The Academic Perspective

Monitorships are a common part of the suite of sanctions for corporate misconduct.^[2] Prosecutors show an increasing interest in actively reforming corporate criminals^[3] and seem to favour using monitors for the job.^[4] Judges, too, can^[5] and sometimes do^[6] impose sentences that involve monitor-directed reform. The role of the corporate monitor, in light of its new-found prominence, has come under increasing scrutiny by academics. The general tenor of the resulting discourse has been one of concern, namely that monitors do too much or too little, the wrong thing, or the right thing in the wrong way.^[7] Corporate lawyers and academics generally incline towards the efficiencies of private ordering, which is reflected in their preference for relatively hands-off sanctions, such as fines. Monitor-directed corporate reform is anything but hands-off.

This chapter, however, sounds a relatively rare note of enthusiasm for the criminal justice potential of the corporate monitor. When private ordering becomes corrupted by familiar pathologies of the organisational setting – agency costs, collective action barriers or ineffective information channels – a more hands-on approach may be the most effective remedy. As instruments of criminal justice, monitors and the promise of reform they bring should be evaluated in light of the goals of corporate criminal law. As argued below, monitors may be uniquely situated as the most promising agents for achieving those goals (see section titled ‘Criminal justice advantages of monitors and reform’, below). In fact, when corporate monitors are used effectively, they may obviate the need for any other form of criminal sanction (see section titled ‘Implications of monitorships for other sanctions’, below). When designing monitorships, prosecutors, judges and monitors must bear in mind some of the unique weaknesses of monitorships and incorporate terms to address them (see section titled ‘Addressing the unique criminal justice challenges of monitorships’, below).

Criminal justice advantages of monitors and reform

Criminal law finds itself in the embarrassing position of having punished corporations for more than a century^[8] without a defensible theory of what corporate punishment is supposed to accomplish.^[9] Consequently, corporate sanctions often involve a range of terms grasping ineffectively at cross purposes. A more effective approach would adopt a single coherent theory of corporate justice. The main alternatives that academics have embraced are retribution and deterrence (neither of which, as explained below, is suitable for the corporate context). While corporate rehabilitation is rarely discussed as a stand-alone goal of corporate punishment, it alone offers a coherent purpose for corporate criminal law. With rehabilitation comes the crucial role of the corporate monitor.

According to retributive theories of punishment, criminals should suffer their just deserts.^[10] Retributivist themes are prominent in public and political discourse about corporate wrongdoing.^[11] Retributivism is socially salient owing to a feature of human psychology that disposes people to see corporations as (what cognitive scientists call) ‘entitative’ groups.^[12] Once viewed as entities rather than mere collections of people, these groups occupy a similar place in human cognition to other moral agents. This means that people are disposed to blame and wish harm on corporations that behave in ways people perceive to be wrong.

The trouble with retributivism as a framework for corporate punishment is that corporations cannot experience suffering.^[13] Since corporations have ‘no body to be kicked’,^[14] the punishment the law imposes typically takes the form of monetary fines.^[15] But fines flow through the corporate fiction to harm shareholders and employees, who, more often than not, will be innocent of their corporation’s misconduct.^[16] Shareholders and employees, as natural people, do suffer. So the unresolved paradox of retributive corporate punishment is that the bulk of the suffering that corporate punishment inflicts affects those who do not deserve it.

Deterrence as a framework for corporate punishment has a similarly fundamental shortcoming. Corporate sanctions, according to deterrence theorists, are supposed to alter corporate incentives so that criminal conduct becomes unappealingly costly.^[17] Corporations may seem to be particularly appropriate targets for deterrence because they excel at the sort of cost–benefit analysis on which deterrence theory relies.^[18] However, just as corporations do not suffer, they do not have the psychological structures capable of supporting independent incentives.^[19] People sometimes say that corporations ‘want’ profit, but this is just shorthand for pointing out that the individuals who own and operate corporations want profit. Since corporations do not have their own incentives, there is no direct mechanism through which corporate sanctions could have a deterrent effect.

It might be possible to deter corporations indirectly by targeting the individuals who act on their behalf.^[20] These individuals have their own incentives, yet corporate punishment is a poor tool for getting at them. Each shareholder and employee suffers, at most, a fractional share of any corporate-level sanction. These diluted sanctions cannot hope to outweigh whatever private gains – reputation, bonus, promotion – induce individual employees to commit crime. Deterrence theory and corporate fines cannot overcome the inescapable economic fact of agency costs.^[21] Indeed, available empirical evidence shows that corporate fines are ineffective at reducing corporate misconduct.^[22]

Retribution and deterrence both fail because they get lost in the fiction that corporations are people. These two theories forget that corporate ‘suffering’ and ‘incentives’ are just as illusory as the corporate ‘people’ who are said to have them.^[23] Rehabilitation is different.^[24] It offers a framework within which there is something corporate sanctions can actually achieve without assuming corporations have human psychological attributes – preventing corporate recidivism^[25] and modelling good corporate citizenship.

