The UM professional for enterprise regulation advocates new, up to date authorized approaches to fight company crime

Questions and answers about the faculty

Under US criminal law, a company can be held responsible for a crime committed by an employee. This doctrine causes recognized problems, particularly concerns that it might be taken too broadly.

Yet Will Thomas, a professor of business law at the University of Michigan’s Ross School of Business, argues in a new article that the doctrine is also too narrow, making it unduly difficult to prosecute companies for their illegal activities.

In “Corporate Criminal Law Is Too Broad – Worse, It’s Too Narrow,” Thomas says the main problem is that the doctrine – referred to as “Respeateat Superior” and rooted in a 1909 US Supreme Court ruling – states that a company can only be guilty of a crime if that crime can be attributed to a single person within the company.

Thomas discusses the problem and examines ways to solve it.

They argue that the way the US deals with corporate crime is too broad and too narrow. The “too broad” concern is widely recognized; What’s the problem there?

Responsible Doctrine enables a company to be charged with a crime if a single person in the company commits that crime, whether or not the company was responsible for the wrong. For example, imagine an employee embezzling money from her employer. Intuitively, it seems neither fair nor economically efficient to hold the company accountable here – if at all, the company seems to be the victim. But at least in principle, a supervisor would allow the government to prosecute the company.

All in all, I don’t think this type of abstract concern is a cause for great concern when you are actually speaking to prosecutors or looking at our daily practices. Starting in the late 1990s, the Department of Justice regularly published detailed guidelines specifying when an organization could be prosecuted. And without rehearsing the details, it is clear that the government in general is unwilling to pursue these runaway cases.

However, your paper suggests that the same doctrine can be too narrow, because if a crime is spread across a company, the company usually cannot be held criminally liable, even if it does.

Yes. I draw attention to the downside of the “too broad” problem. There are cases of wrongdoing that should be attributed to the company, but since we cannot, strictly speaking, tie this wrongdoing to an individual, the law will say that no company crime has been committed.

One thing I want to work out in the newspaper is that the more intuitive a case looks like a corporate flaw – the more pervasive the wrongdoing, the more common it is in the organization, the longer it takes – the less it looks a person has committed the crime. Think of Boeing’s responsibility for the 737 Max disasters, or PG & E’s that caused wildfires across California, or Wells Fargo’s opening of millions of false accounts. This is massive, societal harm – the kind of events that appear, if any, like corporate failure. In many ways, however, the worse the law looks as a corporate crime, the less likely it is to be treated as an example of criminal liability.

As the system currently works, it is more likely that “peripheral” cases will be captured than cases that target the core of a problem. Why is that?

The cases that match both our intuition and legal doctrine – where the corporation is the appropriate target for accountability and there is also a single person who committed the crime – actually strike me as strange, idiosyncratic cases. Because the average company doesn’t leave that much power in one person’s hands. Successful companies distribute and distribute tasks throughout the company, often in a way that makes it really difficult to reconstruct exactly which contributions are made by which individual employee.

So the doctrine looks for that single perpetrator, the person on the hook for every element of the company’s misconduct. It’s going to be a strange case. And honestly, we should focus on the core cases instead of worrying about the outer boundaries. Doctrines like “Respeat Superior” focus criminal law attention on “Bad Apple” employees when we are concerned about “Bad Barrel” businesses here.

Another concern that you raise is the way machine learning and algorithms are used more and more. This can actually make it more difficult to delegate responsibility to a single person. How come?

I worry that we are on the way to a world in which many business decisions are filtered through sophisticated algorithms. There’s a lot to like about machine learning, but one downside to criminal law is that it will likely exacerbate those problems with the supervisor. We are already struggling to reduce business failure to an individual, and with these developments we will basically infuse the inability to do so into the structure of businesses.

Ultimately, the real problem is that the criminal law theory of what constitutes corporate behavior – and thus also corporate misconduct – is more than a century old and strongly contradicts the actual functioning of corporate organizations in the 21st century. This tension between theory and reality already exists, but it will get worse if we don’t update our teachings.

How do these concerns play out in the real world? You mention that there is reason to believe that all of this contributes to inadequate corporate crime enforcement. Could you explain

I find people are surprised to find that organizations are rarely prosecuted, at least compared to how often we prosecute other crimes. Enforcement is heavily geared towards small businesses with fewer than 50 employees.

The standard story here is a cynical explanation – surprise, the big companies get special treatment while the small ones get prosecuted. However, I think it’s more complicated. Prosecutors are resourceful, but they have been telling us for years that prosecuting organizations is difficult and I think we should take them at their word. This doctrine is ill-suited to initiating corporate pursuits, and the larger the organization, the less suitable it becomes. In other words, the ability to trace actions back to a person becomes more difficult as the organization grows.

How do we fix this?

There are a number of possible workarounds. There is a long standing view that I agree with that it may be just a bad teaching. Why don’t we just scrap the whole thing? And let’s find a way that transfers liability directly to the company. I have written positively about this approach in previous articles.

One thing this paper adds to this conversation is to show that a better doctrine – and by “better,” I mean a more morally defensible doctrine – is compatible with a dramatic expansion of potential corporate liability. This will come as a surprise to many reformers who assumed there would be less corporate enforcement if we go in this direction. This paper says that the assumption does not necessarily need to be confirmed. You can have both; They can expand corporate liability and have more defensible and defensible practice.

Are there any minor, shorter term changes that might help?

If all you want to do is make a few humble changes, there are a few simple things that could be done. For example, at the moment when a supervisor replies, we need to identify the one person who fulfills all the elements of the crime. It is a really arduous task. Relaxing that even a little – for example, assigning different elements of a crime to several different people – would have a significant impact.

Another option is to require prosecutors to trace all elements of the crime to a specific department rather than an individual. I think this approach strikes a middle ground: it fits much better with our vision of companies in a number of different areas, but it still requires prosecutors to get in there and really do the hard work to prove their case.

How could such changes be made?

There are several ways that a change can occur. One would be an act by Congress to establish our future attribution rule.

Another would be an act of courts. Of course, when it comes to courts, this would ultimately have to reach the Supreme Court for a decision. I point out because one strange thing about this rule is that while it fundamentally affects everything in dealing with corporate criminal law, it is nowhere written down. It comes from a 1909 Supreme Court case and has become the standard rule for everything.

I think courts have the ability and should take it seriously. And if not, Congress should step in once and for all and say, “This is how the rules should be.”

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