Corporate honesty can be powerful moral and legal presumptions or it can merely be an aspiration seldom sought or achieved…and thus, words which make for good dinner table discussion and debate? I suspect, absent specific context, many may lean toward the aspirational answer, when in fact, it is largely settled law.
For example, when a company, through specific and repeated conduct of employees, whether asked, ordered, or volunteered…surreptitiously engage in actions known to violate regulatory law, ala the Volkswagen engine emissions scandal, there is an obvious problem. But, was there also a moral component to VW’s future legal problems in this matter, i.e., beyond merely being a fraud perpetrated on buyers of the affected automobiles? Certainly, it would not be a stretch to argue there would be more people adversely affected by breathing harmful emissions which buyers had been led to believe were substantially lowered by VW’s engine emission control system. In-actuality, the adverse emissions were fully present as before, something which Volkswagen Company officials new. https://kpstrat.com/wp-admin/post.php?post=4713
Volkswagen’s intangibles…is it germane to say that a business is morally responsible for the actions of individuals, e.g., VW? Reporting on the matter, along with subsequent court documents, tell us, for sure, that VW’s self-inflicted scandal was not the act of a single, rogue engineer. Instead it embodied sets of concerted, sustained, and surreptitious actions of many employees.
But, where does the moral responsibility lie?…does it lie solely with the individuals who developed and implemented the engine emissions diversion software? Or is VW Company, as-a-whole, responsible? And, if so, does that responsibility manifest as complicit collaborations of VW employees who knew in advance, or eventually came to know about the fraud, but, for various reasons, chose to remain silent. And, does a moral responsibility exist for a VW trained engine emissions technician employed at a Volkswagen dealership in Terre Haute, Indiana, Columbus, Ohio, or Kaiserslautern, Germany who may have recognized the problem?
Yes, VW is resolving its engine emissions scandal in the US…we know this based on their guilty plea which included $4.3 billion in fines, portions of which were in-kind to current and former owners of the affected VW automobiles, i.e., credit toward the purchase of a new VW automobile. However, VW’s engine emission challenges in the EU have yet to be completely settled. In fact, some EU member countries have initiated criminal proceedings against VW, influenced in part when the European (oversight) Commission made its feelings clear that some member countries response to VW’s emissions test cheating had been, in their view, insufficient.
Depriving others of the intangible right of honest services…enter 18 U.S. Code § 1346, a federal criminal statute making it a crime to “deprive another of the intangible right of honest services,” which 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 the deal, the element of bribery made the conduct “a scheme to defraud the public.”
Normally, in circumstances in which a crime of fraud is alleged…there have been a sequential and connecting symmetry, i.e., a fraudster gains something of value at the expense of a victim. Under the ‘honest services doctrine’, there need not have been specific symmetry exposed as courts did not limit the ‘honest services doctrine’ solely to fraud by public officials. Instead, the doctrine began being applied to private individuals participating in public decisions. In short, § 1346 was being applied to any notional breach of fiduciary duty, whatever its boundary or legal source says James D. Zirin, a New York lawyer and former federal prosecutor and former host of “Digital Age.”
Admittedly, the ‘intangible right of honest services’ is a constitutionally vague concept…conceivably, it could apply to an employee who called their employer feigning illness and then went to a baseball game, or even to a judge who sought to leverage their office-position to secure a corner table reservation at a popular restaurant. Perhaps correctly, former SCOTUS Justice Scalia, asked, regarding the ‘intangible right of honest services’ statute, “what is the criterion of guilt?” https://kpstrat.com/wp-admin/post.php?post=1621
In 1987, a SCOTUS decision challenged Congress to bring more clarity to…the ‘intangible right of honest services’ statute. The result, enacted in 1988, was much refined language to §1346, i.e., a scheme to deprive another of the intangible right of honest services.”
Corporations are people…remember presidential candidate Mitt Romney’s appearance at the Iowa State Fair in August 2011 when he famously said, “corporations are people”. In that exchange, a person in the audience shouted, “no, they’re not”, to which Romney responded by saying “of course they are, everything corporations earn ultimately goes to people”. (Adapted by Michael D. Moberly from the reporting of Phillip Drucker, Washington Post)
Company’s moral responsibility of honesty…individuals (people) are generally considered morally responsible for their actions. Precisely who, what, when, and the circumstances in which such responsibility fully attaches, is still subject to argument, e.g.,
- can moral responsibility for misconduct, cheating, dishonesty, and/or fraud attach to an organization, and,
if so, what are the grounds for this claim, and
- to what extent does moral responsibility attach to specific individuals – employees within an organization, and
- how are those individuals distinguished, 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’.)
No guilt, no blame…in the book ‘The Moral Responsibility of Firms’, Amy Sepinwall, a professor at the Wharton School, suggests in a chapter that corporations themselves…
- have no capacity for emotion, or responsiveness to moral reasoning, and are therefore,
- unable to experience guilt.
Thus, Sepinwall claims, it makes sense only to blame…those who can experience guilt, corporations do not qualify for moral agency. Instead, it is the individuals (employees) inside the corporation, not the corporation itself, who should take responsibility for actions taken in the name of a firm. Her position is supported by arguments put forth in the same book by David Rönnegard, a visiting scholar at INSEAD, and Manuel Velasquez, a professor of management at Santa Clara University. Both of whom, insist that individual members (employees) of corporations are “autonomous and free.”
Translated…company-level policies and procedures may influence the behavior of employees, thus it is employees who are ultimately responsible for their decisions and actions.
What about the role of corporate culture…if, for example, we re-scrutinized relevant components of the financial services sector whose sale of U.S. mortgage-backed securities, from 2002 to 2008. The findings, as we already know, variously sparked a global financial crisis. Is it sufficient or correct to attribute most or all-of-the blame and responsibility for what followed, to the independent actions of a greedy and insensitive leadership? Or, should we also consider the (intangible) cultures of the financial services sector in general, that facilitated the financial calamity to occur?
And, to what extent, if any, are there grounds for attaching responsibility to…those organizations that chose to tolerate – overlook the misconduct and dishonesty to continue over multi-year periods of time and the company leadership who may have tacitly, if not actively, encouraged those cultures to persist while disregarding the numerous cautionary flags that were raised.
Mitigating future risks…that lessen the vulnerability, probability, and criticality of the next Volkswagens and financial services calamities, starts by recognizing it is fiduciarily irresponsible and ultimately costly propositions to be on the wrong side of the… https://kpstrat.com/wp-admin/post.php?post=4010
- economic fact that 80+% of most company’s value, sources of revenue, competitiveness, and sustainability today lie in – emerge directly from intangible assets!
Michael D. Moberly October 26, 2017 St. Louis [email protected] ‘The Business Intangible Asset Blog’ where one’s attention span, intangible assets, and solutions converge.’
Readers are invited to search other blog posts and explore papers and books I have published at https://kpstrat.com/blog