Wednesday, June 15, 2011

To government officials re "Too Big To Regulate"

Sent: 6/15/2011 7:00:07 A.M. Central Daylight Time
Subj: For Greg Andres (Justice Dept.), Lorin Reisner (SEC), and Kathleen Grilli
Re: ERC white paper "Too Big To Regulate"

Dear Mr. Andres, Mr. Reisner, and Ms. Grilli,

I am writing to comment on the Ethics Resource Center white paper Too Big To Regulate: Preventing Misconduct in the Private Sector that resulted from the presentations of the three of you to the ERC Fellows in July of 2010.

I cannot tell from the white paper how extensive was the dialogue between you and the ERC Fellows on the question of entity level liability versus officer and employee individual liability for achieving deterrence. The white paper brushes on this matter in a few places. I think the dialogue between business and government that the white paper advocates would benefit from a full exchange of views on entity versus individual liability.

First, what does each side believe about the effectiveness of entity liability versus officer and employee individual liability for achieving deterrence? If the business ethics community and the government have significantly different, that could impair the dialogue that the white paper advocates. If the two sides lay out their views and discover that they are not in agreement, the question might be further thrashed out, and greater agreement might be reached on the subject that could help in the dialogue.

On this matter, three Wall Street Journal articles in the past six weeks have been suggestive to me that the Obama administration has, or is moving to, the view that entity level liability is not sufficient and there needs of be officer and employee individual liability. See this, this, and this. Is this true? If it is true, what does the business ethics community think?

Whatever the foregoing current developments signify, dialogue on the question between the two sides should include digging into the literature and research that is extant. Perhaps more research is needed.

Let's say the outcome of the dialogue is that there is agreement that more officer and employee individual liability is needed. What then? Is there legal machinery in place for carrying that out? Is it simply too difficult, too time consuming and too expensive, or is it politically impossible, to have adequate legal machinery that will, in a standard way in cases of corporate wrongdoing, undertake determinations about, and impose punishments on, responsible officers and employees?

Management might say such machinery will make a corporation's officers and employees too cautious and impair the development and carrying out of valuable and useful business activities.

Management may oppose machinery for identifying and punishing responsible officers and employees because wrongdoing can be profitable, that profitability can justify greater compensation of officers and employees so long as it goes on undetected, and, if it is uncovered, management would want the protection that only the corporation is punished.

I do not know if there is a formalized dialogue that is going on between government and business as advocated by the ERC's white paper. If there is, and there is someone on the government's side that it would be better to address this email to than the three of you, please let me know.

Thank you.
Rob Shattuck

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