Why "Fines" Don't Stop Bad Corporate Behavior

Unless the federal government actually threatens the executives of criminal corporations with jail time, nothing is going to change.

As anyone who is paying attention knows by now, the slap-on-wrist "fines" being levied against criminal corporations aren't doing much to curtail illegal behavior:
 

Five years after all those bailouts for big banks, major financial institutions like JPMorgan Chase and Bank of America agreed to pay many billions of dollars in fines this year to settle claims involving a range of wrongdoing, from questionable mortgage practices to trading fiascos.

Others corporate titans have paid out, too. Johnson & Johnson agreed to pay $2.2 billion to settle claims that the company marketed a drug for unproved uses and paid kickbacks to doctors. Another big drug company, Glaxo SmithKline, agreed to pay $3 billion and pleaded guilty to criminal charges that it illegally marketed drugs.

The list goes on. But amid all the headlines — and there have been many in recent years — the question remains: Do big fines actually prompt corporations to mend their ways? Many ordinary people certainly want companies to be held accountable. But for corporations, fines sometimes seem like the cost of doing business. That is because the costs often pale next to the profits that companies stand to make by doing the things that get them into trouble in the first place

What’s more, the penalties often come years after the supposed infractions came to light.

“You’d really like to see the fine in an immediate way such that it is really very observable,” says David F. Larcker, a law professor at the Stanford Graduate School of Business, “but even if it’s years later — once you go in there and do the analysis — you might find out the same practices are still going.”

Unless the federal government actually threatens the executives of criminal corporations with jail time, nothing is going to change. Fear is the only thing that keeps a sociopath in line.

 

David Atkins is a contributor to the Washington Monthly’s Political Animal blog and president of the Pollux Group, a research and consulting firm specializing in politics and consumer technology.
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