In addition to social enterprise, I’m also interested in how foreign corruption affects corporate governance and compliance. One of my current projects involves looking at where these areas intersect.
I was drawn to this topic because the developing world is often where social enterprises can do the most good, but, sadly, the developing world is also where corruption tends to be the most prevalent. Can a social enterprise do business in a country where nearly every public official demands bribes? Most traditional corporations will probably answer that question in the affirmative. A transnational oil and gas firm, for example, ought to have the resources to resist or at least mitigate the compliance challenges presented by corruption. Moreover, some traditional firms will likely approach corruption from a strictly economic perspective. The U.S. Foreign Corrupt Practices Act (FCPA) prohibits firms from paying bribes to foreign officials for the purpose of getting business. Firms that violate the statute face stiff monetary and reputational sanctions. But if the risk of detection is low and the potential gains from a corrupt transaction are high, managers could be tempted to go ahead and make a payoff to improve the financial bottom line.
The issue arguably becomes more complex in the case of a social enterprise. Social enterprises seek first and foremost to create a public benefit. Their managers must balance the mission and profit goals of socially oriented investors, employees, and other stakeholders. Accordingly, the question of whether to bribe is not simply a matter of weighing detection probabilities and potential gains. Managers will also need to anticipate, assess, and work through the ancillary effects of corruption—including market distortion, erosion of the rule of law, and negative effects on employee morale—when making decisions.
Perhaps some social-enterprise managers will elect to pay bribes on the theory that they will be serving the greater good by getting their products to those in need. They might conclude that the harms and enforcement risks from bribery are worth the benefit of providing people with, say, healthier sanitation options or cheaper energy. Others, though, will surely resist bribery altogether on moral or social welfare grounds. For these managers, the question becomes whether they can remain in markets with endemic corruption. This is a tough situation. If social enterprises decide to withdraw or otherwise limit their activities in certain markets, the obvious downside is their inability to positively affect citizens in distress. Whether other actors will step in and fill the gaps they leave behind is an open question.
This story about how GM is launching an internal investigation by hiring its defense lawyers to do the investigating isn't that new, but it does remind one that if you go through the revolving door, in addition to raising your salary, you're changing your practice from one involving courtrooms and complaints to one involving conference rooms and the occasional negotiation with a regulator.
In my view, one of the biggest changes in law firm practice over the past 25 years has been the growth of this sort of work at the largest of firms, which used to stay the heck away from criminal practice. That in turn has been facilitated by the emergence of the internal investigation as something that regulators expect to see done, which means that the new work is actually profitable (those investigations involve a lot of billing, defending a criminal case generally does not). And that in turn has made the revolving door revolve more quickly; it used to involve high-ranking political appointees only, now almost any long-serving, mid-level-at-least lawyer in an enforcement agency can prove useful for a law firm.
I’m helplessly drawn to soccer and have been for nearly sixteen years. The sport has shown me countless moments of transcendent genius, like that goal by Arsenal’s Thierry Henry, and it continues to inform my thoughts on issues ranging from globalization to personal fashion.
One of the biggest stories in the footballing world this week comes out of the German Bundesliga, Germany’s top professional league. Sunday’s match between Werder Bremen and Nürnberg saw Bremen’s captain Aaron Hunt deny his team a penalty—and a near-certain goal—by admitting to the referee that he had not been fouled after seeming to “trip” over an opponent’s foot. Werder was leading at the time and eventually won the game 2-0. Afterwards, Hunt told the media that he had tried to provoke the penalty “out of instinct” but then thought that doing so “was wrong.”
Most are treating this as an example of good sportsmanship. My reaction is slightly different. I see Hunt’s conduct as a potential teaching tool for discussing social enterprise.
When I first started looking into social enterprise, it felt like the movement’s supporters saw it principally as a response to concerns about shareholder wealth maximization. Their worry was that an undue corporate emphasis on profit making was to blame for the financial crisis, climate change, and other problems. Social enterprise was seen as the antidote, since it captures firms that seek to go beyond profits in order to do “well” (financially) while doing “good” (socially).
I’m a fan of social enterprise, and I think social enterprise law can add real value. Yet I’d caution against placing it in direct opposition to traditional corporate behavior. Social enterprise is growing at a time when notions of shareholder prioritization continue to evolve. While it is true that courts generally hold that directors must act for the benefit of the “corporation,” what this means as a practical matter is open to debate. Some managers probably do see the singular pursuit of wealth as their obligation, but many others now see a strong relationship between a firm’s social footprint and its impact on shareholder value.
This brings me back to Mr. Hunt. I like to imagine that something similar to his phantom foul situation plays out in corporate decision-making. Even if traditional corporate managers often start with a view toward maximizing profits “out of instinct,” I’m not ready to concede that many won’t still pull back to consider the wider social effects of their decisions. The difference between corporate managers and professional footballers is that not every ethical quandary in the C-suite happens in front of a live worldwide audience. But that’s not to say that every manager needs or wants to check her ethical sensibilities at the door, or that existing corporate law is not already flexible enough to permit most social/economic tradeoffs.
