Corporate Executives Would Face Jail Time Under Proposed Legislation: Business Leaders Need To Embrace Accountability
Accountability must be a fundamental component of any company’s operations. Just as people do not live life based on the laws of physics, yet exist in accordance with the laws of physics, employees do not do their work based on the policies that govern accountability, but their performance and work ethic are shaped by those policies. A culture of accountability fosters improved productivity and ethical decision-making. Accountability is, however, not simply something subordinates need. It is something the leadership of every company needs. When leadership has no accountability, a culture of accountability cannot be established and workers cannot be truly held accountable. Subordinate employees might face punitive action, yet unaccountable leadership cannot rightly criticize others for their failures when they cannot embrace responsibility for their wrongdoing. To that end, two complimentary public policy solutions could help ensure accountability for top executives who are negligent in their duties.
US Senator Elizabeth Warren has reintroduced her 2018 Ending Too Big To Jail Act alongside her Corporate Executive Accountability Act. The proposals share an obvious connection to the Great Recession of 2008/2009 and the lack of legal consequences faced by executives of corporations deemed “too big to fail.” Under current law, corporations can face legal consequences for the wrongdoing and negligence of employees working in the name of a company. Executives cannot institute illegal policies and engage in criminal activity with impunity, but they are not easily held accountable when they turn a blind eye to wrongdoing or practices that could institutionalize wrongdoing. The burden of proof is far too high to prove the criminal wrongdoing of executives, even when a business is found guilty of criminal activity. Quite frankly, the idea of a business facing persecution is a joke. The legal system may allow businesses to be held accountability for the wrongdoing of their employees, but it is purely a legal fiction. Only individuals can be held accountable, not legal entities like businesses.
For everyone traumatized by the Great Recession and everyone angered by the apparent immunity of big business leaders, the Ending Too Big To Jail Act and the Corporate Executive Accountability Act are very appealing. Together, the bills would create jail time for the executives of companies making over $1 billion a year and force executives of companies with over $10 billion in assets to certify on an annual basis that their firms do not engage in illegal activities. Instituting a criminal penalty for business owners would certainly strip away the legal shield the corporate structure provides managers. Unfortunately, the fact the bill treats the executives of wealthier companies differently than those of less affluent firms likely mean the bill is unconstitutional. The lack of equal treatment would violate the Equal Protection Clause of the Fourteenth Amendment. The revenue and asset conditions are, of course, adopted to reduce regulatory burdens on smaller firms, but the Constitution does not permit such conditions. There is also the issue of creating penalties for employee behavior that executives cannot rightfully know or correct.
That said, Warren’s initiative is extremely valuable. Her proposed bills can help instill another layer of the mechanisms, which can help hold the top leadership of major companies accountable for their intentional and unintentional negligence. While the impulse of the business world is to suppress efforts like this one, they would be wise to embrace ot based on the argument for business ethics. Although the need for ethics may appear to be a moral issue wrapped in subjective reasoning, ethics are actually a major concern for any businesses viewed as an enduring entity designed to last. Ethics provide direction to businesses of all sizes by defining limits and standards on how they treat other businesses, employees, and customers. Ethics are long-term considerations that impact the short and long-term success of a company, its industry, and the community it operates within. As such, ethics represent an attempt to address factors, which cannot be fully measured or understood, to ensure success now and in the future.
What Warren’s initiative can do is give teeth to the ethical standards all industries need to embrace. The legislation simply needs to be refined. Looking at the auto industry, Ford, GM, and Toyota are working together to develop safety standards for self-driving cars. Although wise to scrutinize the lobbying activities of all businesses, which too often try to weaken regulation to their benefit and against public interests, the trio is trying to take lead on a public concern and develop a framework that could eventually lead to the creation of regulation. The clear interest for the auto industry is the need to ease public concerns and ensure the safety of a radically different driving platform that takes the security of control away from drivers. The effort, however, represents a private initiative of an industry willing to confront issues that need to be addressed in all businesses. Taking from that example, business leaders and shareholders need to embrace the need for accountability and ethics. They need to work to craft legislation that holds executives accountable when their gross or intentional negligence results in employee and company practices that constitute criminal and civil wrongdoing.
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