Corporate Honesty

Michael D. Moberly, Principal, Founder, kpstrat

A business blog in which attention span really matters!

Corporate honesty is a powerful + valuable intangible asset!  Here, now, I respectfully wish readers view this intangible asset through a legal lens referred to as ‘intangible right to honest services.’

I am obliged to admit this post is influenced by this weeks ‘guilty plea’ entered by Purdue Pharma and the Sackler family (owners of Purdue Pharma) relative to their role in the ‘opiod crisis’ which occurred in the U.S. over a 21 year period and less arguably contributed to the death and/or disaffection of 400,000+ people and families.

Here, now, please consider 18 U.S. Code § 1346, a federal criminal statute making it a crime to…

“deprive another of the intangible right of honest services.”

This statute has been variously pared down by SCOTUS since its inception starting with a 1941 Supreme Court decision in which…

  • a public official received bribes in exchange for favorable action on a city contract.

In this instance, even though the city saved money on this particular action, the element of bribery essentially rendered the conduct of that public official…“a scheme to defraud the public.”

Often, in circumstances in which fraud is alleged…there are sequential connectors that are necessary to be present + provable, i.e., a fraudster acquires and/or gains something of value (tangible or intangible) at the expense of another, i.e., a victim.

Under the ‘honest services doctrine’, there need not have been specific or necessarily sequential connectors that must be exposed. The reason…courts did not limit the ‘honest services doctrine’ solely to fraud by public officials.

  • Instead, the doctrine began to be applied to (private) individuals while participating in public decisions, e.g., Volkswagen engine emissions scandal and/or Purdue Pharma – the Sackler family vis-a-vis OxyContin

Conceivably, §1346 could be applied to most any notional breach of fiduciary duty, argues James D. Zirin, a New York lawyer and former federal prosecutor and former host of “Digital Age.”

For most, myself included, there remains vagueness (constitutional and conceptual)with respect to actually – applying the intangible right of honest services doctrine and statute. In part because, conceivably, the doctrine could even apply to…

  • circumstances in which employee contact their employer feigning illness, and then attended a baseball game, or
  • a public official who sought to leverage their office and/or position to secure a corner table reservation at a popular restaurant.

Perhaps correctly, former Justice Scalia (SCOTUS) asked, regarding the “what is the criterion of guilt?” relative to the intangible right of honest services’ statute,

Now, let us examine this via ‘businesses moral responsibility of honesty’ as it translates – applies to individuals (people), i.e., as generally considered morally responsible for their actions.

But, precisely who, when, and under what circumstances does moral responsibility of honesty fully attach?  Of course, these questions are routinely argued – debated, e.g.,

  • can moral responsibility for misconduct, cheating, dishonesty, and/or fraud attach to an organization, and, if so, what would the grounds for this claim be?
  • when and to what extent does moral responsibility attach to specific individuals and/or employees in an organization?
  • how are those individuals to be distinguished, insofar as obligations to have such moral responsibilities, aside from those assigned certain fiduciary responsibilities?

Adapted by Michael D. Moberly from the fine book edited by Eric W. Orts and N. Craig Smith titled ‘The Moral Responsibility of Firms’.

It relevant to recognize the irreversible economic fact + business operation reality that 80+/-% of most business’s sources of revenue, competitiveness, sustainability, and value today, and for the foreseeable future, lie in – emerge directly from intangible assets, i.e., various forms – contexts – applications of intellectual, structural, and relationship capital.


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