Whatever the justifications are for supporting social enterprise—and I believe there are many—they should not include a wholesale rejection of the traditional corporate model. Generating meaningful social impact is always going to be less about form and more about management’s sense of purpose, virtue, and ideals. So where does that leave the role of social enterprise and social enterprise law? That’ll be the subject of my next few posts.
If you're interested, they are after the jump:
The Department of Finance and Economics in the McCoy College of Business Administration at Texas State University - San Marcos anticipates one tenure-track opening in Business Law effective Spring 2014 or Fall 2014. Duties include teaching undergraduate and graduate business law courses, conducting research leading to peer-reviewed publications, and providing service to the students, department, profession and university.
Initial review of applications will be completed by November 1, 2013, but may continue until filled.
Required: Candidates must have a J.D. from an ABA accredited school of law. Significant experience in the practice of law is also required.
Preferred: Preference will be given to candidates with membership in a state bar association, previous excellence in teaching law at the university level, a history of scholarly research and publications, law review membership, experience as a law clerk at the appellate level, and/or an undergraduate degree in business and/or an MBA degree from an AACSB-accredited college or university.
To apply, send a letter of application addressed to Dr. Alexis Stokes, vita, Texas State Employment Application (available at: http://facultyrecords.provost.txstate.edu/faculty-employment/application.html), graduate transcript, three letters of recommendation, student evaluations of instruction, and evidence of research potential. Application materials should be sent via email to [email protected]. To ensure full consideration, submit the above materials by November 1, 2013.
Members of the Search Committee will be available to meet with prospective applicants at the ALSB Conference in Boston in August. If you are interested in meeting with the committee in Boston, please contact Alexis Stokes, Associate Professor of Business Law, at [email protected] no later than Tuesday, August 6th, to schedule an interview.
Texas State University - San Marcos is a doctoral-granting Emerging Research University located in the burgeoning Austin-San Antonio corridor, the largest campus in The Texas State University System, and among the largest in the state. Texas State’s 34,000 students choose from 97 undergraduate and 87 master’s and 12 doctoral programs offered by ten colleges (Applied Arts, The Emmett and Miriam McCoy College of Business Administration, Education, Fine Arts and Communication, Health Professions, Honors, Liberal Arts, Science and Engineering, the Graduate College, and the University College). With a diverse campus community including 37% of the student body from ethnic minorities, Texas State is one of the top 15 producers of Hispanic baccalaureate graduates in the nation. There are approximately 1,100 full-time faculty and nearly 2,000 full-time staff. Research and creative activities have led to growing success in attracting external support. For FY 2011, Texas State had an annual operating budget of $436 million and research expenditures of more than $33 million. The Alkek Library has more than 1.5 million titles in its collection. Additional information about Texas State and its nationally recognized academic programs is available at http://www.txstate.edu.
Faculty are eligible for life, disability, health, and dental insurance programs. A variety of retirement plans are available depending on eligibility. Participation in a retirement plan is mandatory. The State contributes toward the health insurance programs and all retirement plans. http://www.humanresources.txstate.edu/benefits.htm
Texas State University-San Marcos is a tobacco-free campus. Smoking and the use of any tobacco product will not be allowed anywhere on Texas State property or in university owned or leased vehicles.
San Marcos, a city of about 45,000 residents, is situated in the beautiful Central Texas Hill Country, 30 miles south of Austin and 48 miles north of San Antonio. Metropolitan attractions plus outdoor recreational opportunities makes the community an attractive place in which to live and work. Other major metropolitan areas, including Houston and Dallas-Ft. Worth, are within four hours. Round Rock, a city of 99,887 residents, is located 15 miles north of Austin in the Central Texas Hill Country.
Some positions may require teaching on the main campus and at the Round Rock Higher Education Center.
Texas State University-San Marcos will not discriminate against any person in employment or exclude any person from participating in or receiving the benefits of any of its activities or programs on any basis prohibited by law, including race, color, age, national origin, religion, sex, disability, veterans’ status, or on the basis of sexual orientation. Equal employment opportunities shall include: personnel transactions of recruitment, employment, training, upgrading, promotion, demotion, termination, and salary. Texas State is committed to increasing the diversity of its faculty and senior administrative positions. Texas State University-San Marcos is a member of The Texas State University System. Texas State University-San Marcos is an EOE.
University of Kansas School of Business seeks an Assistant Professor in Business Ethics and Organizational Behavior. This is a full time, unclassified, tenure-track position beginning mid-August 2014.
Required: A Ph.D. or D.B.A. degree in business ethics, organizational behavior, or closely related field, demonstrated potential for conducting high quality research in business ethics and organizational behavior, and demonstrated potential for high quality teaching in business ethics and organizational behavior.
