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2013: Year of the Big Fine
January 2, 2014 1:38 PM   Subscribe

Do big fines actually prompt corporations to mend their ways? Or is it just the cost of doing business? (SLNYT+video) (previously/similarly)
posted by Obscure Reference (53 comments total) 15 users marked this as a favorite

 
No. Yes.
posted by mondo dentro at 1:46 PM on January 2 [21 favorites]


My guess it probably prompts the corporation to lobby the lawmakers to change the rules so that the thing they initially did that they got fined for is no longer something they can get fined for any more because shareholders.
posted by turbid dahlia at 1:47 PM on January 2 [5 favorites]


Fines are for bureaucrats and pencil-pushers.

It seems to me, if we really, truly believe in capitalism, then any actions taken that undermine the stability and health of the capitalist system (like those that result in a worldwide financial collapse, for instance) should be considered crimes against the state. Capital crimes.
posted by Thorzdad at 1:57 PM on January 2 [21 favorites]


Fines are regulation, and regulation is something corporations lobby against so they can achieve their aims (which are not necessarily related to regulation).
posted by infinitewindow at 2:01 PM on January 2


"Fines today for things you did months or even years ago..."

Probably a bigger problem is thinking of corporations (or biker gangs, or terrorist cells) as being like individuals and having a capacity to suffer from punishment and make connections between their behaviour and the consequences thereof.

I don't actually think regulators see corporations that way, but I do think that they think voters see it that way, and can be easily hoodwinked into thinking that they're getting "tough on the offenders" by merely raising what amounts to the cost of a license to pollute/kill/destroy/steal/etc.
posted by klanawa at 2:04 PM on January 2 [3 favorites]


It also prompts the miscreants to spend lots of money on lawyers and legal appeals. See: Exxon Valdez, Deepwater Horizon, etc.
posted by Kirth Gerson at 2:04 PM on January 2


Mending your ways is the cost of doing business.
posted by michaelh at 2:09 PM on January 2


Random restructuring instead of fines. "You blew up the economy! As punishment, your investment bank is now..." *spins the big wheel* "...a buffet-style restaurant chain." Other options include "swamp boat tour guides in the Everglades", "novelty hat manufacturer" and "paperboys". Assets are stripped back to the average for the kind of company they become.
posted by jason_steakums at 2:11 PM on January 2 [44 favorites]


Recall the Pinto disaster in which Ford explicitly knew of the danger, calculated the costs of both fixing/replacing the part and the potential costs of litigation imminent if the cars actually blew up. Which they did. Which Ford paid for, as it was cheaper than fixing the cars. Economics!
posted by hepta at 2:12 PM on January 2 [2 favorites]


Fines, as a substitute for prison terms, are the definitive proof that rich and poor live by different rules. There's not much difference between the government saying, "This crime is punishable by x years in prison or a fine of $x," and, "Help me find my friend Bill, WINK WINK, and then I'll forget this ever happened."

There should be no or about fines; only and. You pay a fine, commensurate to your income and the severity of the crime, and you go to prison.
posted by Sys Rq at 2:16 PM on January 2 [10 favorites]


It's so interesting to me that we legislate and incentivize and otherwise decide corporations should act like amoral sociopaths determined only to make money and are then shocked and amazed when they act like amoral sociopaths determined only to make money.
posted by Ghostride The Whip at 2:17 PM on January 2 [20 favorites]


It seems to me, if we really, truly believe in capitalism, then any actions taken that undermine the stability and health of the capitalist system (like those that result in a worldwide financial collapse, for instance) should be considered crimes against the state. Capital crimes.

That could arguably include lots of government regulations, of course.

Anyway, it's a silly question. Sometimes yes, sometimes no. And it's worth pointing out that government prosecution is not necessarily an indicator of wrong doing, regardless of how the Times may spin a given story. Aggressive, not to say reckless, prosecution just doesn't play as well. Plenty of ambitious lawyers work for the government.
posted by IndigoJones at 2:20 PM on January 2 [1 favorite]


So long as a fine represents only a fraction of the income generated by the misdeed, of course it'll just keep being "the cost of doing business."

