Richard Levick is Chairman and CEO of LEVICK, which provides strategic communications counsel on high-profile, public affairs and business matters globally. This is the first of a four-part series originally published on Forbes.com. (Read Part II, Part III and Part IV.)
There’s no shortage of corporations in recent years that have committed abhorrent crimes and deserve whatever punishment they’ve gotten. If a company maliciously defrauds investors and clients (look no further than Bernard L. Madoff Investment Securities LLC), or deliberately lies about the dangers of its products (raise your hand, Takata and Volkswagen Group!), then crocodile tears need not be shed about the censure it receives.
But too many corporate officers, directors, and managers these days find themselves subject to jagged inquiries. “Normal” corporate behavior is being criminalized, a trend that could trigger unsettling consequences for the U.S. economy.
“When corporate executives are being hounded by the belligerent enforcement of arcane regulations or obscure laws, it is bad for the rule of law and bad for capitalism,” maintains Scott D. Marrs, the Regional Managing Partner of Akerman LLP’s Texas offices and a corporate litigation specialist who serves on the board of directors of the Texas General Counsel Forum.
Government, especially the federal Department of Justice (DOJ), should “exercise extreme caution before exercising its power to initiate criminal proceedings,” warns an analysis from the American Enterprise Institute (AEI).
Why? Because “too many companies face unwarranted indictments, untenable fines, costly court appearances, and a stinging loss of reputation in the marketplace,” Marrs points out.
In my experience, when a company is criminally charged, outsiders – including customers and shareholders – assume guilt. After all, by definition, a criminal charge is more lethal than a civil infraction. Indeed, the negative narrative is even more pronounced because it’s the first most people have heard about the company. As a young man growing up and cutting my political eyeteeth in a caveat emptor marketplace, I assumed government stood for righteous oversight of business. Today, not so much.
Individual executives caught up in these allegations confront increasingly harsh prison sentences, not to mention fines and loss of livelihood. It all adds up to what Marrs calls a business environment beleaguered by “coercive regulatory enforcement.”
Add to the mix state attorneys general, who often see high-profile charges against corporations as ways to raise their political profile. There’s a reason people joke that “AG” stands for “aspiring governor.”
I’m blessed to know several current and former state and federal AGs. Good persons all. But the formula for rising political fortunes on the wings of high-profile cases – often at the expense of business – is just too much of a professional booster to resist. Business and government should not be a zero-sum game.
The DOJ and other enforcers have become increasingly aggressive by expanding their definitions of criminal liability, diminishing the role of intent in white collar prosecutions while dismissing the utility of voluntary corporate compliance programs, Marrs notes.
Further, we are seeing greater application of what lawyers call the “FCPA (Foreign Corrupt Practices Act) standard.” In other words, corporate executives are being held liable for their supply chain vendors and for “what they should have known.” Factor in the lightning speed of business; the perfect record-keeping of emails, texts, and video that capture nearly every thought and utterance, no matter if out-of-context; online and employee activism; and the rise of activist investors who pressure companies to make ever-higher margins, and it leads to a dangerous climate.
Sadly, that climate has not improved since Shook, Hardy & Bacon analyzed it several years ago for the Association of Corporate Counsel (ACC). Their paper concluded that, “To more broadly regulate issues of corporate culture, criminal enforcement has been used to maximize the government’s leverage over companies and individuals alike.” Given these dramatic increases in liability exposure, business executives have little choice but to educate themselves and their employees on the risks.
U.S. prosecutors’ “formula,” as the Economist recently put it, “is simple: find a large company that may (or may not) have done something wrong; threaten its managers with commercial ruin, preferably with criminal charges; force them to use their shareholders’ money to pay an enormous fine to drop the charges in a secret settlement (so nobody can check the details). Then repeat with another large company.”
It’s the perfect dodge for cash-strapped states and a federal government loath to raise taxes.
Justice, as the Economist reminds us, “should not be based on extortion behind closed doors.”
Published March 27, 2019.