The Richard Scrushy jury is still trying to sort out its verdict. For Larry Ribstein, this is just one more example of the folly or criminalizing corporate governance. Larry has been writing regularly about corporate crime, but his position is nicely articulated in one of his early posts on the subject:
[T]heft is part of the nearly infinite gradation of "agency costs" -- that is, the costs of delegating discretion to agents. The continuum includes both shirking and incentive compensation.... Criminal law is a blunt instrument for dealing with these cases, as prosecutors may be learning.
Things get even murkier in securities fraud cases, where the perpetrator is not only not stealing, but may actually think he's being loyal to shareholders by, for example, protecting their shares from short-term earnings glitches.
Of course this thinking is misguided and wrong, but should it be criminal? Criminalization discourages beneficial risk-taking. Even worse, applying criminal law to ordinary behavior risks diluting the moral force of the law.
As I understand Larry's position, his main concern is that corporate crime is difficult to distinguish from run-of-the-mill agency costs, thus confusing or boring juries (in a more recent post Larry writes: "If you're going to expect juries to sort out run of the mill agency costs from criminal conduct, you've got to lay it out for them, and then hope they don't go to sleep, or worry about the other stuff they're supposed to be doing while they're sitting in court") and diluting the moral force of criminal law. He may be right, but I am not yet convinced.
The missing piece is comparative institutional analysis. In my view, it is not enough to say that criminal law isn't good at policing agency costs. The question inevitably follows: compared to what? In this case, the issue is whether the threat of criminal sanctions can accomplish something that is not accomplished by markets or the threat of civil liability. In my view, the jury is still out.
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