Mihailis Diamantis on the Character Theory of Corporate Punishment

Corporate criminal law is currently being driven by retribution and deterrence.

Mihailis Diamantis would upend the apple cart by considering a third theory of punishment –  character theory.

Mihailis Diamantis
University of Iowa
College of Law

“Since the potential harms and private gains of corporate crime are so large, corporate punishment under these theories – retribution and deterrence –  must be exacting – too exacting,” Diamantis says.

“In fact, it is difficult under current law to punish many corporations formally without killing them. Ironically, this fact leads to the under-punishment of corporations. Prosecutors – understandably hesitant to shutter some of the country’s largest economic engines – increasingly offer corporations deferred prosecution agreements in lieu of charges and trial.”

In a new article, Clockwork Corporations: A Character Theory of Corporate Punishment, Diamantis considers corporate punishment for the first time from the framework of a third major theory of punishment – character theory.

“Character theories of punishment focus first and foremost on instilling good character and civic virtue,” Diamantis writes. “Criminal law scholars have largely marginalized character theory because it struggles as a suitable framework for individual punishment.”

“But the practical and moral problems character theory faces in the individual context do not arise with the same force for corporations. In fact, character theory offers the possibility of punishing corporations in a way that preserves and enhances the social value they create while removing the structural defects that lead to criminal conduct.”

Diamantis proposes abolishing the corporate fine and allowing sentencing judges to balance the need to punish against non-criminal aspects of a corporate criminal’s character.

Diamantis is an Associate Professor of Law at the University of Iowa College of Law.

“I want to think about drawing more analogies rather than fewer between corporations and people and how that can fix problems we have in criminal law,” Diamantis told Corporate Crime Reporter in an interview last week. “One of the problems we have in criminal law is that fines don’t work. We have separate sentencing guidelines just for corporations. In some ways, that makes sense. But we are missing some opportunities. One of the opportunities we are missing is we are missing thinking about corporations as beings that have character.”

“We have four basic theories of punishment. Incapacitation, deterrence, retribution and rehabilitation.”

“Incapacitation for corporations in a lot of cases is inadvisable. If you incapacitate a corporation you kill it. It’s like stopping a shark from being able to swim forward. If the corporation is not generating economic value. It dies.”

“That leaves most people who are talking about corporate criminality with deterrence – that’s where the emphasis on fines comes in – and retribution, which leaves a lot of people feeling uncomfortable. Corporations don’t have minds. They don’t have guilty mental states.”

“But the fourth option is rehabilitation. When you think of corporations having character, as people have character, then they can have defective character. That can be criminogenic. And if we focus on what role the law can have in fixing that defective character, we open a new theoretical space on what work corporate punishment could do.”

“If we shift our focus in that direction, we end up with a theory of corporate punishment that is more coherent, more satisfying as an expressive measure and for the people interested in deterrence it will lead to less corporate crime in the end.”

How do we know it will lead to less corporate crime in the end?

“We don’t know. But we do know that fines are not working.”

How do we know fines are not working?

“We see a high rate of corporate criminal recidivism despite the fines.”

It’s very difficult to measure deterrence.

“That’s right. But we have high rates of corporate criminality right now in the present where the dominant response is fining. But we also have reasons internal to the theory of deterrence that will predict that fines won’t deter.”

“As much as I like to think of corporations as analogous to persons, in fact they are composed of people. And these people have a big influence on whether or not the corporation ends up committing crimes.”

“Under deterrence theory, if you want to influence how the corporation is going to behave, you have to influence the actions of those individual people. And corporate fines are a bad tool for doing that. Corporate fines imposed on corporation are distributed against all of the stakeholders of the corporation. You don’t get at the incentives of the individuals who are actually in a position to prevent or to instigate criminal conduct.”

“There are structural reasons internal to the deterrence theory that would predict that the corporate fine is not going to do the work we hope it would.”

What do you make about this move away from criminal prosecutions to deferred and non prosecution agreements?

“There are a couple of things that make me uncomfortable about it. I’m not persuaded that prosecutors are the best parties to be structuring these agreements. I don’t think prosecutors are the most informed parties about different industries and how compliance works in those industries. Prosecutors are also subject to various unchecked political and personal influences.”

“It’s not as if the courts are a perfect solution. But court imposed sanctions mitigate some of those concerns.”

“The deferred and non prosecution agreements short change the public’s interest in having a verdict of guilt against corporate criminals whose conduct is so deeply affecting their interest. The expressive significance of an agreement, as opposed to an in court determination or admission of guilt is very different.”

“There are two kinds of interest that are compromised – one is the proper functioning of the system and the other is the social interest we have in expressing our condemnation of corporate misconduct and our evaluation of the victims of that misconduct.”

What are you working on now?

“I’m working on an article on successor criminal liability. It has been underexplored as an opportunity to give corporations the right kinds of incentives that we want them to have in the criminal law. As per usual, I have this philosophical angle I’m using to open the question up to start thinking about possibilities.”

“The paper is entitled – Successor Identity. The philosophical leverage point is the philosophy of personal identity. That’s an area of philosophy that looks at how people change over time and what kinds of changes a person can go through before they become a totally new person.”

“There are certain kinds of brain damage a person can have that makes them a new person. And then you have this question in criminal theory about whether the person who committed a crime, if they subsequently have some severe brain trauma and are punished, does it makes sense to punish the person now for the crime they committed prior to the brain damage? It seems as if you would be punishing a different person for the crimes of the past.”

“It doesn’t come up all that often for individuals. But it is a question we should be asking for corporations. It comes up all the time for corporations. Unlike individuals, corporations are changing in all of these different ways all the time and in ways that individuals can’t.”

“Corporations change their personalities, their management, their ownership all the time, they change their employees, they change their lines of business. And then they change in ways that would be really bizarre from an individual perspective. They split into separate businesses. They can spin off divisions. Or they can merge with other corporations.”

“If we think that our criminal law should only punish people, whether real or fictional, who have committed crimes, we have to ask ourselves whether the corporate person we are convicting today is the same corporation that committed the crime at some point in the possibly distant past.”

“As far as I can tell, we always say the answer is yes. We always say the present day corporation is identical to the past corporation. But this misses an opportunity to encourage corporations in that intervening time to undergo the kinds of changes that we want the criminal law to be incentivizing.”

“We are missing an opportunity, for example, to encourage corporations to engage in long term projects of reform. If we say to the corporation — if you undergo enough reform, change yourself enough, you will be regarded for the purposes of the criminal law as a new corporation. That would give corporations a very strong incentive to undergo exactly the kinds of internal investigation, detection, reflection and reform that everyone thinks corporate criminal law should be in the business of encouraging.”

[For the complete q/a format Interview with Mihailis Diamantis, see 32 Corporate Crime Reporter 8(10), Monday February 19, 2018, print edition only.]

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