Do Corporate Fines and Punitive Damage Awards Serve Their Purpose?
Corporate fines and punitive damage awards are meant to punish and deter wrongful conduct. Pfizer agreed to pay $2.3 billion to settle fraud claims regarding its marketing practices. According to the New York Times, it is the largest criminal fine of any kind ever. But whom does it punish and does it deter? Usually when corporate fines are imposed, the corporate officers who authored and implemented the fraudulent conduct either remain and continue to receive their salaries, options and other benefits, or if they have left the company, their pensions and benefits remain intact.
Shareholders are the ones truly punished. Those that held the shares during the wrongful conduct may have benefited indirectly by an increase in the value of their shares, but it would be very difficult to attribute such conduct to a specific rise in the price of the stock. They, of course, are innocent of any wrongdoing. However, many of the stockholders may not have owned their shares during the wrongful conduct, and they, nonetheless, are punished for the past misconduct of others. It is also likely that the fines are merely passed on to the consumers in the form of increased prices.
The same is true of punitive damage awards. I presided over cases in which punitive damage awards did not become final until five or even 10 years after the wrongful conduct. The persons responsible are long gone, taking with them the benefits of their misconduct and leaving the fine to be paid by persons who had no interest in the company at the time of the misconduct.
As to deterrence, it is one of those mystical concepts about which we can never be sure -- like the death penalty. There is no way to measure whether the death penalty stops anyone; nor can we determine whether corporate fines or punitive damage awards change behavior. Apparently in the case of Pfizer, this was its fourth settlement over illegal marketing activities since 2002. So much for deterrence!
When I read the Times article, I was excited to read that Mr. Kopchinski's share of the settlement is expected to exceed $50 million, thinking he was an officer contributing to the settlement, but a careful reading revealed that he was one of the whistle-blowers (for which I am still excited). If we truly wish to have corporate fines and punitive damages serve their intended purpose, then they should be imposed upon those individuals responsible for the wrongful acts rather than innocent shareholders and consumers.
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Do corporate fines and punitive damage awards serve their purpose?
Shouldn't someone state unequivocally what their purpose is? Otherwise, no, they haven't yet.
Corporations will cheat at any opportunity, and will do so until they get caught. Then the cycle begins all over.
Re: Bernie Madoff; " The SEC couldn't spot Bernie Madoff's antics. "The man bilked clients out of over 65 billion dollars. Maybe in your world that qualifies as "antics;" in my wolrd it's considerably worse. Poor choice of words; trivializing the wrongdoing of upper echelon criminals is one of the ways our society allows this kind of crime to keep happening.
As you said, isn't that what happened with the torture investigations? Yes, it is. The upper echelon criminals who ordered the torture and legalized it, are not only walking around loose, but, as with Dick Cheney, bragging about it and justifying it. Everyone else was "Just following orders."
I sure hope that last phrase sounds familiar.
Yes, these fines and damage awards serve their purpose -- they create the impression that something is "being done" while in fact, much of these "punishments" are pinpricks and easily thought of as the cost of doing business.
No one should have any confidence in our "regulatory" systems.
Employees, for example, would be well -advised to opt out of Obama's plan to encourage "savings" via the shopworn "investments" in fifteenth-rate investment firms that most corporations offer their employees rather than pensions.
The advantage of a mattress or FDIC-insured savings is that neither of these is subject to the kind of financial disaster out still-unregulated financial "industry" will certainly inflict on us again.
See Judge H. Lee Sarokin's Profile
arvay - I fear that you are right. Witness the fact that this is Pfizer's 4th settlement in a short period of time.
i don't buy the innocnet shareholder arguement. with the benefit of making money comes some responsibility and the other day that meant their share values went down. maybe that will motivate people to look more closely at what their money is doing and take opportunities to speak up with their pocketbooks.
See Judge H. Lee Sarokin's Profile
wellnessforall - I agree that shareholders should have some responsibility, but if the SEC couldn't spot Bernie Madoff's antics, I doubt that shareholders of large corporations would fair much better.
These drugs are expensive and sometimes harm people. This could even be criminal.
There is no accounability.
Reading the financial times I also see that financial companies also settle cases of illegal trading.
Meanwhile your average person is subject to punitive justice for any small matter, draconian laws.
M. De Stael said that the violence of the French revolution was caused by the abuses of gov't,depravity caused by absolute lack of public morality, and inequality. Town hall violence and hate speech reminds me of this.
Interesting idea, but the larger the company, the easier it is for those responisble to avoid blame and shift liability on to those who are least able to afford to defend themselves legally. Let's impose a strict liability standard on senior execs on whose watch the tort or violation occurred. Otherwise, low level employees will end up taking the fall for the wrongdoing of their superiors.
Senior execs get paid the big bucks, presumably for the exercise of good judgment in the corporations' long-term best interest. Therefore, the C-suite should be personally liable for the fines. Otherwise, the costs fall on the D&O insurer (which ultimately costs the shareholders).
See Judge H. Lee Sarokin's Profile
DosGatos2 - I agree----isn't the same thing happening with the torture investigations?
Agreed.
If the individuals inside these corporations who conceive, plan, execute and receive career benefits from these immoral, unethical or illegal acts are not held accountable for their actions then any deterrence effect is non-existent.
What happens instead, is that the mythical corporation, run by these individuals, protects them and, often, promotes them. Corporate executives can work together to commit the most egregious felonies of mass theft by deceit and be perfectly immune from prosecution.
Organized crime should, apparently, simply incorporate.
See Judge H. Lee Sarokin's Profile
iridium53 - I agree. The concept of incorporating to avoid personal liability was never meant to extend to intentional wrongdoing---even when done for the benefit of the corporation.
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