A Restatement of Corporate Criminal Liability's Theory and Research Agenda.

• Author: Buell, Samuel W.

1. INTRODUCTION 938 II. BASIC CASE FOR CORPORATE CRIMINAL LIABILITY 939 1. Enterprise Liability and the Large Modern Corporation 940 2. Instrumentalism as the Exclusive Methodology 941 3. Blame and Reputation in Instrumental Corporate Regulation 942 4. De jure and de facto American Corporate Criminal Liability 944 III. EXTENSIONS AND COMPLICATIONS 945 1. Audiences 945 A. Insiders: Owners, Directors, Managers, and Employees 946 B. Outsiders: Competitors and Counterparties 948 2. Mechanisms 949 A. Information Production 949 B. Civil and Criminal Enforcement 951 C. Settlement Practices 953 D. Levers of Public and Private Control 956 E. Obstacles to Internalization 957 F. Corporate "Wrongdoing" versus Corporate Crime 958 IV. ON THE RESEARCH AGENDA 958 V. CONCLUSION 960 I. INTRODUCTION

   Authors in this volume were asked to imagine a world without corporate criminal liability. Under current American law and practice, which embrace the doctrine, this amounts to asking what corporate criminal liability does in the corporate arena. If we took it away tomorrow, what, if anything, might be functionally missing? Rather than posing the age-old and somewhat worn academic question of the theoretical purposes of corporate criminal liability, the counter-factual, with its call to envision a state of affairs on the ground, compels us to consider more deeply what corporate criminal liability is doing, in an exclusive way, in the current environment of law and its enforcement.

   The last two decades--roughly the period since the DOJ first issued the famous "Holder Memo" (1)--have seen the busiest period of corporate criminal enforcement in U.S. history. The practice has boomed. Meanwhile, it is spreading globally, carried along by the expansion of multinational business activity and developments in law reform and legal cultures in Europe, Asia, Latin America, and elsewhere. (2) With the benefit of many years of observation, it has become more feasible and useful to move beyond the traditional contours of debates about corporate criminal liability. We can now explore instrumental dimensions of corporate prosecutions more particularly and, at the least, identify the questions we should be asking when contemplating whether holding corporations criminally liable or credibly threatening to do so profitably contributes to the project of controlling corporate crime.

   The core of an instrumental argument for contemporary corporate criminal liability, to be elaborated in the body of this Article, proceeds as follows. Fifteen years ago, in a long-form contribution to the massive theoretical literature, I argued that corporate criminal liability could provide an instrumentally valuable vehicle for ascribing blame at the institutional level for wrongdoing that is the product of group activities--at least those that take place within legal entities. (3) Institutions have reputations, and those reputations have value. People closely affiliated with institutions often care about institutional reputation for at least two reasons. First, the value of the firm and its products affect those people's own economic prospects. Second, people's self-image and enduring reputations, which may have longer-term economic and psychological importance to them, are often substantially tied to the institutions to which they devote their working lives. Damage to their institution's esteem can affect individuals' self-esteem and can be experienced as damage to themselves.

   Known incidents of wrongdoing can cause reductions in institutional reputations. Among audiences who collectively determine reputational capital, legal process can affect the extent to which incidents of wrongdoing are (1) known and (2) understood to be relevant to reputation. Criminal legal process, for several reasons, is the most potent among existing legal mechanisms for exposing and enhancing the reputational consequences of institutional wrongdoing. Individual criminal prosecutions for business crimes, as powerful as they may be as a deterrent mechanism, cannot serve to ascribe blame at the institutional level. Such enforcement actions, therefore, cannot be expected to cause individuals who are not themselves subjects of prosecution to understand, internalize, and react to matters of group or institutional responsibility. Corporate criminal liability, therefore, potentially supplies an instrumental mechanism that no other existing form of legal process offers.