If the punishment for theft were a fine of 80% of your takings, what reason would you have to stop stealing?
posted by chimaera at 2:21 PM on January 2 [2 favorites]


the problem with institutions is that when they get too big there is no one individual who can take responsibility for its wrongdoings. When a corporation gets too large for anyone one person to manage I'm for the dissolution of the charter. There was a time when corporations were considered temporary arrangements - not unlike political offices. All the evil that manifests in our financial system can be traced to corporations deemed "too big to fail".
posted by any major dude at 2:36 PM on January 2 [1 favorite]


You pay a fine, commensurate to your income and the severity of the crime, and you go to prison.

Right, but with corporate malfeasance, it is rarely the sole fault of a single employee, no matter how high up on the chain of command they are. So you either imprison the entire voting board or similar, or put the entire company in a metaphorical prison where they are sentenced to 5 years of absolutely no business transactions whatsoever.

Which I guess would then be done by fining them the equivalent of 5 full years of profits? meh
posted by elizardbits at 2:40 PM on January 2


Well, as far as cocaine smuggling goes, definitely the latter.
posted by telstar at 3:16 PM on January 2


Of course a fine is a cost of doing business. It's no different than when an individual double parks, crunching the numbers on the cost of the potential ticket and the possibility of receiving the ticket.

There's nothing about that process that's unique to corporations. The question, in other words, is flawed. The appropriate question isn't "are fines a cost of doing business" (the answer to which is: "yes. Duh."), but "are current fines high enough to dissuade the target population from doing what we're trying to prevent.
posted by jpe at 3:16 PM on January 2 [3 favorites]


The billions that companies are paying belong to their owners — the shareholders — not to executives.

Wow, this is a shitty piece even for the Times business page. Execs are virtually always shareholders, and very often have enormous parts of their net worth tied up in company stock.

If anything, the execs feel changes in the stock price more than non-employee investors, most of whom have the freedom and good sense to be diversified.
posted by jpe at 3:18 PM on January 2


The problem is that executives often have their bonuses tied to stock market performance. This encourages a short term approach as it boosts bonuses. Yes, they may have stock in the company as well, but they aren't thinking 10 years down the road when the fine hits.
posted by arcticseal at 3:20 PM on January 2


The appropriate question isn't "are fines a cost of doing business" [...] but "are current fines high enough to dissuade the target population from doing what we're trying to prevent.

I thought the question was: why don't we fine bank robbers instead of imprisoning them, too? It's not just a question of fine-tuning some bureaucratic formula for fines. It's about the fundamental question of equality before the law. The folks in my neck of the woods who entertain themselves by rolling burning tires down a mountain are more likely to get criminal prosecution than BP did for destroying the Gulf-coast economy (I'd say "ecology" instead, but we 'Muricans don't give a rat's ass about sissy stuff).
posted by mondo dentro at 3:27 PM on January 2 [3 favorites]


Not only is it just a cost of doing business but they just write it off.
posted by Talez at 3:28 PM on January 2


Depends on the nature of the fine, Talez. If it's punitive in nature they can't; if it's restitutionary, they can.
posted by jpe at 3:30 PM on January 2


why don't we fine bank robbers instead of imprisoning them

That's the same question I asked. You're suggesting that we raise the cost of the misdoing through imprisonment.
posted by jpe at 3:31 PM on January 2


Right, but with corporate malfeasance, it is rarely the sole fault of a single employee, no matter how high up on the chain of command they are.

Corporate malfeasance : Organized crime :: Tomayto : Tomahto
posted by Sys Rq at 3:51 PM on January 2 [1 favorite]


It's so interesting to me that we legislate and incentivize and otherwise decide corporations should act like amoral sociopaths determined only to make money and are then shocked and amazed when they act like amoral sociopaths determined only to make money.

It's a lot less interesting if you know the "we" in that sentence is the same as the "they."
posted by Sys Rq at 3:54 PM on January 2 [1 favorite]


That's the same question I asked. You're suggesting that we raise the cost of the misdoing through imprisonment.

