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With some companies seeing fines as a fee for law breaking, is it time to pursue the individuals?
It seems that every day brings new revelations of corporate fraud leaving shareholders at a loss, workers without jobs and consumers victimised. The epidemic is not limited to a specific industrial sector. Take your pick: from pharmaceuticals to financial services, there is no shortage of poster children for wrongdoing and some are repeat offenders.
With multinational corporations growing larger than some countries, real questions exist as to how they can be regulated. Do these behemoths simply view government penalties as the fee for a licence to break the law?
An analysis of 19 settlements with multinational pharmaceutical companies involving claims of pharmaceutical fraud against the US government demonstrates that large-scale government investigations that led to settlements resulted in little or no impact on the market capitalisation of the multi-national defendant.
When GlaxoSmithKline paid $3bn (£1.9bn) to the US government and state governments last July to settle claims of unlawful marketing of its drugs, the company’s market capitalisation actually increased by 1.68 per cent.
In 2010, when AstraZeneca resolved claims that it unlawfully marketed the drug Seroquel, its market capitalisation increased by 1.35 per cent.
While these settlements involve large dollars, amounts paid out by AstraZeneca (2010), Allergan (2010), Novartis (2010), GlaxoSmithKline (2012), Abbott (2012) and Amgen (2012) involve sums of money that were but a fraction of the wrongdoers’ market capitalisation.
There are perhaps several lessons to be learned from this information. With multinationals growing well beyond the oversight and compliance capabilities of regulatory agencies, there is a critical role for whistleblowers who can jump start an agency investigation with thoughtful information about wrongdoing. This raises the question of what an agency should do with information about wrongdoing in terms of targeting prosecutions that will have a deterrent impact. While corporations may be hard to punish and certainly cannot be placed in prison, the same cannot be said for those who run them.
The truth is that much corporate fraud is perpetrated by corporate officials when their personal economic goals are placed ahead of long-term corporate interests. The Enron debacle provides the best example supporting this proposition.
A decade ago, then deputy attorney general of the US Department of Justice, Larry Thompson, issued what has come to be known as simply “the Thompson memo”. Thompson noted that “prosecution of a corporation is not a substitute for the prosecution of criminally culpable individuals within or without the corporation.” Thompson also explained that because corporations can act only through individuals, individual liability may “provide the strongest deterrent against future corporate wrongdoing”.
With scandals involving multi-national companies making headlines daily, perhaps regulators across the globe might focus on the advice of the Thompson memo, now a decade old.