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View Diary: The way to stop corporate lawbreaking is to prosecute the people who break the law says Robert Reich (64 comments)

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    sendtheasteroid

    You're a bit confused about the limitation of liability extended to corporate officers and directors.

    First, corporations and other business entities are creatures of state law. There is no Constitutional provision entitling officers, directors, members, shareholders, or anyone else affiliated with business entities to limited personal liability, so the scenario you posit about SCOTUS involvement is highly implausible.  Any state presently has the power to modify (prospectively) its particular laws for corporate formation, liability protection of officers and directors, etc., with the likely consequence being a corresponding decline in formation of new corporations in that state (and the fees generated thereby).

    Some states (Delaware and Nevada come immediately to mind) are widely known as being particularly solicitous of corporate registrations, and have lured many businesses into incorporating under their laws because of the strength of the protections those laws provide.

    However, in most states, corporate officers and directors are not immune from legal process entirely as your post suggests. They can still be held liable for criminal acts and certain willful/knowing civil wrongs even when committed in their official corporate capacities.  Federal law even provides for some of these circumstances; one that comes readily to mind concerns certain violations of CERCLA/Superfund.    

    Moreover, the problem Reich describes isn't entirely (or even necessarily) a function of officer/director limited liability.  Rather, in many of the examples he gives, it's not the limitation shielding the guilty part(ies) from simultaneous prosecution -- it's the lack of prosecution itself, owing presumably to influence or fear of future reprisal, etc.  

    I absolutely agree that the penalties imposed on corporations don't fit the crime and offer no deterrence of future unethical and/or criminal behavior. If, as a matter of policy, we're going to let the people responsible "get away with it" while punishing the fictional business enterprise, let's at least up the ante. Corporations can't be put in jail, but their assets can be frozen / seized and their operations enjoined for a period of time.  To those of you who'd respond "but that would punish the shareholders who did nothing wrong": there are two options for handling that side effect. Either we say "Investing involves risk. If you bet on Company X and it turns out you bet on a bunch of corrupt scumbags, tough. Perhaps next time you'll do more due diligence" OR we give aggrieved shareholders a private cause of action against the bad apples for their investment losses (and make attorneys' fees and costs recoverable from the bad actors as well).

    As a nation, we need to recognize that punishments for white collar crimes in the US are drastically too lenient.    

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