Corporate Crime

Public Perceptions, Social and Legal Realities

Equating the sizable corporation with an actual society is by no means a specious analogy, for the similarities are many, and cover a broad range of inherently “societal” functions and manifestations. People tend to exist within corporations that employ them as they exist within the larger society, and thus the corporation takes on something of an all-pervasive influence: “They support think-tanks, political causes...they fund football...they aid the arts, theatre, ballet. They employ us; they sack us”. It is hardly surprising, then, that corporations which make the actual livelihoods of the majority of people possible, take on mythical proportions in the average mind. The larger they become, in fact, the more associated with forces of nature they tend to be.

Often happily assisting this perception is the image the corporation chooses to present, for it is often one of a nearly regal nature. The founders or the creators of the corporation, from Steve Jobs at Apple to Martha Stewart, take on literally legendary aspects, enhanced by the media and frequently promoted by the corporations themselves. It is very common for a CEO to be a somewhat larger-than-life figure, notorious for a powerful personality and as known to the public as an elected leader 4. As certain such CEOs have discovered to their dismay, there is a decided down-side to this degree of exposure. In being the “face” of the corporation, they are as well perceived as the acting forces behind both the great successes and the criminal activities.

Largely due to recent corporate abuses of a truly immense proportion, there is in the public the belief that corporate crime is typically conducted at the highest levels of the organization, and by the directors and chief officers of the firm. The media sensationalizes these instances of high-ranking abuse because they offer the ideal target of the wealthy industrialist as insatiably greedy and reckless criminal. The reality is different, for the majority of corporate crime has been found to occur within the tiers of middle-to-low management. Large corporations are intrinsically structures in which vast opportunity is available, and this opportunity may not be restricted to simple career advancement. Simply put, it is easier to mask suspect activities in a dense and massive organization.

A fascinating and highly pertinent example of this, which also reflects corporate abuse under a known “name”, is that of the Heath International Holdings (HIH) insurance collapse of 2001. Essentially, a series of ongoing and disastrous strategies culminated in the Australian insurance giant's liquidation, which would cost the nation's taxpayers billions. On one level, it was eventually established that Rodney Adler, who would become a director of HIH, had sold his own company to the corporation for a price HIH was unable to pay, and which greatly hurt the HIH standing in the stock market. Then, run-away growth was enabled by inadequate pricing structures; in the span of a few years, over 200 subsidiaries in international locations were opened, and the HIH activities in California alone reflected a dangerous ignorance of correct insurance pricing and the cycles of the same as being directed by the government.

Many of the most common aspects of corporate criminality and/or fiscal failure may be identified in the HIH model. For one thing, the imminent demise of the corporation did not come without warning: “A New Zealand-based credit risk rating firm, Rapid Ratings, published a report in 1996 that warned of HIH's struggles with a heavy debt burden and suggested that the firm was bordering on bankruptcy”. This was years before even some of the corporation's most ill-advised policies were in place. Then, even as Adler vigorously defended as legitimate and ethical the sale of his company to HIH, the specter of a powerful man's avarice rears its head, as it were. The facts notwithstanding, the HIH debacle came to be associated with Adler's poor performance and dubious methods. Public perception typically demands a scapegoat, no matter the actual course of a corporate investigation, and Adler fulfilled that role.

The most important facet of this case, however, as it relates to corporate liability, is in fact two facets. The first reflects actual criminality, and the immense difficulty of distinguishing criminal intent from more excusable, if equally destructive, inept management. Investigations determined irrefutable realities: “Poor strategic sense, weak operational control, and corporate governance complacency were ingrained in HIH management”. While hardly commendable attributes or practices, the question nonetheless becomes: are they criminal? More precisely, at what point within a vast corporation does a failure to act with reasonable intelligence become a criminal offense? The answer is that, unless intent to defraud and/or manipulate information or resources is established, they do not. However, the absence of criminality by no means eviscerates a punitive measure inevitable from such enormous lapses in judgment, for the corporation's failure is virtually then assured. Unfortunately, this repercussion drastically affects many thousands uninvolved in the destructive strategies, as well as the surrounding society which must absorb the many losses.

The second facet is closely allied with the first, and regards that factor of middle-management culpability. As may be reasonably surmised, the very expanse of the doomed HIH policies confirms that they were not the work of an isolated individual or small assembly of directors; these were strategies developed and decisions taken in small branches around the world. Such a widespread form of abuse, moreover, both impedes and abets investigations. On one level, actual responsibility for negligence is rendered virtually impossible to ascertain; on another, and far more to the crux of the issue, such investigations must then focus on the corporation itself as the entity which permitted and encouraged such flagrant and ongoing incompetence. HIH, as a corporation, may have been guilty of no specific criminal wrongdoing, but it will always serve as a model for determining how a corporation can exist as an independent construct, and one subject to either punitive measures or a self-inflicted ruin.

The above, of course, goes to corporate responsibility, and another public perception of this is critical in examining potentials of criminality, or failures to observe societal standards, in corporations. It is ironic, but many corporations resist governmental interference and suggested policy changes because they aver that their very size renders change ruinously expensive. Then, such companies also, and not necessarily incorrectly, assert that they cannot reasonably predict the shifting cultural views which will place these demands upon them. Such arguments, however, are defeated by virtue of their own primary stance, for immense stature in a commercial sense not only reflects societal trust, but absolutely relies upon it. That is to say, if a government may alter laws to reflect evolving attitudes in regard to animal rights, for instance, so too may a corporation, because its interests are ultimately served by doing so. Then, it has been shown that such efforts to adapt are not either futile or costly; Novo Nordisk, a large pharmaceutical concern based in Denmark, has created a tool to track courses of societal learning, and this system may be adapted by virtually any corporation addressing or anticipating different concerns. The essential fact remains, as is reinforced here elsewhere, that corporate stature carries with it an exponential degree of responsibility to and within the society.