Preferred: Preference will be given to candidates with established research records as demonstrated through publications in top-tier academic journals and presentations at national and international academic conferences. Preference will also be given to candidates with flexibility in teaching and a desire to engage in interdisciplinary research with colleagues in areas both within and outside of business ethics and organizational behavior. Finally, the University of Kansas is especially interested in hiring faculty members who can contribute to four key campus-wide strategic initiatives: (1) Sustaining the Planet, Powering the World; (2) Promoting Well-Being, Finding Cures; (3) Building Communities, Expanding Opportunities; and (4) Harnessing Information, Multiplying Knowledge. For more information, see: http://www.provost.ku.edu/planning/themes/.
Application procedures: To be considered, apply online and submit an application letter that addresses both the required and preferred qualifications listed above, curriculum vita, research statement, teaching statement, and three letters of recommendation to http://employment.ku.edu. Select “Search Faculty Jobs”, search with keyword “ethics”.
Submit evidence of teaching effectiveness, research papers, supplemental materials and questions concerning this position to Management Search (E-Mail: [email protected]; Ph: 785-864-5308; Mail: 1300 Sunnyside Avenue, Lawrence, Kansas 66045).
Applications received prior to September 1, 2013 will receive priority consideration. Review of applications will continue until the position is filled. EOE M/F/D/V
The University of Kansas prohibits discrimination on the basis of race, color, ethnicity, religion, sex, national origin, age, ancestry, disability, status as a veteran, sexual orientation, marital status, parental status, gender identity, gender expression and genetic information in the University's programs and activities. The following person has been designated to handle inquiries regarding the non-discrimination policies: Director of the Office of Institutional Opportunity and Access, [email protected], 1246 W. Campus Road, Room 153A, Lawrence, KS, 66045, (785)864-6414, 711 TTY.
Public Law Business Studies --- Assistant/Associate Professor
The School of Business at Richard Stockton College of New Jersey invites applications for one full-time tenure track assistant or associate professor of business to teach public law and business ethics available September 1, 2014. An earned J.D. or equivalent is required. Evidence of potential for teaching, research and service in the business law field are required. Related legal or business work experience is a plus, as is exposure to or experience within the liberal arts.
Stockton, located in the New Jersey Pinelands 12 miles from Atlantic City and one hour from Philadelphia is known for its distinctive academic programs and an interdisciplinary approach to learning. The position primarily involves teaching undergraduate and MBA courses in business law, the legal and ethical environment of business, and related courses. Candidates may also teach courses in other business disciplines, depending on academic credentials and professional experience. All Stockton faculty members also are required to teach courses in the college’s interdisciplinary general studies program.
Other requirements include scholarship and providing college service.
Along with a track record of excellence in teaching, the Candidate will be expected to maintain a scholarly record that includes appropriate publications in law review or peer-reviewed legal or business journals. The School of Business is currently a candidate for AACSB accreditation.
Please send a letter describing your interest in the position as well as your curriculum vitae, recent teaching evaluations (if available), one paper that represents your research capabilities, and three letters of reference to Dr. Janet Wagner, Dean of Business, The Richard Stockton College of New Jersey, AA206, P.O. Box 195, Pomona, NJ 08240. Electronic submissions to [email protected] are encouraged.
Screening of applications will continue until the position is filled. Stockton is an equal opportunity institution and is committed to building a culturally diverse faculty and staff.
If you teach business ethics, check out "Ethics Unwrapped," a series of free ethics teaching videos from the McCombs School of Business at The University of Texas at Austin. Well done!
My department is hiring at the junior and senior level, and, although we're casting the net broadly, is very interested in the subjects in which the readers of this blog are interested. So if you think you'd be interested, please do apply! The announcement is below. We want your application!
FACULTY POSITIONS IN BUSINESS LAW AND BUSINESS ETHICS
The Wharton School at the University of Pennsylvania invites applications for tenured and tenure-track positions in its Department of Legal Studies and Business Ethics. The Department has seventeen full-time faculty who teach a wide variety of business-oriented courses in law and ethics in the undergraduate, MBA, and Ph.D. programs and whose research is regularly published in leading journals. The Wharton School has one of the largest and best-published business school faculties in the world.
Applicants should have either a J.D. or a Ph.D. from an accredited institution (an expected completion date no later than July 1, 2014 is acceptable) and a demonstrated commitment to scholarship in business law, business ethics, or a combination of the two fields. Specific areas of potential focus for hiring include corporate governance, financial regulation, health law/bioethics, securities regulation, and social impact/sustainability. In addition, the Wharton School has particular strengths in its global reach and perspective, as well as an interdisciplinary approach to business issues (embracing ten academic departments and over twenty research centers).
Please submit electronically your letter of introduction, c.v., and one selected article or writing sample in PDF format via the following website by December 15, 2012: http://lgst.wharton.upenn.edu. Decisions for interviews will be made on a rolling basis, so candidates are encouraged to apply early.
