Comments on: Cost Benefit Analysis and Prosecuting Executives

By: Jonathan

Jonathan — Mon, 19 Mar 2007 01:14:38 +0000

You’ve asked a huge question here. I think most of the problems being faced by companies in the US are caused by the lack of a concept of “True and Fair” that exists elsewhere – meaning creative accounting can extend far further than it should

I’ve just discovered your blog btw – excellent… I’ll be back

By: Becky

Becky — Sun, 18 Mar 2007 01:55:46 +0000

It is one of the myths that everyone likes to believe–it makes us feel good. Its not true and should be brought to everyone’s attention when it shown, as you have. But no one should get real hysterical.

~Becky

By: Peter

Peter — Fri, 16 Mar 2007 21:00:36 +0000

The point of criminal law is to protect the public at large and not just individual victims. Criminal penalties are concerned mainly with deterrence rather than compensation for loss. The justification for prosecuting executive dishonesty is that this type of conduct undermines public confidence in the public companies as a whole. In theory, a criminal penalty against a dishonest executive protects every investor in every other company by deterring their exeuctives from similar misconduct.

If you do not agree that deterrence is a major factor in prosecutions of executives and are mainly concerned with protection of victims, then the appropriate mechanism is civil law rather than criminal law. Cost-benefit analysis is a perfectly appropriate consideration in a civil action.

By: Mac

Mac — Fri, 16 Mar 2007 15:24:32 +0000

While I don’t endorse the rule proposed by the Economist, in all fairness it’s a little more nuanced than suggested. The proposed rule is fundamentally about victims rights. The quote, in its context, is as follows:

“…rule to guide prosecutors… where the main supposed victim is a company’s shareholders. Our rule: if a criminal prosecution is likely to hurt a company’s share price, then don’t prosecute.”

The proposed rule is intended to protect the victim, and if the criminal gets off as a result, so be it. The focus is on what’s best for the victim.

Do I agree with this approach? I don’t think so. First, the victim is only “supposed.” It’s not like an assault case where the victim is clearly identified. Second, shareholders are owners of the company and ultimately responsible for the executives of the company and as such, should bear any financial burden of executive malfeasance. And finally, if this rule is a good rule, legislatures should enact it as a rule instead of allowing prosecutors to do an end-run around the Rule of Law.