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Terry Newell Headshot

Corporations and Accountability: Fostering Responsibility at the Top

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Oil giant BP has paid over $15 billion dollars thus far to settle claims resulting from its massive oil spill in the Gulf of Mexico in 2010. This was after the $2 billion it had paid for a 2005 Texas City oil refinery fire that killed 15 workers. Neither had it fixed safety violations found at that refinery in 2009, four years after the fire, for which it paid another $50 million in 2010 and $13 million this year. If fines are meant to foster responsible behavior, they may not be equal to the task.

BP is by no means alone in being subject to large fines. GlaxoSmithKline paid $3 billion this year in fines for promoting drugs for unapproved uses and failing to report safety data. Also this year, Abbott Laboratories settled for $1.6 billion in fines over the way it marketed an antiseizure drug. Wells Fargo agreed to pay $175 million for discriminatory lending practices. Google paid $22.5 million for violating online privacy, and Skechers agreed to pay $40 million for claiming that an "independent, objective study" of its shoes led to weight loss and muscle strengthening, a study (it did not divulge) done by the husband of one of its marketing executives.

In almost all such cases, no one goes to jail. In many cases, the fines emerge from a settlement in which the company need not admit wrongdoing. The damage done by such violations is personal in its impact -- individuals are harmed -- but those responsible remain shrouded behind the name of an impersonal corporation. Admittedly, the fines represent at least a measure of procedural and restorative justice, but it is not clear that the fines come close to wiping out the financial gain to firms and their executives from the illegal practice. This has led some to speculate that fines are just treated as a cost of doing business by those who skirt the law and expect, in some (but not all) cases to be caught, much like the single driver in the HOV lane who expects to get caught once in a while but not every time.

As a society, we tend to treat these problems as legal and regulatory violations which have technical and economic consequences. Yet they are also ethical failings which damage or destroy human dignity. We use a market response -- a fine -- to address a moral wrong. We focus on the corporation rather than the individuals responsible, acting as if we can permissibly separate the wrong from human agency.

For their part, corporate leaders seem to suffer little, personally, from this approach to distancing themselves from these illegal practices. Can you cite the names of any of the leaders of the firms whose fines are listed above or point to the damage to their reputations? How many of their careers were ended by these violations? From watching the occasional Congressional hearing where they are called to testify, do you recall how often they accepted personal responsibility or expressed personal feelings of guilt over what took place on their watch? How many instances do you recall where they have been shorn of their bonuses or stock options because their firms were caught violating the law?

In the past decade, Americans have been the witnesses to, and often subjects of, major corporate ethical and legal failings in such areas as investment and consumer banking, mortgage lending, pharmaceuticals, oil drilling, and credit card swipe fees (a $7.25 billion settlement with Visa and Mastercard). The fact that government agencies, from the Department of Justice to the Federal Trade Commission to the Occupational Safety and Health Administration and others, have found and punished many of these violations speaks well for society's acknowledgement that these practices are wrong. It also should chasten those who would dramatically lessen the federal government's restraints on free market behavior. But what it does not do is punish the individuals who bear responsibility for their firms.

A society that tolerates a disconnect between the act and the actor breeds cynicism against both government and the private sector as well as distrust among citizens. One approach to correct this is that taken by Sarbannes-Oxley after the Enron and WorldCom scandals -- require the heads of firms to sign off on their financial statements and hold them personally liable for them.

Laws to hold the president, CEO, and COO of private firms personally liable for violations of law or regulation might help address the problem that fines are not correcting. Since such laws would provoke strong protests ("how can we be held responsible for actions we may have neither been aware of nor condoned?"), penalties would have to be scaled to the level of personal responsibility. However, such penalties need not be totally absent.

Feelings of personal guilt and/or the casting of societal shame used to be mechanisms to demonstrate the moral force and condemnation of the community for violations by its members. These seem also to be of lesser force today than they may have been in the past. But it may be worth seeing how we might revive them. When people feel no shame for what they have done, we should not be surprised if they don't consider whether potential actions may be shameful.

Clearly, most of corporate America's leaders are honest and ethical. We owe it to them, not just ourselves, to find ways to lay personal responsibility and appropriate societal accountability on those who are not.