The University of Pennsylvania is an equal opportunity, affirmative action employer. Women and minority candidates are strongly encouraged to apply.
We have decided to convene a late summer forum of the Conglomerate Masters -- our roster of distinguished corporate and financial law professors -- to discuss the current state of corporate social responsibility. In particular, we wanted to address the controversy over Chick-fil-A's corporate stance against same sex marriage and to use this Economist blog post as a jumping off-point.
The Economist blogger contends that Chick-fil-A's culture is in fact a prime example of a firm embracing corporate social responsibility (or "CSR") - albeit not with the politics that one traditionally associates with that movement. The blogger concludes that the Chick-fil-A example demonstrates that matters of social policy should best be left to democratic institutions. He or she writes:
Matters of moral truth aside, what's the difference between buying a little social justice with your coffee and buying a little Christian traditionalism with your chicken? There is no difference. Which speaks to my proposition that CSR, when married to norms of ethical consumption, will inevitably incite bouts of culture-war strife. CSR with honest moral content, as opposed to anodyne public-relations campaigns about "values", is a recipe for the politicisation of production and sales. But if we also promote politicised consumption, we're asking consumers to punish companies whose ideas about social responsibility clash with our own. Or, to put it another way, CSR that takes moral disagreement and diversity seriously—that really isn't a way of using corporations as instruments for the enactment of progressive social change that voters can't be convinced to support—asks companies with controversial ideas about social responsibility to screw over their owners and creditors and employees for...what?
It is a provocative argument. Although one wonders if the author would have made this same series of arguments in the 1960s: would the author have encouraged civil rights protesters to abandon lunch-counter sit-ins and lobby state legislators instead?
Still, the Chick-fil-A example raises some disquieting questions for CSR, which our Masters may address. These include:
Is corporate law the most effective or legitimate tool for social change? If we are worried about environmental degradation, is the solution to broaden the stakeholders to whom a corporation must answer? Or shouldn't we look instead to environmental law?
Is CSR viewpoint neutral? When covering CSR in a Corporations course, I ask students whether social activists who are lobbying a corporation to change what they see as immoral employment practices, should be able to put their views to a shareholder vote? Then I ask whether the answer would or should change based on whether the activists are looking to end racial or gender discrimination or whether they are lobbying a company to stop offering benefits to partners in same sex couples.
At the same time, the current state of legal affairs raises some disquieting questions for opponents of CSR too. The conclusion in the Economist blog -- leave social policy to democratic institutions and public law -- has a long lineage. It harkens back to Milton Friedman's arguments that corporations and the states do and should exist in separate spheres; if citizens want to change corporate policy, the argument goes, they should act through the political process and push through public regulation.
But, the separate spheres argument looks more and more outdated, as corporations influence and permeate the sphere of government. Do arguments to leave regulating the public dimension of corporate behavior out of corporate law and governance -- and leave it to traditional legislative and regulatory bodies -- appear naive in a post-Citizens United (and post-public choice)world?
Also, do these same questions for proponents and critics of CSR apply in equal measure to the growing field of social entrepreneurship? Can entrepreneurs do well while doing good? Should we expect them too? Is social entrepreneurship a workable, stable, and viewpoint neutral concept? If so, what does it entail? Does/should CSR apply equally to small businesses and startups as to global corporations?
We look forward to hearing from our Masters...
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The Times has a not that newsy profile of the Mittelstand, today, Germany's vaunted SME sector, and one that counts for 60 percent of its employment. The big reveal is that the Mittelstand likes the euro, though that calculation is largely on the basis of interviews at one obscure (every Mittelstand company is obscure, that's rather the point) shut-off valve manufacturer.
If you hang out at business schools, the Mittelstand is a useful corrective to everything you think you're supposed to know about finance. German companies eschew debt, we are told, rely on banks instead of capital markets for funding, and retain their employees at all costs. Basically the opposite of the private equity playbook. And yet ... look at the awesome German economy! It has implications for corporate law, too, given that Mittelstand firms are likely to be closely held, with representation for workers and banks if it isn't just a family thing. Maybe that's what Delaware ought to be offering!
But I think this obsession with the Mittelstand may be branding more than anything else. Take that 60% employment number. In the US, though, small businesses account for half, and 65% of all new jobs. And some Mittelstand firms probably count as large businesses in the American definition (500 employees is the cutoff). Nor is Germany radically more industrialized than the US, though that's what the Mittelstand is supposed to be. 28% of the country's employees are in manufacturing. The we-just-do-service United States proportion? 22%
Wiser heads than mine accept the Mittelstand as different - the interest in SME-usable research is an excellent way to fund a project in not just German, but European universities more generally. But surely some perspective is in order. It's easy to overstate modest differences, and while I'll be happy to conclude that the German model well and truly is unique, I'd like to see a few more differences between that approach and ours before doing so.
