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Prosecuting companies rather than executives for wrongdoing

The last couple of weeks have been alarming ones for U.S. industrial accidents. Aside from the chemical spill and subsequent drinking water disaster in West Virginia, “Two people died and 10 were injured Monday morning in Omaha, Nebraska, when the second floor of an animal feed plant collapsed. In Madill, Oklahoma, two workers died when a large industrial furnace exploded at a steel plant Monday afternoon,” Reuters reports.

At this point it’s unclear what prosecutions, if any, will result from the incidents. I recently read a story about the 2008 financial crisis, “Why have no high-level executives been prosecuted?” by U.S. District Judge Jed S. Rakoff. I was struck by the similarities to what’s happened following the BP oil spill in the Gulf of Mexico and Sheharbano (Sheri) Sangji’s death from a lab fire at the University of California, Los Angeles. Prosecutors charged the organizations and some personnel–BP oil rig supervisors for manslaughter and a vice president for obstruction, a UCLA professor for labor code violations–but not top management. From the financial crisis piece:

The final factor I would mention is both the most subtle and the most systemic of the three, and arguably the most important. It is the shift that has occurred, over the past thirty years or more, from focusing on prosecuting high-level individuals to focusing on prosecuting companies and other institutions. It is true that prosecutors have brought criminal charges against companies for well over a hundred years, but until relatively recently, such prosecutions were the exception, and prosecutions of companies without simultaneous prosecutions of their managerial agents were even rarer. …

But if your priority is prosecuting the company, a different scenario takes place. Early in the investigation, you invite in counsel to the company and explain to him or her why you suspect fraud. He or she responds by assuring you that the company wants to cooperate and do the right thing, and to that end the company has hired a former assistant US attorney, now a partner at a respected law firm, to do an internal investigation. The company’s counsel asks you to defer your investigation until the company’s own internal investigation is completed, on the condition that the company will share its results with you. In order to save time and resources, you agree.

Six months later the company’s counsel returns, with a detailed report showing that mistakes were made but that the company is now intent on correcting them. You and the company then agree that the company will enter into a deferred prosecution agreement that couples some immediate fines with the imposition of expensive but internal prophylactic measures. For all practical purposes the case is now over. You are happy because you believe that you have helped prevent future crimes; the company is happy because it has avoided a devastating indictment; and perhaps the happiest of all are the executives, or former executives, who actually committed the underlying misconduct, for they are left untouched.

I suggest that this is not the best way to proceed. Although it is supposedly justified because it prevents future crimes, I suggest that the future deterrent value of successfully prosecuting individuals far outweighs the prophylactic benefits of imposing internal compliance measures that are often little more than window-dressing. Just going after the company is also both technically and morally suspect. It is technically suspect because, under the law, you should not indict or threaten to indict a company unless you can prove beyond a reasonable doubt that some managerial agent of the company committed the alleged crime; and if you can prove that, why not indict the manager? And from a moral standpoint, punishing a company and its many innocent employees and shareholders for the crimes committed by some unprosecuted individuals seems contrary to elementary notions of moral responsibility.

I don’t have enough data to say whether the same pattern holds for prosecutions in occupational health and safety. Certainly some company leaders have been charged–Black Mag gunpowder plant owner Craig Sanborn was convicted last fall of negligent homicide and manslaughter and sentenced to 10-20 years in prison for a 2010 explosion that killed two employees. But who, exactly, gets prosecuted for industrial incidents may be something that warrants closer attention.

2 Comments

  • Jan 23rd 201423:01
    by Chemjobber

    The University of California Regents were charged, which tends to fit your pattern…

  • Jan 27th 201411:01
    by KM

    Here’s a different perspective on the Charleston, WV spill: http://s3.amazonaws.com/dk-production/images/66401/lightbox/TMW2014-01-29color.png?1390595832

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