the money to conduct the investigations and have the tribunals? Should the shareholders be allowed to vote and summarily fire or fine officers and employees without investigations or tribunals? Won't there be a lot of sentiment that officers and employees are entitled to an opportunity to defend themselves against sanctions? What about the Merck shareholders acting to promulgate standards and guidelines for the future to try to prevent future wrongdoing? Again that takes money, time and effort.

In short, I don't think shareholders can impose employee discipline at a lesser cost than direct criminal prosecution or other regulatory controls on higher level employees, and further there would be much inefficiency and cumbersomeness, and perhaps ultimate unworkability, in shareholders trying to impose employee discipline.

Robert Shattuck

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