assaults a student, the entire school doesn’t get shut down and prosecuted. You can have a fundamentally good company that takes compliance deadly seriously and have employees who do stupid things. BARKOW: One underlying premise with what you are saying is that we can scratch the surface and figure out which compliance programs are real and which ones are not. How do we tell? MOSS: There are auditors and people in the government who sit inside banks, and they know. You take the factors, for example, of what constitutes a real compliance program, and you talk to people. You look at the internal records of what the company has done when they find wrongdoing. Maybe I’m wrong, but I think you can determine that. REIMANN: But think about Enron. Enron actually won an award and recognition for their compliance program and corporate culture right before the implosion. As I listen to what everyone’s saying, one thing we get back to is leadership. I’m glad to hear the number of prosecutions that have been brought against Galleon and the like. Entities like that, where the people at the top have become engaged in something that is wrong, are not just corporations anymore. They’re criminal enterprises, and people do what they’re rewarded to do from the top of the house. You can paper over a compliance program as much as you’d like to, but if there is that at the core in leadership, if people are committed to a course of conduct that violates the law, there’s no compliance program that’s going to save you. What we’ve got to do is figure out a way to be vigilant and to find those places where leaders of companies are doing wrong. It’s very powerful when you can punish somebody who is sitting at the helm. There’s been a lot of research in this area. Corporations where the CEOs are bullies or exhibit some very manifest behaviors that are not good leadership behaviors, there’s a tie between that and a bad culture. What we’ve got to think about and what I would also suggest to the president is these people come from somewhere, and building up civic awareness, starting even at the school level, will help you generate people who are thinking about these things and who can look for them and who place some value on governance and culture. As an employer, you want to have people who are discerning about the kind of company they’re joining. There isn’t a silver-bullet answer for that question. But it permeates this whole discussion. BARKOW: So let’s get the law-and-economics perspective on this. The economists don’t love culture as the necessary factor, but what’s the right approach to target the bad apples? Assess compliance programs? JENNIFER ARLEN ’86, Norma Z. Paige Professor of Law: In order to deter corporate crime, we need to reward companies that have good compliance programs, self-report, and cooperate, and we have to punish the individual wrongdoers. But we need cooperation from the corporations. Corporations can help or they can make it nearly impossible to get the needed information.
Historically, we held corporations strictly liable for corporate crimes committed in the scope of employment. This was a terrible approach because it discouraged firms from detecting and self-reporting their employees’ wrongs. After all, why would a rational firm detect and report a crime if this will just result in it getting convicted and punished? So I support rewarding “good” companies by allowing those who self-report and cooperate avoid formal conviction. But they still should pay a monetary penalty in order to induce them to want to deter future crime. To induce firms to help us go after the individual wrongdoers, we can threaten substantial criminal penalties if they fail to cooperate, and offer a DPA or NPA if they do cooperate. One advantage of the DPAs and NPAs is that we can exempt a firm from prosecution but still impose a substantial monetary penalty on the firm. You need firms to pay even if they do everything right to make sure that shareholders do not profit from the crime and that managers want to intervene ex ante to deter the crime, even if they expect that the firm will get credit for cooperation should a crime be detected. I teach corporate governance, and I’m fascinated by the collision between the worlds of corporate crime and corporate governance. In corporate crime we’re worried about compliance. In corporate governance we sing the praises of highpowered incentives. We want managers whose pay goes up in the good times