Organisational theorists have long recognised that corporate-level features (culture, processes and procedures, compensation rubrics, etc.) influence how employees behave.^[26] Corporate culture in particular has garnered the attention of policymakers^[27] and academics in business^[28] and law.^[29] Some aspects of corporate culture are, as with culture generally, premised on shared understandings, practices and histories that bring some features of the environment to social salience.^[30] Other factors that influence corporate culture include a corporation’s hierarchy, goals and policies, treatment of prior offences, efforts to educate employees on compliance with the law and compensation schemes.^[31] Corporate culture affects how employees behave.^[32] For example, a high-pressure environment oriented towards quotas and production goals with little emphasis on legal or ethical limits can foster malfeasance, even among individuals not otherwise disposed to it.^[33]

Compliance programmes are another organisation-level feature that influence the occurrence (and recurrence) of crime within a corporation.^[34] By definition, compliance programmes seek to prevent misconduct within corporations.^[35] They involve formal operational procedures designed to prevent, detect and remedy criminal conduct. The sorts of techniques currently emphasised in compliance literature are mostly common sense: ‘promulgation of codes of behavior, the institution of training programs, the identification of internal compliance personnel and the creation of procedures and controls to insure company-wide compliance with legal mandates’.^[36] But they need not stop there. Some scholars are calling for a more progressive, data-driven and technically sophisticated approach to compliance.^[37]

If criminal corporations have criminogenic traits – such as defective corporate culture or poorly structured compliance – these are distinctly corporate features that the criminal justice system can actually work on. For this reason, corporate rehabilitation is uniquely situated as a framework for corporate punishment. As argued in the section titled ‘Implications of monitorships for other sanctions’, below, it is a criminal justice goal that everyone can endorse, regardless of theoretical perspective.

In the effort to rehabilitate corporations, monitors have a crucial role. The fact that misconduct has taken place within a corporation is itself likely evidence of some organisational deficiency. The pervasiveness of the misconduct, the corporation’s history of that type of misconduct and any involvement of higher-ranking corporate officers are all factors that have a bearing on the magnitude of the deficiency.^[38] The question then becomes: How can it be repaired? The corporation cannot be left to fix its own defects. It was already entrusted to obey the law upon incorporation, and yet the defects still arose. The deficiency may have come about by design – perhaps some higher-ranking managers stood to benefit from the misconduct^[39] – but defects may also arise inadvertently because of incompetence, lack of will, inattention or poor communication about where risk resides. Whatever the case, the corporate structure and those running it were insufficient to keep the corporate house in order. Such a situation calls for an external party, with different expertise and incentives, and with the power to implement reform. Enter the monitor.^[40]

Implications of monitorships for other sanctions

When judges and prosecutors impose a corporate monitorship, it is typically alongside other corporate sanctions. Ideally, the various sanctions should hang together as a coherent, mutually reinforcing punitive package. Getting to the question of coherence presupposes that there is some legitimate function the other sanction terms need to perform. So it is worth asking whether, if monitors can effectively rehabilitate criminal corporations (see the section titled ‘Addressing the unique criminal justice challenges of monitorships’, below), there is any criminal justice residue for other penalties to address.

The answer is likely to be ‘no’. As already discussed in the section titled ‘Criminal justice advantages of monitors and reform’, above, it is far from certain that there are any legitimate corporate criminal justice goals aside from rehabilitation. To the extent that other goals, such as modified versions of retribution and deterrence, should still have some purchase in corporate criminal law, corporate rehabilitation may be the best way to achieve them too.

Consider deterrence. As already argued, corporate fines are ineffective at deterring corporate misconduct because they cannot single out the individual employees whose incentives matter. Coerced reform, however, is also something corporations seek to avoid, especially when authorities appoint monitors to oversee it.^[41] Presumably this is because corporations, and the people who run them, are particularly averse to the intervention of external parties. So the threat that monitors pose to corporate autonomy has its own deterrent effect. What is more, unlike fines, intervention by a monitor strikes directly at the individual autonomy interests of the high-level employees within a corporation who are in the best position to prevent corporate misconduct.^[42] Monitors, then, can accomplish what corporate fines cannot – targeted deterrence.