   The more that those of us in the field observe the boom times of corporate criminal enforcement, the more this form of argument raises important questions that require further work in the literature on corporate criminal liability. The purpose of this Article is to argue for which such questions are the most profitable to continue exploring. Most have to do with the mechanisms by which criminal enforcement, blame, and reputation operate and interact, given the law and institutions that have evolved to respond to corporate crime in the United States, both within and outside government. What is needed is a more detailed specification of those mechanisms and the complications that may detract from them.

   The basic case for corporate criminal liability on which this Article is predicated remains contested on a variety of points. But the adoption and reflection of that case in widespread and entrenched practice, both within and outside the United States, makes it a reasonable foundation for continuing research. Nonetheless, Part II of this Article will, in brief form, argue for the basic case by summarizing the prior claims of this author and others. Part III, the core of this Article, will seek to specify important remaining theoretical and empirical questions about corporate criminal liability that call for further work. Part IV will suggest how some of those questions might profitably be addressed. Part V concludes.

2. BASIC CASE FOR CORPORATE CRIMINAL LIABILITY

   The abundant literature on corporate criminal liability shares at least one idea in common: the doctrine needs justification. (4) One might question this assumption. In punishment theory, the idea that criminal punishment requires justification is premised, for the most part, on its unique capacity to impose physical harm. (5) Because corporations cannot be imprisoned or otherwise physically punished and have no effective capacity to feel bodily or psychic pain, the need for justification would not seem so obvious. (6) In other words, what is the special harm or cost in criminal liability for corporations, as opposed to garden-variety liability, such that we should worry at such length over the doctrine's theoretical foundations?

   Nonetheless, this discussion will proceed from the standard position of assigning to corporate criminal liability the burden of finding justification. The simplest way to invoke this burden is to point out that civil and regulatory legal measures could impose all the same legal sanctions on a corporation that could be imposed through the criminal process. (7) Accordingly, criminal liability should be evaluated as an additive.

   (1.) Enterprise Liability and the Large Modern Corporation

   It is fairly easy to gather consensus around the foundational legal idea that if we are going to charter legal entities and permit them to pursue industrial programs, the law ought to hold them liable for the actions of their human agents that constitute violations of private and public law. (8) This may be especially true when compensation is called for, given that businesses are usually better able to fulfill compensation requirements than their employees. But the normative case for enterprise liability remains strong even if, as in the present discussion, the concern is exclusively how to reduce future legal violations by agents of business organizations.

   A centuries-old behavioral model holds that a firm's managers consider the potential liability cost to the firm as worth devoting resources and attention to avoiding. The most direct way to avoid such costs is to take steps to decrease the likelihood that the firm's agents will commit violations by (1) employing prevention measures designed to cajole or compel agents to remain within the law and (2) engaging in self-policing efforts that will discover wrongdoing when it cannot be prevented, thereby increasing the overall probability (and, importantly, perceived probability) that agents will be discovered and sanctioned if and when they violate--over and above any such probability from legal enforcement by outside parties. (9)

   This is a very old idea, the roots of which evoke images of masters of the manor whose servants clumsily run over townspeople with the wheels of their carts. Moving this idea, as American law so zealously has, into the realm of the massive modern business enterprise both strengthens and complicates the case for it. The size and complexity of organizations make strong structural incentives seem more essential to the project of influencing how agents behave at work. But getting the mechanism of influence to work right--what is now called the industry of "compliance"--becomes a vastly more complicated matter than a boss telling her employee to shape up and cut it out, or she will be fired. (10) Among many other complexities, the incentives of the manager of a large multinational financial institution differ substantially from those of a medium-scale nineteenth-century farm or shop owner, not least due to the scale and complexity of modern compensation markets for workers who sell intellectual capital.

   Because of convincing scholarly argument and the fact that the idea has fully persuaded enforcers and their institutions, we at least know that pure agency liability (respondeat superior) would not encourage the best level of prevention and self-policing. Legal regimes must credit firms for those efforts, against the maximum possible sanction, so that firms do not choose to ignore internal...