Saturday, June 25, 2011

Statement of project

Project to investigate diverse perspectives on entity vs. individual liability

I wish to solicit assistance or outright collaboration for a project to investigate the perspectives, views, analyses, and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate  wrongdoing.

Parties who have an interest or should have an interest in this topic include lawmakers, judges, regulators, state attorneys general, criminal prosecutors, corporate management, ethics and compliance officers, corporation lawyers, various academics, plaintiffs' lawyers, defense lawyers, tort reform organizations, and consumer protection organizations.

Corporate wrongdoing seems to be an entrenched societal problem that is not shrinking. Efforts to attack corporate wrongdoing have become expansive and diverse.

Achieving satisfactory progress seems elusive. Perhaps satisfactory progress will never be made under prevailing societal conditions.

However sanguine or dismal prognostications are, there is no dearth of investigation, research, theorizing and experimentation about how best to try to deter corporate wrongdoing.

A persistent issue is the extent to which deterrence can be accomplished by punishing the corporation, or whether punishment needs to be imposed on responsible officers and employees who design, implement and carry out corporate activities that constitute wrongdoing.

Currently, there is a suggestion that the Obama administration believes there should be a shift to more punishing of culpable officers and employees. See these three recent articles from The Wall Street Journal: here, here, and here.

The numerous parties referred to above have different perspectives and may have very differing views. All the parties have influence in societal decisions that are made concerning the subject matter, and the parties may be variously oppositional to or supportive of actions that are attempted to be taken.

I believe there is a deficiency of dialogue among the interested parties concerning their varying perspectives, views, beliefs, and information about the subject matter, and this makes societal decision making more difficult.

The purpose of this proposed project is to try to contribute something to correcting the foregoing deficiency.

I have begun a lot of contacting of the interested parties, but it is just a start and there is a long, long way to go.

To continue, I would like to ask for suggestions of what reading I should do on the subject.

Next, I would like to locate representatives of the parties who would be willing to try to speak from their respective perspectives. For example, would the US Chamber of Commerce be willing to speak from the perspective of corporate management? Are there ethics and compliance officers who are willing to offer their frank views on the subject? Would the American Trial Lawyers Association be willing to dialogue from the perspective of plaintiffs' lawyers?

This project could quickly founder if parties refuse to participate and refuse to dialogue on the subject. There may turn out to be abject disagreement about the subject matter.

If the foregoing happens, I believe useful things would still be learned. Let's say corporate management, in the form of the US Chamber of Commerce, wants nothing to do with any discussion about the possibility of greater deterrence from increased officer and employee liability. Or let's say ethics and compliance officers will not be frank in expressing their views because of what corporate management thinks. What if plaintiffs' lawyers won't engage in discussion? One inference could be that corporate management and plaintiffs' lawyers do not believe they can defend their positions on the subject. If ethics and compliance officers cannot speak frankly, that would be enlightening in evaluating how they are carrying out their mission.

I personally have no standing to get parties to participate. The parties themselves have significant standing for trying to get other parties to participate, and I seek help from parties or representatives of parties to help elicit participation from other parties.

If you think this project is worthwhile, and you are willing to try to lend a helping hand in any way, please contact me.

Thank you.
Rob Shattuck

June- ethics and compliance contact list notified of project
September- ECOA annual conference speakers contacted about project
September- tort reform contact list notified of project
September- US Chamber of Commerce and its Institute for Legal Reform notified of project
September- DRI Corporate Counsel Committee leadership contacted about project 
September-National Association of Attorneys General
Oct./Nov. - Emailing to Business Ethics Quarterly authors: link, link, link
November- Project for Law & Business Ethics
March/April - Case study of $25 billion robo-signing settlement: linklink
April -  RAND (Institute for Civil Justice and Center for Corporate Ethics and Governance)
April - Interim project report

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

Monday, June 13, 2011

ERC paper "Too Big To Regulate"

Sent: 6/13/2011 5:18:35 P.M. Central Daylight Time
Subj: ERC white paper "Too Big To Regulate"

Dear Dr. Harned,

I am writing to comment on the Ethics Resource Center 2010 white paper Too Big To Regulate: Preventing Misconduct in the Private Sector .

My comments are from the perspective of my focus on the question of entity level liability versus officer and employee individual liability for achieving deterrence. The ERC's white paper brushes on this matter in a few places.

The white paper, towards its beginning, says recent events have raised "significant" questions about the effectiveness of government regulation and the ability of regulators to prevent misconduct. The paper sets forth eight such questions, the last of which is one of possible resignation, to wit: "Have we simply reached the point where regulating corporate conduct is an impossible job?"

It is possible that this last question need not be limited to referring to government regulation, and it could be legitimately asked about self-regulation as well.

The paper does a lot of circling around the government's enforcement approach and the corporation's self-regulatory approach. The paper covers numerous points and issues, variously supportive of and questioning of the two sides. The paper acknowledges that differences persist and calls on the two sides to continue to try to bridge the gap.

I think the white paper would have been better if there was more discussion of the question of entity level liability versus officer and employee individual liability for being better in regulating corporate conduct.

Thank you.

Rob Shattuck

Thursday, June 9, 2011

Ethics field and "corporate governance" field

[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.

Rob Shattuck

Friday, June 3, 2011

Managing Ethics in Organizations conference

[email to business ethicists list]

Subj: Managing Ethics in Organizations conference- Obama development                                    

To: Business ethicists list

I sent the following email to the faculty of the Managing Ethics in Organizations conference that will begin on Monday.

Sent: 5/31/2011 4:33:26 A.M. Central Daylight Time

Subj: MEO: Entity versus individual liability under Obama

To Managing Ethics in Organizations faculty:

Is something significant going on in the Obama administration relative to entity versus individual liability for purposes of achieving deterrence?

Three Wall Street Journal articles in the past month have been suggestive to me that this is the case. See this, this, and this.

What do you think?

Rob Shattuck

Do you think there is something significant going on in the Obama administration relative to entity versus individual liability for purposes of achieving deterrence?

Rob Shattuck