Not really--I was raising the issue of equality under the law. Don't you think a fine, frequently resulting from a negotiation in which criminal prosecution isn't even on the table, is an entirely different beast than imprisonment resulting from criminal conviction?
posted by mondo dentro at 3:54 PM on January 2


Ah, so you're raising a different question. Disparate treatment is different from the cost of a given punishment (I find it surprising I'd have to spell that out, but here we are)
posted by jpe at 4:19 PM on January 2


Imprisonment is a tool. However, I think it's often an improper tool. I'd like to see imprisonment generally reserved for those who are a proven physical danger to others and thus need to be isolated from society.

Perhaps it's wiser to avoid making persons typically involved in corporate crimes a further burden on the state by imprisoning them. It might be preferable to have the state become a burden on them instead by means of fines for restitution and/or punishment. It isn't really a matter of equality. Not all crimes are equal.
posted by 2N2222 at 5:10 PM on January 2 [1 favorite]


I am reminded of the sociopathy of business every-time an athlete talks about being traded and says "It is just business".
posted by srboisvert at 5:37 PM on January 2


Corporate malfeasance : Organized crime :: Tomayto : Tomahto

If your suggestion is that we beat them up in their underwear in a cornfield and then bury them alive then I concur but otherwise I do not understand what this comparison means to convey.
posted by elizardbits at 5:39 PM on January 2


why don't we fine bank robbers instead of imprisoning them, too?

Because banks have more money.
posted by empath at 5:40 PM on January 2 [1 favorite]


The folks in my neck of the woods who entertain themselves by rolling burning tires down a mountain are more likely to get criminal prosecution than BP did for destroying the Gulf-coast economy (I'd say "ecology" instead, but we 'Muricans don't give a rat's ass about sissy stuff).

The problem is who from the organization goes to jail, and how do you prevent the organization from structuring itself in a way that shields the people who are really running things from the risk of going to jail? For example, running a drug cartel is clearly illegal and anyone who participates in any level of that sort of organization could theoretically face jail time. But almost all of the total jail time ends up being served by low level workers who are directly involved in the operation aspects, whereas the high level heads of the organization can usually add a lot of layers of indirection between themselves and the illegal activities to make it much more difficult to prove any specific illegal actions. If being the CEO of BP meant significant risk of jail time for things that the company did, then the person who actually ran things at BP wouldn't be the CEO.
posted by burnmp3s at 5:53 PM on January 2


Fines need to be dehabilitatingly punitive or they are just fees for doing business. And fines need teeth that remind you of why they suck.

a $20 speeding ticket is a joke. Why even pull you over? A $100 speeding ticket and there's now incentive to pull you over. 2 points and you're now paying a slightly higher insurance premium - its almost worth your time to show up to court to fight it. $255 ticket? Ooooh someone has a lead foot - and it's worth 6 points. Now you are definitely going to show up, maybe even take the traffic court option. Whatever it takes to avoid the full brunt of the ticket. Plus - who wants to have to go through that again....

The banks paid fees to the government. $16 billion sounds like a lot; but, the banks continue to conduct business in questionable manners. What we have learned from this is $16 billion is not actually a lot of money to the banks.
posted by Nanukthedog at 6:10 PM on January 2 [1 favorite]


Finance and Growth: Too Much of a Good Thing?
Over the past 20 years, economists have accumulated a substantial body of empirical evidence that financial sector deepening is a critical part of the economic development process. This shows a well-functioning financial system is a conditio sine qua non for modern market economies to flourish. What started with simple cross-country regressions, as used by King and Levine (1993), has developed into a large literature using an array of different techniques to look beyond correlation and controlling for biases arising from endogeneity and omitted variables. These studies provided a consistent result – financial deepening is a critical part of the overall development process of a country (see Levine 2005, for an overview and Beck 2009, for a detailed discussion of the different techniques).

The findings of this literature, however, sit uncomfortably with the recent experience of many developed countries. It is not just the Global Crisis of 2007/8 that has shed doubts on the finance-growth paradigm, but there are more fundamental questions on the relationship between financial development and economic growth. Aghion et al. (2005) show that the relationship turns insignificant at higher levels of economic development, while Arcand, Berkes and Panizza (2012) show that the relationship even turns negative at very high levels of financial development.
posted by the man of twists and turns at 6:21 PM on January 2 [1 favorite]


A $100 speeding ticket and there's now incentive to pull you over.