THE DEPARTMENT OF BUSINESS ETHICS AND LEGAL STUDIES in the Daniels College of Business at the University of Denver is seeking applications for a tenure-track faculty position at the Assistant rank. This is a 9-month faculty appointment beginning September 1, 2013. Candidates are expected to teach in business law, business ethics, and public policy. Teaching responsibilities may include both undergraduate- and graduate-level courses; the applicant must have a firm commitment to excellence in teaching. Maintenance of AACSB qualification for teaching eligibility is required. Applicants are required to have a JD and strong publication potential. Preferred qualifications include completed PhD in a related field and strong publication record. To be considered an applicant, you must submit your application, cover letter, curriculum vitae, teaching statement, research statement, and list of references online http://www.dujobs.org. For further information, contact Corey Ciocchetti @ at [email protected]. To apply for this position, please visit our website at http://www.dujobs.org.
The University of Denver is committed to enhancing the diversity of its faculty and staff and encourages applications from women, minorities, people with disabilities and veterans. DU is an EEO/
Time Magazine’s “person of the year” is the “protestor.” Occupy Wall Street’s participants have generated discussion unprecedented in recent years about the role of corporations and their executives in society. The movement has influenced workers and unemployed alike around the world and has clearly shaped the political debate.
But how does a corporation really act? Doesn’t it act through its people? And do those people behave like the members of the homo economicus species acting rationally, selfishly for their greatest material advantage and without consideration about morality, ethics or other people? If so, can a corporation really have a conscience?
In her book Cultivating Conscience: How Good Laws Make Good People, Lynn Stout, a corporate and securities professor at UCLA School of Law argues that the homo economicus model does a poor job of predicting behavior within corporations. Stout takes aim at Oliver Wendell Holmes’ theory of the “bad man” (which forms the basis of homo economicus), Hobbes’ approach in Leviathan, John Stuart Mill’s theory of political economy, and those judges, law professors, regulators and policymakers who focus solely on the law and economics theory that material incentives are the only things that matter.
Citing hundreds of sociological studies that have been replicated around the world over the past fifty years, evolutionary biology, and experimental gaming theory, she concludes that people do not generally behave like the “rational maximizers” that ecomonic theory would predict. In fact other than the 1-3% of the population who are psychopaths, people are “prosocial, ” meaning that they sacrifice to follow ethical rules, or to help or avoid harming others (although interestingly in student studies, economics majors tended to be less prosocial than others).
She recommends a three-factor model for judges, regulators and legislators who want to shape human behavior:
“Unselfish prosocial behavior toward strangers, including unselfish compliance with legal and ethical rules, is triggered by social context, including especially:
(1) instructions from authority
(2) beliefs about others’ prosocial behavior; and
(3) the magnitude of the benefits to others.
Prosocial behavior declines, however, as the personal cost of acting prosocially increases.”
While she focuses on tort, contract and criminal law, her model and criticisms of the homo economicus model may be particularly helpful in the context of understanding corporate behavior. Corporations clearly influence how their people act. Professor Pamela Bucy, for example, argues that government should only be able to convict a corporation if it proves that the corporate ethos encouraged agents of the corporation to commit the criminal act. That corporate ethos results from individuals working together toward corporate goals.
Stout observes that an entire generation of business and political leaders has been taught that people only respond to material incentives, which leads to poor planning that can have devastating results by steering naturally prosocial people to toward unethical or illegal behavior. She warns against “rais[ing] the cost of conscience,” stating that “if we want people to be good, we must not tempt them to be bad.”
In her forthcoming article “Killing Conscience: The Unintended Behavioral Consequences of ‘Pay for Performance,’” she applies behavioral science to incentive based-pay. She points to the savings and loans crisis of the 80's, the recent teacher cheating scandals on standardized tests, Enron, Worldcom, the 2008 credit crisis, which stemmed in part from performance-based bonuses that tempted brokers to approve risky loans, and Bear Sterns and AIG executives who bet on risky derivatives. She disagrees with those who say that that those incentive plans were poorly designed, arguing instead that excessive reliance on even well designed ex-ante incentive plans can “snuff out” or suppress conscience and create “psycopathogenic” environments, and has done so as evidenced by “a disturbing outbreak of executive-driven corporate frauds, scandals and failures.” She further notes that the pay for performance movement has produced less than stellar improvement in the performance and profitability of most US companies.
She advocates instead for trust-based” compensation arrangements, which take into account the parties’ capacity for prosocial behavior rather than leading employees to believe that the employer rewards selfish behavior. This is especially true if that reward tempts employees to engage in fraudulent or opportunistic behavior if that is the only way to realistically achieve the performance metric.
Applying her three factor model looks like this: Does the company’s messaging tell employees that it doesn’t care about ethics? Is it rewarding other people to act in the same way? And is it signaling that there is nothing wrong with unethical behavior or that there are no victims? This theory fits in nicely with the Bucy corporate ethos paradigm described above.
