Legal Debate Series: Corporate death penalty would stop companies from breaking the law
Leading minds in the world of law gathered at Thomson Reuters offices in Canary Wharf on Thursday, April 16 to hear a lively debate on the highly contentious issue of corporate wrongdoing – and who should pay.
The event, moderated by Axel Threlfall, editor at large for Reuters, was the second in the Thomson Reuters Legal Debate Series. It questioned whether punishing companies, through prosecution or regulation, into bankruptcy or into losing their privilege to do business would solve the problem of corporate malfeasance.
As we collectively sigh over yet another corporate scandal, another promise to clean up, root out, make-over, could a corporate ‘death penalty’ create the right deterrent and get Boards to take breaking the law as seriously as making money?
Former Olympus CEO and whistleblower Michael Woodford said the continuous stream of corporate scandals meant that more action was needed to hold directors accountable for corporate wrongdoing.
His experience taught him how quickly fellow directors will move to avoid taking responsibility for dealing with economic crime when it is discovered: “What people want is accountability, we can discuss the mechanisms by which that happens,” he said, but “ultimately when things go wrong the board should take responsibility.”
While he was cautious about the amount of value that would be destroyed and the disruption caused to the economy if one of the UK’s largest businesses were shut overnight, he argued that the “rattle of handcuffs in the boardroom” was needed to effect change: directors should stand down without compensation when things went wrong.
But it’s not easy and in his introduction as moderator, Axel Threlfall pointed out that the hurdles for criminal prosecution of a company are high and we see it rarely.
Alison Levitt QC, partner and head of Business Crime, Mishcon de Reya, said that while most people felt there is a real problem with big companies treating fines like a business expense, a corporate death penalty is both unnecessary and undesirable.
Speaking against the motion, she said that a fine should not put a company out of business. It would be far better to give the victims of white collar crime the legal right to a proper and full investigation.
“What we want is a mixture of corporate and individual responsibility for breaking the law and the most effective way of doing that is by changing the culture within companies,” she said.
This, she believes, is what the UK government is doing through section 7 of the Bribery Act and through proposals to create a new law criminalising the failure to prevent an economic crime.
Vicarious liability for directors for the misbehaviour of their staff is on its way and this would have more of an impact on the attitudes of boards, she added.
Speaking for the motion, Paul Mason, economics editor for Channel 4 News, argued the state needs the power to withdraw a company’s social license to operate: “We need to make it possible for some companies that should not really exist to die, not just because of malfeasance and criminality.”
He identified the limited liability business structure as a key part of the problem. It meant we treat a company as a legal person, separate from its participants and treating companies in this way is what is wrong with corporate law: “When something goes wrong we need to do to it what we do to a director and disqualify it from operation,” he said, adding that without proper recourse such as withdrawing a company’s right to operate, the rule of law is one sided.
Peter Hahn, senior lecturer, faculty of Finance, City University’s Cass Business School and former banker, was the last of the speakers to address the audience. He argued that we need to put more of a human face on the issue of corporate crime, but did not advocate a death penalty for the company: “We have to focus on individuals, a corporate death penalty for individuals, yes, for companies, no,” he said.
According to Hahn, all too often individual responsibility can be obfuscated through complex organisational structures with the result that regulators found it difficult to identify the senior people involved. Settlements where companies pay big fines and lower-level employees, or rogue traders, are the ones punished, was akin to a crime without criminals.
Summing up, he said arms-length passive ownership of companies was at the root of the problem and we’re trying to find a substitute for it; is the law a substitute, or do we need to have more of an economic driven solution, he asked.
On the night, the motion to impose a “corporate death sentence” against businesses that break the law was rejected. The audience voted against the motion by 63 percent to 26 percent, with 11 percent undecided.
Michael Woodford, Former CEO, Olympus Corporation and Whistleblower and Paul Mason, Economics Editor, Channel 4 News arguing for the motion. Opposing them were Alison Levitt QC, Partner and Head of Business Crime, Mishcon de Reya, Former Principal Legal Advisor to the DPP and Peter Hahn, Senior Lecturer, Faculty of Finance, City University’s Cass Business School and Former Banker.