Me, sure. But a 1%er? Not at all. That's why we should do like Finland (again) or Switzerland and tie fines to wealth & income.
posted by fings at 6:28 PM on January 2 [5 favorites]


If being the CEO of BP meant significant risk of jail time for things that the company did, then the person who actually ran things at BP wouldn't be the CEO.

Agreed, but that isn't necessarily a dead-end for mondo's line of thought. After all, there's an organizational drain to trying to mask the real wielder of authority at a company. Plus, you'd need to find a patsy or three who're willing to risk being thrown behind bars for your misdeeds. While there are plenty of those around, it's preferable to perpetuating executives with no skin in the game except the vanishingly remote possibility of losing a bonus.
posted by Room 101 at 6:29 PM on January 2


Instead of direct fines for corporate crimes, I like the idea of stock dilution instead. For example, XYZZY Corp is found guilty of crime Z, so the court determines the penalty is the immediate auction of voting shares equal to 30% of the number already in existence. The government auctions off the stock, and gets to keep the proceeds. The auction is immediately followed by a shareholders' meeting to pick a new board.
posted by fings at 6:39 PM on January 2 [10 favorites]


Corporate malfeasance : Organized crime :: Tomayto : Tomahto

If your suggestion is that we beat them up in their underwear in a cornfield and then bury them alive then I concur but otherwise I do not understand what this comparison means to convey.


It means to convey that corporate malfeasance is organized crime, and should be dealt with as such. You wouldn't ask a criminal organization to cut a check and call it justice served, would you? Well, what is a corporation that breaks the law? A criminal organization.
posted by Sys Rq at 6:53 PM on January 2 [2 favorites]


Me, sure. But a 1%er? Not at all. That's why we should do like Finland (again) or Switzerland and tie fines to wealth & income.

You are assessment is on the money - as I said, prior to that line, fines needs to be dehabilitatingly punitive - your suggestion of stock dilution is - exactly that. I'll take the suggestion that my language should have been less specific. Rather than a specific fine, the penalty for malfeasance should be dehabilitatingly punitive.


But here's the thing... the $16B I mention is what JP Morgan has paid out since 2008. They've been hit the most, because they are the biggest (and they acquired two specifically bad properties (Bear Stearns and Washington Mutual). But, what they did doesn't even really amount to a fee - its hush money. As part of the $16B they've settled on, they've also stated 'We're not actually admitting fault here, but take this money anyway...' This is a willingly paid cost in order to avoid actual litigation. It speeds up the process, but nobody in their right mind would willfully dilute their stock... so yeah, great idea, but the courts would have to have teeth - and given that they don't really... well oh look, thanks for the check.
posted by Nanukthedog at 7:12 PM on January 2


Well, what is a corporation that breaks the law? A criminal organization.

Yeah dude I 100% agree with you on this, so why are we aaaarguing. Can we do the cornfield thing though or should I just watch Casino again.
posted by elizardbits at 7:39 PM on January 2 [1 favorite]


OH RIGHT but my original point was that you can't really put every single employee of a corporation in prison.
posted by elizardbits at 7:40 PM on January 2


Fines do fucking nothing. Fines are not regulation, fines are kabuki-theatre post-hoc spankings.

Punitive decapitation? Now that might put the Fear into those corporate shitweasels.
posted by stavrosthewonderchicken at 7:51 PM on January 2


OH RIGHT but my original point was that you can't really put every single employee of a corporation in prison.

