Executives Should Go to Prison to Deter Corporate Crimes

A lot of corporate executives swallowed hard the other day when an Illinois court sentenced three officials of a silver-recycling plant to 25 years in prison and $10,000 fines for murder.

The three executives didn’t shoot anybody. Their crime was to knowingly expose workers to deadly cyanide fumes; one of the workers died. This is believed to be the first time that corporate officials have been found guilty of murder for a worker-safety infraction.

Legal scholars who argue that manslaughter charges would be more appropriate in such a case may be right, but they are missing the point: In most instances, when a corporation commits a crime, company executives, especially top executives, are not held personally responsible at all.

Dishonesty is probably no more rampant in business than in other callings, but the temptations are there, in terms of both personal gain and pressures to go along with an atmosphere that encourages bending of the rules to improve a company’s “bottom-line” performance.

The Illinois case is an extreme example of what appears to be a growing and welcome trend toward holding culpable executives responsible for criminal acts that are committed by their companies with their knowledge or participation.

There have always been notable departures from the prevailing leniency toward executives. For example, in 1960 three General Electric officials were sent to jail for price-fixing. More recently a small manufacturer was sentenced to prison for selling the government defective cord for use in parachutes.

Typically, though, executives of large corporations have claimed that they were unaware of the criminal conduct of their companies, and prosecutors have usually been disinclined to take the time and trouble to prove otherwise.

Two years ago Sperry Corp. pleaded guilty to making false statements in requests for payments on defense contracts. The company was fined, but no individuals were charged.

National Semiconductor Corp. pleaded guilty to 40 counts of fraud involving incomplete testing of parts sold to the military. The company paid a fine of $1.75 million, but refused to identify the employees or officials responsible for the violations.

Four big New York banks were fined for currency violations, but corporate officers escaped criminal penalties.

E. F. Hutton & Co., one of the country’s largest brokerage firms, pleaded guilty recently to defrauding banks through a system of calculated overdrafts. Criminal fines totaling $2 million, in addition to other penalties, were imposed on the company. However, the Justice Department said that it would forgo prosecution of individuals because participation in the scheme was not traced “to the highest levels of the company.”

Yet punishment of responsible executives--making examples of them, if you will--may be the only real way to get at the problem. After all, you can’t lock up a guilty corporation; all that you can do is impose financial penalties. In the case of large companies, even multimillion-dollar fines are too small to have much of a deterrent effect. In any event, such penalties are commonly passed on to consumers as just another cost of doing business.

The Pentagon can and does penalize companies that cheat on defense contracts by suspending them from eligibility for future bids. In practice, though, small contractors bear the brunt of such actions because the Defense Department finds it impractical to blacklist large companies whose production and technological capacities are vital to the defense effort.

How could the Pentagon not do business with General Dynamics--the sole supplier of Trident submarines, F-16 fighters, Tomahawk cruise missiles and M-1 battle tanks?

If corporate crimes are to be deterred, action must be taken against the human decision-makers actually responsible.

Under our system of justice we shouldn’t get into the business of making the legal assumption that, because a corporate president is paid $1 million a year, he knows about everything going on in that company. But where responsibility can be proved and the infraction is serious (such as cheating taxpayers on defense contracts) people should go to jail. The argument that “everybody else is doing it” is no excuse.

Criminal charges against culpable executives are becoming more common, and some legal experts believe that the tough verdict in the Illinois cyanide case may accelerate the trend. To quote a spokesman for the American Prosecutors Research Institute: “When you have that kind of verdict, it’s only natural that prosecutors will say, ‘Well, maybe times have changed.’ ”

So far, however, the prosecution of executives remains the exception rather than the rule. And, even when officials of large corporations are convicted, they are more likely to get a fine and a “community service” obligation than go to jail.

One reason is the shortage of jail cells; prisons are bulging with people convicted of violent crimes, leaving little room for anyone else. But that’s an argument for building more jail cells, not for winking at corporate crime.

Unquestionably, however, another factor is involved: the reluctance of most judges to put prominent men of their own class behind bars for economic, nonviolent crimes. Many magistrates find it easy to conclude that the corporate executive has learned his lesson, that the humiliation of arrest and trial is punishment enough.

Maybe in some cases it’s true, but a major purpose of sentencing is not punishment but deterrence of others who may be similarly tempted. And, even more for people with the personal pride and social standing of business executives than for others, deterrence is much stronger if the miscreant is led away in handcuffs.