Stout proposes modest, nonmaterial rewards such as greater job responsibilities, public recognition, and more reasonable cash awards based upon subjective, ex post evaluations on the employee’s performance, and cites studies indicating that most employees thrive and are more creative in environments that don’t focus on ex ante monetary incentives. She yearns for the pre 162(m) days when the tax code didn’t require corporations to tie executive pay over one million dollars to performance metrics.
Stout’s application of these behavioral science theories provide guidance that lawmakers and others may want to consider as they look at legislation to prevent or at least mitigate the next corporate scandal. She also provides food for thought for those in corporate America who want to change the dynamics and trust factors within their organizations, and by extension their employee base, shareholders and the general population.
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Massey Energy and Walmart made headlines last week for different reasons. Massey had the worst mining disaster in 40 years, killing 29 employees and entered into a nonprescution agreement with the Department of Justice. The DOJ has stated in the past that these agreements balance the interests of penalizing offending companies, compensating victims and stopping criminal conduct “without the loss of jobs, the loss of pensions, and other significant negative consequences to innocent parties who played no role in the criminal conduct, were unaware of it, or were unable to prevent it.”
Massey’s new owner Alpha Natural Resources, has agreed to pay $210 million dollars in fines to the government, compensation to the families of the deceased miners and for safety improvements (the latter may be tax-deductible). The government’s 972-page report concluded that the root cause was Massey’s “systematic, intentional and aggressive efforts” to conceal life threatening safety violations. The company maintained a doctored set of safety records for investigators, intimidated workers who complained of safety issues, warned miners when inspectors were coming (a crime), and had 370 violations. The mine had been shut down 48 times in the previous year and reopened once violations were fixed. 112 miners had had no basic safety training at all. Only one executive has been convicted of destroying documents and obstruction, and investigations on other executives are pending. However, the company itself has escaped prosecution for violations of the Mine Safety and Health Act, conspiracy or obstruction of justice. Perhaps new ownership swayed prosecutors and if Massey had its same owners, things would be different. But is this really justice? The miner’s families receiving the settlement certainly don’t think so.
Walmart announced in its 10-Q that based upon a compliance review and other sources (Dodd-Frank whistleblowers maybe?), it had informed both the SEC and DOJ that it was conducting a worldwide review of its practices to ensure that there were no violations of the Foreign Corrupt Practices Act (“FCPA”). Although no facts have come out in the Walmart case and I have no personal knowledge of the circumstances, let’s assume for the sake of this post that Walmart has a robust compliance program, which takes a risk based approach to training its two million employees in what they need to know (the greeter in Tulsa may not need in-depth training on bribery and corruption but the warehouse manager and office workers in Brazil and China do). Let’s also assume that Walmart can hire the best attorneys, investigators and consultants around, and based on their advice, chose to disclose to the government that they were conducting an internal investigation. Let’s further assume that the incidents are not widespread and may involve a few rogue managers around the world, who have chosen to ignore the training and the policies and a strong tone at the top.
As is common today, let’s also assume that depending on what they find, the company will do what every good “corporate citizen” does to avoid indictment --disclose all factual findings and underlying information of its internal investigation, waive the attorney client privilege and work product protection, fire employees, replace management, possibly cut off payment of legal fees for those under investigation, and actively participate in any government investigations of employees, competitors, agents and vendors.
Should this idealized version of Walmart be treated the same as Massey Energy? (For a great compilation of essays on the potential conflicts between the company and its employees, read Prosecutors in the Boardroom: Using Criminal Law to Regulate Corporate Conduct, edited by Anthony and Rachel Barkow). Should they both be charged and face trial or should they get deferred or nonprosecution agreements for cooperation? Do these NPAs and DPAs erode our sense of justice or should there be an additional alternative for companies that have done the right thing -- an affirmative defense?
A discussion of the history of corporate criminal liability would be too detailed for this post, but in its most simplistic form, ever since the 1909 case of New York Central & Hudson River Railroad Co v. United States, companies have endured strict liability for the criminal acts of employees who were acting within the scope of their employment and who were motivated in part by an intent to benefit the corporation. As case law has evolved, companies face this liability even if the employee flouted clear rules and mandates and the company has a state of the art compliance program and corporate culture. In reality, no matter how much money, time or effort a company spends to train and inculcate values into its employees, agents and vendors, there is no guarantee that their employees will neither intentionally nor unintentionally violate the law.
The DOJ has reiterated this 1909 standard in its policy documents. And because so few corporations go to trial and instead enter into DPAs or NPAs, we don’t know whether the compliance programs in place would have led to either the potential 400% increase or 95% decrease in fines and penalties under the Federal Sentencing Guidelines because judges aren’t making those determinations. The DPAs are now providing more information about corporate compliance reporting provisions, but again, even if a company already had all of those practices in place, and a rogue group of employees ignored them, the company faces the criminal liability. The Ethical Resource Center is preparing a report in celebration of the 20th Anniversary of the Sentencing Guidelines with recommendations for the U.S. Sentencing Commission, members of Congress, the DOJ and other enforcement agencies. They are excellent and timely, but they do not go far enough.