Neither does one do that with an entire mob or gang. But if you catch a couple with blood on their hands every now and then, you put 'em in a box for a while, and maybe they get to talking. Capisce?
posted by Sys Rq at 8:18 PM on January 2 [1 favorite]


This isn't a hypothetical: executives actually do get prosecuted once in a while; see Enron. There's nothing speculative here, no new body of law or practice or procedure here that needs to be worked out. The reason individuals don't get prosecuted is not because it's some strange mysterious new idea that we have to invent right now here on Metafilter, it's because of both the strong and weak forms of regulatory capture, which are in effect at all times and whose effect is basically impossible to overstate.
posted by George_Spiggott at 8:23 PM on January 2 [2 favorites]


Solution to this: fine companies not in terms of fixed amounts, but in terms of the profit earned the year the malfeasance occurred (all profit, both abroad and in the US) (in loss years, go to a fixed amount). The profits were already published, so they can't cook the books. And, as companies are so fixated on the next quarterly report, they need to report high profits, so the incentive to lie there would cause more harm to their stock price than not doing so, thus eliminating the desire for Hollywood accounting on their main books. I'm thinking maybe about 50% of the profits from each year. They still have enough money to continue to do business and continue to pay their employees, but the money that they made by being evil? Gone. And if they start getting too good at hiding profit but still showing how much they are making, switch to gross.

(I also think talking in terms of revenue vs. fines is slightly disingenuous. If a company was breaking even one year, even if they were pulling in tremendous revenue, a fine will do more damage than to a highly profitable company that pulls in less money every day.)
posted by Hactar at 8:27 PM on January 2


See also Elizabeth Warren's continually holding the SEC's feet to the fire for not referring any cases to the Justice Department for criminal prosecution. God I adore her.
posted by George_Spiggott at 8:27 PM on January 2 [1 favorite]


Sarbanes-Oxley is probably better thought of as punishment than regulation.
posted by effugas at 8:52 PM on January 2


Fines? No. Consent decrees on the other hand....
posted by Kid Charlemagne at 8:56 PM on January 2


This probably falls too far on the side of vengeance instead of appropriately punitive, but five minutes armchair quarterbacking suggests to me that the appropriate punishment ought to be a fine of one year's entire revenue for the corporation, plus a fine equal to the previous year's salary/bonus/stock options for every employee or boardmember who can be proven to have known about the malfeasance, plus the same penalty for every employee, executive, boardmember or anyone else involved with the company who is senior enough in position and influence that they ought to have known about it. Whistleblowers would be exempt from all penalties.
posted by talitha_kumi at 2:51 AM on January 3 [1 favorite]


Recall the Pinto disaster in which Ford explicitly knew of the danger, calculated the costs of both fixing/replacing the part and the potential costs of litigation imminent if the cars actually blew up. Which they did. Which Ford paid for, as it was cheaper than fixing the cars. Economics!

Every part of that summary of what happened in the Pinto case is wrong. It's amazing the tenacity of urban legends around tort cases--whether they're supposed to show the crazy willingness of juries to beat big companies like money pinatas or the eeeeevilness of corporations.

The famous cost calculation document that everyone remembers from the Pinto case was actually a cost/benefit calculation Ford prepared for submission to the National Highway Traffic Safety Commission using the NHTSA's own figure for the dollar value of a human life as a way of calculating the cost/benefit trade off of applying a set of regulatory changes relating to fuel tanks to the entire US car fleet. In other words, it asked "how much would it cost to fit all cars in the US with these features, and how many lives would that save and do the savings outweigh the costs." The cost of defending against lawsuits was no part of the calculation.

But somehow, a document not specifically about the Pinto and which had nothing to do with the cost of fighting lawsuits has become everyone's favorite smoking gun about the way big corporations assume the cost of fighting product liability lawsuits as part of the necessary cost of doing business. In the war between reality and Fight Club, Fight Club wins. Which, when you think about it, is kind of ironic.
posted by yoink at 9:19 AM on January 3 [1 favorite]


yoink: if true, it sounds like the pinto example is the left's version of the McDonald's coffee lawsuit (wildly mis-characterized by tort-reform proponents/the right).

I believe your assertion, but it can be helpful to provide a citation when trying to refute a commonly held belief.
posted by el io at 1:00 PM on January 3


el io, here's a good piece from the Rutgers Law Review (pdf) which goes over the case. But, really, just google "Pinto myth" and you'll find plenty of weary debunkings. It's pointless, of course--the myth is too good for reality to compete.
posted by yoink at 2:13 PM on January 3 [1 favorite]


Instead of throwing people in jail, why not just force the corporations to fire people?
posted by empath at 3:50 PM on January 3


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