[Email to Professor Jill Fisch related to her 2010 law review article
Subj: Business ethics community and your "Overstated Promise" aricle
Dear Professor Fisch,
As your first sentence says in The Overstated Promise of Corporate Governance, "Corporate governance is in trouble."
You write from the investor perspective that emphasizes the importance of corporate profitability, business performance, and "efficiency of capital markets," including avoiding the detriments thereto stemming from financial fraud.
The business ethics community is very concerned about financial fraud and also about corporate wrongdoing that adversely affects non-investor parties like consumers, customers, the public at large (e.g., regarding the environment), and others (such as governments) that do business with corporations. Some corporate wrongdoing that harms non-investor parties can benefit investor parties unless the wrongdoing is discovered and the corporation is sufficiently penalized. Examples of this include "cutting corners" in ways that make products unsafe, violating environmental laws, and defrauding the government.
I don't know whether you think narrowly of "corporate governance" as concerned only with "bad" corporate behavior that affects investors and "capital markets" adversely, or whether you think "corporate governance" should be thought also to encompass mitigating "bad" corporate behavior that harms other parties besides investors and "capital markets."
In your article, you discuss several mechanisms for restraining "bad" corporate behavior from the investor perspective (for which purpose "bad" includes poor business performance). These include independent "monitoring" boards of directors; shareholder voting; litigation; “market-based” disciplining provided by the takeover market, initial public offering constraints, and hedge funds; gatekeepers such as auditing firms and rating agencies; whistle-blower incentives; and government regulation.
"Corporate governance," as articulated in your article, covers a lot of territory.
Those in the business ethics and compliance field also cover a lot of territory in their quest for corporations to be ethical and to lessen corporate wrongdoing.
For business ethicists, there is a bifurcation, or duality, of internally oriented approaches and of externally oriented approaches. An internally oriented approach seeks the inculcation of an ethical sense or ethos in individual employees or in an organization that will by itself engender ethical behavior. An externally oriented approach entails looking to the application of externally imposed punitive sanctions to affect corporate behavior.
The quest of business ethicists has been wending. In the criminal law, the federal government initiated in the 1990's the Federal Sentencing Guidelines for Organizations and the Justice Department’s Principles of Federal Prosecution of Business Organizations. These provided incentives for corporations to be proactive in preventing criminal behavior and to assist prosecutors in uncovering and prosecuting the commission of crimes. Professor Boatright, a noted business ethicist, called this devleopment (referred to as the "cooperative model") a "sea change in the legal approach to corporate crime", and an extensive literature has been produced about how effective the cooperative model is for improving corporate behavior, or not.
The resort of the government to whistleblower incentives as a tool to ferret out corporate wrongdoing is a frontal challenge to business ethicists, particularly those who advocate "internally oriented" approaches. Either they must acknowledge that their corporate ethics and compliance programs are not so effective as they wish, and the use of "spies" by the government is reasonable and legitimate; or, alternatively, the business ethicists have a daunting task of persuading the government and others that their programs can indeed do the job and the government does not need "spies."
What is my purpose in laying out the foregoing?
I very much agree that "corporate governance is in trouble" and that the mitigation of corporate wrongdoing is in need of many experts researching, developing, testing and advocating ideas, theories, and mechanisms for improving corporate behavior in the best way possible.
The foregoing discussion in this email is indicative of the work that you and others in the "corporate governance" field are doing and also of the work that the business ethics and compliance community is doing.
My special interest regarding corporate wrongdoing is the issue of entity level liability versus officer and employee individual liability for purposes of achieving deterrence. This issue has been around for many years and has received a lot of consideration by experts of numerous stripes. It is probably fair to say that the issue has not yet been resolved with a needed amount of consensus. Also, if it could be resolved, that would be a significant step forward. To the extent it is not resolved, it, in my view, leaves very incomplete the theories, ideas and mechanisms that are propounded for improving corporate behavior.
Also, for the past several years, I have been especially trying to push the business ethics community on the issue.
Finally, in terms of writing you at this time, I think there is currently going on something significant in the Obama administration relative to entity versus individual liability for purposes of achieving deterrence. At least three Wall Street Journal articles in the past month or so have been suggestive to me that this is the case. See this, this, and this.
I have previously had email correspondence with you on the entity versus individual liability issue. I am writing again to try to meld the work that is going on in the business ethics and compliance field, with your work in "corporate governance" field, and thereby possibly to elevate in your mind the significance of the issue of entity level liability versus officer and employee individual liability.
Thank you very much for reading this email if you have gotten to the end here.
Sincerely,
Rob Shattuck
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