By Robert
Reich
General Motors announced that it has fired 15
employees and disciplined five others in the wake of an internal investigation
into the company’s handling of defective ignition switches, which lead to at
least 13 fatalities.
But who’s legally responsible when a big
corporation breaks the law? The government thinks it’s the corporation itself.
Wrong.
Attorney General Eric Holder was even more
adamant recently when he announced the guilty plea of giant bank Credit
Suisse to criminal charges for aiding rich Americans avoid paying taxes. “This
case shows that no financial institution, no matter its size or global reach,
is above the law.”
Tough words. But they rest on a bizarre
premise. GM didn’t break the law, and Credit Suisse never acted above it.
Corporations don’t do things.
People do.
For a decade GM had been receiving complaints
about the ignition switch but chose to do nothing. Who was at fault? Look
toward the top. David Friedman, acting head of the National Highway
Traffic Safety Administration, says those aware of the problem had ranged from
engineers “all the way up through executives.”
Credit Suisse employees followed a
carefully-crafted plan, even sending private bankers to visit their American
clients on tourist visas to avoid detection. According to the head of New York State’s Department of Financial
Services, Credit Suisse’s crime was “decidedly not the result of the conduct of
just a few bad apples.”
Yet in neither of these cases have any
executives been charged with violating the law. No top guns are going to jail.
No one is even being fired.
Instead, the government is imposing corporate
fines. The logic is that since the corporation as whole benefited from these
illegal acts, the corporation as a whole should pay.
But the logic is flawed. Such fines are often
treated by corporations as costs of doing business. GM was fined $35 million.
That’s peanuts to a hundred-billion-dollar corporation.
Credit Suisse was fined considerably more —
$2.8 billion. But even this amount was shrugged off by financial markets. In
fact, the bank’s shares rose the day the plea was announced – the only big
financial institution to show gains that day. Its CEO even sounded upbeat: “Our discussions with clients have been
very reassuring and we haven’t seen very many issues at all.” (Credit Suisse
wasn’t even required to turn over its list of tax-avoiding clients.)
Fines have no deterrent value unless the
amount of the penalty multiplied by the risk of being caught is greater than
the profits earned by the illegal behavior. In reality, the penalty-risk
calculus rarely comes close.
Even when it does, the people hurt aren’t the
shareholders who profited years before when the crimes were committed. Most
current shareholders weren’t even around then.
Calling a corporation a criminal is even more
absurd. Credit Suisse pleaded guilty to criminal conduct. GM may also face a
criminal indictment. But what does this mean? A corporation can’t be put behind
bars.
To be sure, corporations can effectively be
executed. In 2002, the giant accounting firm Arthur Andersen was found guilty
of obstructing justice when certain partners destroyed records of the auditing
work they did for Enron. As a result, Andersen’s clients abandoned it and the
firm collapsed. (Andersen’s conviction was later overturned on appeal).
But here again, the wrong people are harmed.
The vast majority of Andersen’s 28,000 employees had nothing to do with the
wrongdoing yet they lost their jobs, while most of its senior partners slid
easily into other accounting or consulting work.
The truth is, corporations aren’t people —
despite what the Supreme Court says. Corporations don’t break laws; specific
people do. In the cases of GM and Credit Suisse, the evidence points to
executives at or near the top.
Conservatives are fond of talking about
personal responsibility. But when it comes to white-collar crime, I haven’t
heard them demand that individuals be prosecuted.
Yet the only way to deter giant corporations
from harming the public is to go after people who cause the harm.
ROBERT B. REICH, Chancellor’s Professor of Public Policy at
the University of California at Berkeley and Senior Fellow at the Blum Center
for Developing Economies, was Secretary of Labor in the Clinton administration.
Time Magazine named him one of the ten most effective cabinet secretaries of
the twentieth century. He has written thirteen books, including the best
sellers “Aftershock" and “The Work of Nations." His latest,
"Beyond Outrage," is now out in paperback. He is also a founding
editor of the American Prospect magazine and chairman of Common Cause. His new
film, "Inequality for All," is now available on Netflix, iTunes, DVD,
and On Demand.
