Comment: Punish managers, not shareholders, for corporate crimes
Two years ago, a divided US Supreme Court ruled that corporations are persons and that their ‘personal’ First Amendment right to free speech invalidates laws designed to achieve a measure of financial fairness in elections.
Ironically, the key text invoked – the post-Civil War Equal Rights Amendment – was for decades used to justify segregation and disenfranchisement of former slaves and their dependants, so such perversion of its use is hardly novel.
But no one, not even the most fervid intelligent designer, has suggested that the Supreme Being has breathed a soul into these ‘persons’ to make them real people.
In effect, that means a corporate person is more equal than the rest of us. As the bumper sticker would have it: ‘I’ll believe corporations are people when Texas executes one.’
How should they pay?
So how do you punish a corporation that has committed mayhem, killed miners, polluted the oceans or bankrupted a country? If corporations did have souls, they might burn in Hell. But they don’t, so instead we have fines and ‘settlements’.
Perhaps fired up by the Occupy Wall Street protestors, New York Judge Jed Rakoff lifted the stone of the SEC settlement in the latest Citi case and found underneath many solemn pledges not to repeat past sins.
As he noted, they always do, which is contempt of the court that authorized the settlements. Yet no one has been brought back to the dock.
The $700 mn settlement between the SEC and Citi for its dodgy mortgage portfolio was supposed to be punishment for defrauding shareholders. Legally, however, the shareholders own the company. Talk about moral hazard!
Senior management members defraud investors, keep their jobs and award themselves big bonuses for it; meanwhile, the SEC confiscates shareholder funds to ‘punish’ the company.
The computation is as dodgy as subprime loan evaluation. Punishing the victims, employees and investors while rewarding the malefactors is a bit like a court finding Lizzie Borden guilty but then ordering her father’s estate to buy her a new axe because the thickness of his skull blunted her previous one.
Fire the managers
‘Off with their heads!’ must be the answer. Not literally; rather the removal of the head honchos at offending companies, given that they are the real offenders, setting their companies on a life of crime and mayhem.
At the very least, we should see the dismissal of senior executives, corporate counsel, CFOs, presidents and chief executives. And perhaps also the dissolution of entire boards that failed in their elementary task of supervising management.
I would suggest bringing back the pillory for the offenders, but shaming the shameless would be futile. Impoverishing the greedy, on the other hand, offers both justice and deterrence, so let’s roll with confiscation instead.
Instead of company treasuries’ paying those settlements, senior management should stand proxy, serving prison time and having their personal fortunes confiscated.
We will let them keep their BlackBerrys and a bicycle to look for another job, and give them a paper cup to stand collecting loose change near Wall Street.
They could shout out warnings to budding future executives that there are snakes as well as ladders in the boardroom.