Thanks to everyone for their comments and great feedback and to the Conglomerate for organizing this workshop.

Hi, Miriam. I hope you don't mind if, as a CoJuScho alum, I add a word or two. I enjoyed your paper, and for the most part found it thorough and engaging, but as a former white-collar prosecutor I found a few things in it that didn't ring true to me. Others have commented extensively on your insurance proposal, so I'll concentrate on your critique of corporate criminal liability.

I found the argument that corporate crime-prevention is "over-deterred" unpersuasive. A major problem is that you don't really try to anticipate any counter-arguments (I don't think you cite to any academic author on the other side of the fence from you in this section...). I don't know the literature well, but I can off-hand think of five or six factors that suggest corporate detection might be less than would likely be socially efficient.

For example:
1. Employers have a strong incentive to protect employees from liability. Employees have firm-specific capital the firm wants to preserve. Workers are risk-averse, and may need guarantees of firm protection to act aggressively to enhance firm value in areas of uncertain legality. And if one employee is indicted, she is likely to cooperate and implicate other employees, deepening the firm's losses. So, while firms may want to detect internal wrong-doing, they also want to keep it secret.

2. Political dynamics of prosecutorial decisions. KPMG is a case in point. Political leadership has a shorter time horizon in office than line prosecutors and is more sensitive to concentrated harms on discrete segments of their constituency. The benefits of leniency are short-term while the benefits of consistent deterrence are long-term. So, public choice theory suggests corporate defendants will often have the wherewithal to convince DOJ front-office types to be lenient, notwithstanding the views of line prosecutors. This is especially true if the only available penalty has the effect of destroying most of the s/h value. Potential wrongdoers, knowing this, are less deterred.

3. Corporate prosecutions are incredibly resource-intensive, putting corporate defendants in strong bargaining position with prosecutor who wants (by your hypothesis) to maximize the number of her convictions. Again, if defendants can anticipate this deterrence is lowered.

4. The prosecutor over-zealousness story is unpersuasive because a. norms of prosecutor professionalism, esp. at the federal level; b. multiple layers of internal review -- in my office, no one was ever commended for wrecking a fairly law-abiding corporation; c. zealousness as a necessary counter to slack in a bureacracy with no high-powered incentives.

5. Market response to news of an indictment. Why do stocks decline in response to indictment news? Is that an irrational response? Surely not every firm is, like AA, dependent on a sterling reputation, or, as in your examples, dependent on government contracts. So prosecutions seem to be generating information that is valuable to the market, in much the same way that studies show that companies that take on debt, subject to close oversight by the new creditor, increase in value.

6. Distributive effects. Corporate detection costs are at the expense of shareholders, who are diversified and generally wealthy. Victims of corporate crime, other than crime against the corporation itself, may be less wealthy and less diversified. Given a declining marginal utility of money, corporate detection costs in excess of savings to victims might still increase overall social welfare.

Obviously there is a lot one could say on this topic, and I think you've made a promising start. My advice would be, if you don't want to take on these considerations, to simply claim a bit less. Don't tell us that corporate detection efforts ARE overproduced; tell us they may be, and that if so, your proposal looks more appealing.

I hope that's helpful, and I'd be happy to explain any of these ramblings more off-line.

Hi Brian,

Thanks so much for the detailed comments. It's interesting that we have different perspectives because I too was also a white collar prosecutor (and then spent a year as an in-house compliance attorney at a large public company).

I think your comments tie in with Mike Guttentag's earlier comments, which is: how do I show that this hypothetical "overpayment" exists? Not an easy task, but one that I should address one way or another.

With regard to your specific points, some ring untrue both from my days as a prosecutor and my days in-house. As an in-house attorney, I knew darn well that the DOJ had sufficient resources to prosecute public companies my client's size and that they would not hesitate to use these resources if there was evidence of a "large" crime. Although the federal government's lack of resources might have been a problem years ago, I think most companies are keenly aware of that top US Attorneys Offices are happy to throw lots of smart, warm bodies at any case.

As for prosecutorial professionalism, I certainly agree that most line prosecutors are extremely professional (and I will make that clearer in my paper). However, there certainly is a culture at DOJ that will likely push the prosecutor in a mode of putting pressure on the corporation to adopt certain measures without critically evaluating whether the costs of certain measures are justified or even beneficial. I'm not saying that prosecutors are bad people, but I do think they are suboptimal arbiters of corporate compliance and corporate governance.

I agree there is much more to say on the topic and I would be happy to talk more on the topic offline. Thanks again for the thoughts and participation from everyone.

Thanks for the reply, Miriam. Sound point.