Clockwork Corporations: A Character Theory of Corporate Punishment

Clockwork Corporations: A Character Theory of Corporate Punishment Mihailis E. Diamantis * ABSTRACT: Retribution and deterrence currently drive the politics and scholarship of corporate criminal law. Since the potential harms and private gains of corporate crime are so large, corporate punishment under these theories must be exacting . . . too exacting. 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. This Article 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. 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. Along the way, the Article * Associate Professor, University of Iowa, College of Law. For invaluable feedback at various stages, I owe special thanks to Miriam Baer, Rachel Barkow, Lisa Bernstein, Stephanos Bibas, Michael Cahill, Anthony Deardurff, Anne Estin, Tom Gallanis, Brandon Garrett, John Hasnas, Josh Kleinfeld, David Kwok, Bill Laufer, James Nelson, Mark Osiel, Lee Otis, Todd Pettys, Elizabeth Pollman, Daniel Richman, Sarah Seo, Amy Sepinwall, Lynn Stout, Will Thomas, and participants at the following conferences and workshops: Brooklyn Law School’s Markelloquium, Cornell University’s Workshop on Corporations as Legal Persons, CrimFest 2016, Georgetown University’s Institute for the Study of Markets and Ethics, Indiana University’s Big 10 Junior Scholars Conference, the National Business Law Scholar’s Conference, University of Chicago’s Legal Scholarship Workshop, University of Kentucky’s faculty speaker series, and Wharton’s Zicklin Center for Normative Business Ethics Workshop. I am also grateful to my research assistant, Nathan Golden. 508 IOWA LAW REVIEW [Vol. 103:507 defends some heterodox proposals, including abolishing the corporate fine and allowing sentencing judges to balance the need to punish against non-criminal aspects of a corporate defendants’ “character.” I. INTRODUCTION ............................................................................. 509 II. THE RETRIBUTION RATCHET ........................................................ 516 III. THE DISTORTIONS OF DETERRENCE ............................................. 518 A. D ETERRENCE T HEORY D EFINED ................................................ 518 B. T HEORETICAL P ROBLEMS WITH D ETERRENCE ........................... 520 1. Punishing the Innocent ................................................ 520 2. Pricing Crime ................................................................ 524 3. Inevitability of Over-Punishment ................................. 525 IV. PROBLEMS IN PRACTICE: DPAS AND NPAS ................................... 527 V. CORPORATE CHARACTER .............................................................. 533 A. D ESCRIPTIVELY I NADEQUATE ? .................................................. 536 B. P ROBLEMATIC FOR I NDIVIDUALS ............................................... 538 C. C HARACTER T HEORY FOR C ORPORATIONS ................................ 539 VI. CULTIVATING CORPORATE CHARACTER THROUGH PUNISHMENT ................................................................................. 544 A. F ACTORS TO C ONSIDER IN W EIGHING THE N EED FOR P UNISHMENT .......................................................................... 545 B. P UNISHMENTS C HARACTER T HEORY W OULD N OT S UPPORT ................................................................................. 548 1. Fines ............................................................................... 549 2. License Revocation and Debarment ............................ 549 3. Reputational Penalties .................................................. 550 C. T ECHNIQUES FOR R EFORM ....................................................... 551 D. S OME L IMITING P RINCIPLES .................................................... 557 E. E NTER THE J UDGES : B ENEFITS OVER P ROSECUTION -L ED R EFORM .................................................................................. 559 F. P OTENTIAL C ONCERNS ............................................................ 562 1. Cost to Innocent Third Parties ..................................... 562 2. Expertise of the Judiciary ............................................. 563 VII. CONCLUSION: SOMETHING FOR EVERYONE .................................. 565 A. D ETERRENCE AND P REVENTION ................................................ 565 B. R ETRIBUTION AND E XPRESSION ................................................ 