A Massey Energy should not receive the same treatment as my idealized model corporate citizen Walmart. Instead, I agree with Larry Thompson, formerly of the DOJ and now a general counsel and others who propose an affirmative defense for an effective compliance program- not simply as possible reduction in a fine or a DPA or NPA.
While the ideal standard would require prosecutors to prove that upper management was willfully blind or negligent regarding the conduct, this proposed standard may presume corporate involvement or condonation of wrongful conduct but allow the company to rebut this presumption with a defense.
In the past decade, companies drastically changed their antiharassment programs after the Supreme Court cases of Fargher and Ellerth allowed for an affirmative defense. The UK Bribery Act also allows for an affirmative defense for implementing “adequate procedures” with six principles of bribery prevention. Interestingly, they too are looking at instituting DPAs.
I would limit a proposed affirmative defense to when nonpolicymaking employees have committed misconduct contrary to law, policy or management instructions. If the company adopted or ratified the conduct and/or did not correct it, it could not avail itself of the defense. The company would have to prove by a preponderance of the evidence that: it has implemented a state of the art program approved and overseen by the board or a designated committee; clearly communicated the corporation’s intent to comply with the law and announced employee penalties for prohibited acts; met or exceeded industry standards and norms; is periodically audited and benchmarked by a third party and has made modifications if necessary; has financial incentives for lawful and penalties unlawful behavior; elevated the compliance officer to report directly to the board or a designated committee (a suggestion rejected in the 2010 amendments to the Sentencing Guidelines); has consistently applied anti-retaliation policies for whistleblowers; voluntarily reported wrongdoing to authorities when appropriate; and of course taken into account what the DOJ has required of offending companies and which is now becoming the standard. The court should have to rule on the defense pre-trial.
Instead of serving as vicarious or deputized prosecutors, under this proposed standard, a corporation’s cooperation with prosecutors will be based on factors more within the corporation's control,rather than the catch-22 they currently face where if employees are guilty, there is no defense. And if the employees are guilty, this would not preclude the government from prosecuting them, as they should.
Responsible corporations now spend significant sums on compliance programs and the reward is simply a reduction in a fine for conduct for which it is vicariously liable and which its policies strictly prohibited. A defense will promote earlier detection and remedying of the wrongdoing, reduce government expenditures, provide more assurance to investors and regulators, allow the government to focus on companies that don’t have effective compliance program, and most important provide incentives for companies to invest in more state of the art programs rather than a cosmetic, check the box initiative because the standard would be higher than what is currently Sentencing Guidelines.
Perhaps only a small number of companies may be able to prevail with this defense. Frankly, corporations won’t want to bear the risk of a trial, but they will at least have a better negotiating position with prosecutors. Moreover, companies that try in good faith to do the right thing won’t be lumped into the same categories as those who invest in the least expensive programs that may pass muster or worse, engage in clearly intentional criminal behavior. If companies have the certainty that there is a chance to use a defense, that will invariably lead to stronger programs that can truly detect and prevent criminal behavior.
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I am honored to be a guest blogger, especially since I am brand new to the academy having worked in the private sector for nineteen years as a commercial litigator, HR executive, deputy general counsel and compliance/ethics officer for a Fortune 500 multinational corporation. I will spend the next two years as a visiting assistant professor at the University of Missouri-Kansas City learning to teach (marrying theory and practice) and focusing on scholarship and coursework related to corporate governance, compliance, social responsibility and the future of the legal profession.
Over the next two weeks I plan to write about two Dodd-Frank provisions- conflict minerals and whistleblower; my call for an affirmative defense for a redesigned “effective compliance program” under the Federal Sentencing Guidelines; the ongoing debate about the value of a law school education; in-house counsel as "gatekeepers"; and a book review of Cultivating Conscience: How Good Laws Make Good People by law professor Lynn Stout, which offers an alternative look at the homo economicus model. I look forward to receiving comments that can inform my research and thank Erik Gerding for the opportunity to share my thoughts.
Alas, this is the last post of my guest blogging stint here at the Glom. Thanks again for an informative and transformative 2-week set of experiences and memories.
I second Erik's post about law schools fostering humility. Eric poses these 2 fundamental questions:
1. Can one be both ambitious and humble?
2. Can law schools both inspire to dream large dreams -- personal and social -- while still warning about our own fallibility and the limitations of law?
I believe and hope that the answer to both of Eric's questions is yes.
1) Ambition is a great motivator for action, but unless ambition is accompanied with humility ambition often leads to arrogance, conceit, and hubris. A consequence of ambition often is great power and as is often quoted, "with great power comes great responsibility."
