If a company is only as good as its people, should it be punished for the bad things its employees do? If some staff at BAE Systems broke the rules, why not make them pay the penalty rather than the corporation?
Companies are legal entities, but can they have ethics or morals or do only directors or employees exercise such qualities? Businesses can be liable for damage caused by negligent or malicious staff — compensating victims of a deficient product, for instance — but should they also pay fines?
It is not only BAE that is in this position. A host of regulators as well as the courts have powers to impose financial penalties. As the Serious Fraud Office started its action against the defence company, Ofcom fined Channel TV £40,000 for rigged phone-ins; the Financial Services Authority fined Barclays £2.45m for poor deal reporting; the Office of Fair Trading fined 103 building firms £130m for rigging bids plus six recruitment firms £40m for price-fixing; and the courts fined bridge-builders Mabey & Johnson £3.5m for offering bribes.
But while a company is responsible for the consequences of rogue employees’ actions, should not the employee pay the penalty? The issue of a company’s responsibility was rehearsed during the long debate on corporate manslaughter but the question remains, can a company be immoral or merely its staff? And if the company clears out the staff that breached the rules, should the business be punished as well as remaining liable for the damage caused?
Frequently the company is a victim of its employees’ actions, just like the external parties that suffer. Why fine a company that must pay the compensation as well as see its reputation damaged?
Does it make a difference if the illicit activity was undertaken by directors or ratified by the board - or should responsibility remain with those individuals, however high?
Individuals cannot pay the massive fines now handed out by regulators, of course, but the penalties are set so high simply to inflict noticeable pain. A £100,000 fine on an executive might hurt just as much as a £10m fine on his company.
These fines now make a significant contribution to public coffers. The Serious Fraud Office was apparently seeking £300m or more from BAE; the FSA last year fined financial firms £27m — up from £4m the previous year.
It can be argued that a company warrants a fine because it employed the staff that broke the rules and failed to monitor them to prevent the breach. But if the company has to pay the penalty, there is little incentive for the employee to act ethically and morally. If the SFO has evidence of bad behaviour at BAE, perhaps it is past employees it should be pursuing, not a current corporate entity.
(Pic: laura padgett cc2.0)