568 2018] CLOCKWORK CORPORATIONS 509 “[H]ow about this new thing they’re talking about? How about this new like treatment that gets you out of prison in no time at all and makes sure that you never get back in again?” 1 I. INTRODUCTION It is actually not so new. Though unpopular for the last few decades, punishing criminals by reforming them was once the predominant approach. 2 Anthony Burgess poignantly described one prominent concern that led to its demise: Coerced reform risks turning people into “clockwork toy[s] to be wound up by . . . the Almighty State.” 3 Forcefully changing character and personality is an affront to the self-defining freedom that is the root of human dignity. While generally marginalized today, punitive reform is undergoing a resurgence for a different kind of “person”—the large, publicly traded corporate criminal. Prosecutors are at the forefront of the movement. In the deals they cut with corporate suspects, prosecutors often require programs of reform. 4 Implicit in how prosecutors now treat corporate defendants is the recognition that their fundamentally different nature allows for a different approach to punishment. Burgess’s complaint loses all its force in the corporate context. Corporations are not, and cannot be, free, self-defining loci of dignity. Scholars and lawmakers are still behind the curve. While prosecutors have been experimenting with reform-as-punishment, the dominant academic and political discourses on corporate crime still focus on deterrence and retribution. 5 There is the seed of a third path in what prosecutors are doing. This Article seeks to uncover the implicit logic behind corporate prosecutors’ decisions. In its present form, prosecutorial practice is focused on reform and rehabilitation. Were the logic of the practice pushed and perfected as an approach the entire criminal justice system could take toward corporate punishment, an organizing theory that is different from deterrence and retribution emerges—character theory. As argued below, character theory opens new conceptual space for solving some of the most persistent problems in corporate criminal law. 1. ANTHONY BURGESS, A CLOCKWORK ORANGE 69 (2012). 2 . See infra Part V.B. 3. BURGESS, supra note 1, at 2. 4 . See Anthony S. Barkow & Rachel E. Barkow, Introduction to PROSECUTORS IN THE BOARDROOM: USING CRIMINAL LAW TO REGULATE CORPORATE CONDUCT 1, 3 (Anthony S. Barkow & Rachel E. Barkow eds., 2011) (Using deferred prosecution agreements, “prosecutors impose affirmative obligations on companies to change personnel, revamp their business practices, and adopt new models of corporate governance.”). Some scholars, though, question whether prosecutors really care about reform. BRANDON L. GARRETT, TOO BIG TO JAIL: HOW PROSECUTORS COMPROMISE WITH CORPORATIONS 75 (2014) (“These data suggest that prosecutors are not taking structural reform seriously.”). 5 . See infra Parts II–III. 510 IOWA LAW REVIEW [Vol. 103:507 One of those persistent problems is the dark and unjust underbelly to the way prosecutors handle corporate criminals—criminal justice is often softer on corporate criminals than on real people. On paper, the Department of Justice officially treats corporations as ordinary people. 6 Somehow, though, corporations are much less likely to see criminal charges. Less than .03% of corporations faced prosecution in the last quarter century. 7 To put this in perspective, 8.6% of the U.S. adult population has a felony conviction. 8 There are many possible explanations for this discrepancy, including over-criminalization of some forms of individual conduct 9 and over-enforcement against certain demographics. 10 Another possibility 11 is that the large, public corporations that are the focus of this Article receive some of the lightest treatment. 12 The perception that large, public corporations routinely escape conviction is troublingly paradoxical. These corporations are among those most likely to commit crimes, 13 and their conduct most deeply impacts society. They have an extremely wide base of liability. Under current doctrine, they are automatically liable for almost any crime any individual employee commits on the job. 14 This adds up to a staggering degree of exposure for large corporations 15 —the 75 largest corporations in the United States employ 6. Memorandum from Larry D. Thompson, Deputy Attorney Gen., U.S. Dep’t of Justice, to Heads of Dep’t Components & U.S. Attorneys, Principles of Federal Prosecution of Business Organizations (Jan. 20, 2003) (“Corporations should not be treated leniently because of their artificial nature nor should they be subject to harsher treatment.”)...