2) Not only law schools, but also such other professional schools as those for business, medicine, and public policy can and should "both inspire to dream large dreams -- personal and social -- while still warning about our own fallibility and the limitations of" the profession for which they are preparing their students to enter.
I will be teaching Legal Ethics and Professionalism for the first time next semester and have decided after detailed consideration of the many books and supplements from Aspen, Foundation, and Lexis to adopt these 3 books:
a) Nancy Levit and Douglas O. Linder, The Happy Lawyer: Making A Good Life in the Law (2010), ISBN: 978-0195392326. This book is just a wonderful source for law students and lawyers about recent scholarship about happiness and how to balance professional work and personal life. More generally, the book helps readers think about and find meaning in their quest for a satisfying career in the law.
b) Scott L. Rogers, Mindfulness for Law Students: Using the Power of Mindfulness to Achieve Balance and Success in Law School (2009), ISBN: 978-0977345519. This little paperback is another great resource for law students to help them integrate mindfulness into their busy and stressful lives.
Leonard Riskin, the Chesterfield Smith Professor of Law at the University of Florida, who currently is visiting at Northwestern law school, has been a long-time pioneer in championing the benefits of practicing mindfulness to law and mediation:
3) Michael C. Ross, Ethics and Integrity in Law and Business: Avoiding "Club Fed" (2011), ISBN: 978-1422479704. This paperback textbook succeeds at being a delightfully engaging, fresh, funny, and practical take on the professional responsibility course, which is often required in law school. This book contains many relevant quotes from authors, economists, humorists, judges, philosophers, and scientists. It also has wonderfully on point cartoons and comics from the Wall Street Journal and P. C. Vey, among others.
This book imparts much pragmatic wisdom about how to choose ethical behavior during tough economic times.
Not surprisingly to readers of Glom who have read my posts about business movies, I also plan to show film and television show clips in class to provoke discussion about violations of ethical rules and what sort of lawyers and values are possible and which of those possibilities are likely to lead to personal happiness and professional satisfaction. For example, three recent television programs that raise issues related to professional ethics and personal values are these:
I close this post and my guest blogging by providing the opening two paragraphs from a just completed manuscript, Tiger Cub Strikes Back: Memoirs of an Ex-Child Prodigy About Parenting and Legal Education. This working paper is related to many of the issues and themes I've raised in the 10 posts during this 2-week guest blogging opportunity. And yes, the first paragraph may seem to be immodest and ironic after discussing the importance of humility. The reason to include that paragraph in this post is that everything in that paragraph is true and verifiably so. Also, this post advocates true humility and not false humility. It would be an exercise in false humility to hide or deprecate my own past for the mere sake of appearing humble.
I believe that Amy Chua, tiger mom and Yale law professor, would see my life as exemplifying successful tiger parenting. I am an American born Chinese, who at age 14 enrolled as a freshman at Princeton University and 3 years later at age 17 after being a University Scholar there graduated Phi Beta Kappa earning an A.B. in mathematics. I also earned a Ph.D. in applied mathematics from Harvard University and a J.D. from Stanford University (after having been a 1L at the University of Chicago). My Ph.D. thesis advisor was 1972 economics Nobel Laureate and mathematical economic theorist, Kenneth Joseph Arrow. After serving as an economist in the Division of Consumer Protection in the Bureau of Economics of the Federal Trade Commission, I taught in economics departments from coast to coast, including at Stanford University, the University of California Berkeley, and the University of California Los Angeles; in the finance department of the A.B. Freeman business school at Tulane University; and in law schools at Yale University, University of Chicago, University of Pennsylvania, University of Virginia, University of Minnesota, and University of Southern California. I co-authored a law school course book about law and popular culture, while a member of the Institute for Advanced Study School of Social Science, during its psychology and economics thematic focus academic year. I am currently a professor and the inaugural DeMuth Chair at the University of Colorado School of Law after having been a professor and the inaugural Kohn Chair at Temple University law school.
This Essay reflects upon the desirability, efficacy, and motivational consequences of having a tiger mom such as Professor Chua or my own immigrant mother, who is a New York University medical school biochemistry professor. This Essay also points out many similarities between mainstream modern American legal education and tiger parenting, including their common hierarchical, top-down learning environments that entail authority, compliance, extrinsic incentives, fear, memorization, obedience, paternalism, precedent, and respect for one’s elders. The educational methodologies and philosophies of tiger parenting and the prevailing orthodoxy of United States legal instruction, especially the substantive content of the standard first year law school curriculum, explicitly and implicitly privilege a type of information processing known as system two over a type of information processing known as system one. System two reasoning is analytical, cognitive, conscious, controlled, deliberative, effortful, logical, rule-based, and slow; while system one is affective, associative, automatic, fast, habitual, heuristic-based, holistic, intuitive, and unconscious. Ironically, the Socratic method of legal instruction often places a premium on answering a professor’s questions aggressively, quickly, or superficially instead of deeply, mindfully, or thoughtfully.