Most deterrence theorists do not care about deterrence for its own sake, but for the ultimate goal of reducing the incidence of corporate crime. Here, reform and monitorships can beat typical deterrent sanctions at their own game. Successful rehabilitation directly reduces the incidence of corporate crime by forcing corporations to restructure operations so as to minimise the risk of recidivism.^[43] The aim of deterrent sanctions is to prevent crime indirectly by adjusting corporate incentives. Corporations hoping to avoid future sanctions have two options about how to proceed. They might choose to invest in reforming themselves and preventing future offences. This is the option that deterrence theorists usually assume corporations will take. But corporations might also choose to invest in better ways of concealing future offences.^[44] Which option will be in any corporation’s best interests – reform or conceal – will depend on contingent circumstances. When used effectively, monitors take the second option off the table – criminal corporations have no choice but to reform as their monitors direct.

Using monitors to implement reform may also vindicate the underlying value that retributivists care about in corporate criminal law. As already discussed, a straightforward translation of traditional retributivism to the corporate context is nonsensical. It would require, impossibly, that corporate criminals suffer for their crimes. A modified version of retributivism may be more appropriate; one that sees punishment as communicating society’s condemnation^[45] and helping to establish standards for appropriate behaviour.^[46] On this expressive form of retributivism, corporate punishment is a way for society to repudiate corporations that unduly prioritise profit over individual or social interests.^[47]

To the extent that authorities have a retributive goal with corporate punishment, it must be responsive to the public’s politically powerful demand for condemnation.^[48] If that is right, retributivists should want to assure that their approach to corporate punishment draws on whatever methods best align with and express this condemnatory impulse.^[49] An impressive body of evidence suggests that the human psychology of blame responds to the characterological traits of offenders that produce bad action rather than merely to bad action itself.^[50] This would suggest that people care most – morally – about the organisational defects that encourage, facilitate or permit employee misconduct. Coercively reforming these should be the best way to satisfy society’s need to blame corporate malfeasance. Fines are too easily dismissed as a cost of doing business. With better publicity about how monitorships work and what they accomplish, the public might come to see them as the most fitting vehicle for conveying retributive sentiments.

Addressing the unique criminal justice challenges of monitorships

Monitorships and corporate reform introduce a unique set of criminal justice challenges. Although calculating the right size of a fine for retributive or deterrent purposes may be difficult, imposing a fine seems relatively easy. The magnitude of the fine conveys the retributive message, and the deterrent effects (i.e., how to avoid another fine in the future) are left for the corporate target to sort out for itself. Data, though, has suggested that federal authorities are actually not very good at ensuring that fines imposed on corporations are paid.^[51] If the simple act of collecting a fine poses a challenge, what can we expect by way of follow-through on the much more complicated process of imposing reform through corporate monitorships? The fact that the US Department of Justice (DOJ) has only once found a corporation out of compliance with a pretrial diversion agreement (through which prosecutors typically impose monitorships) is not encouraging.^[52] All the beneficial criminal justice effects of monitorships can materialise only if the monitorships are well designed and properly implemented.

The inept implementation of prosecution-imposed monitorships is illustrative of a broader problem. Prosecutors lack the expertise necessary to design effective monitorship terms and programmes of corporate reform.^[53] This is reflected in the open-ended nature of the reforms that prosecutors require in pretrial diversion agreements.^[54] This is not because of any aversion prosecutors may have to detail. The terms of monitorships are quite specific when it comes to compensation, length of appointment, powers and reporting.^[55] However, so far as substance is concerned, prosecutors tend to give monitors carte blanche to design and implement reforms.^[56] Though accountability should be assured through the regular reports monitors must send to prosecutors, the latter lack the experience necessary to evaluate them properly.^[57] In any case, these progress reports effectively function as self-graded report cards, since the monitors are reporting on their own handiwork.

To a large extent, the lack of direction prosecutors provide to monitors is symptomatic of a broader problem with monitors and corporate rehabilitation – there is global ignorance about how to reform corporations and what effective compliance looks like. To be sure, the base of knowledge among organisational scientists and business scholars is expanding rapidly, but it is far from complete.^[58] Efforts to advance the understanding of corporate compliance are stunted by the fact that monitors’ reports are generally withheld from the public. As a result, the actual details and results of monitors’ efforts at reform remain secrets between corporate criminals and prosecutors.^[59] There is no evidence that prosecutors are keeping any kind of scorecard. Shockingly, after decades of relying on corporate monitors to help rehabilitate corporations, the US Government Accountability Office concluded that the ‘DOJ . . . has no measures to assess their effectiveness’.^[60]

These vulnerabilities of monitorships suggest some general policy changes that could help monitors achieve their criminal justice objectives. It should go without saying that monitors should be compliance experts in the relevant industry. This seemingly obvious point calls into doubt the DOJ’s habit of appointing former prosecutors as monitors.^[61] Further, even with expert monitors, authorities should do more to instruct monitors about the types of reforms that would best advance criminal justice goals. For the first 20 years of the modern age of US corporate criminal enforcement, the DOJ ‘ha[d] no formal guidelines for corporate compliance programs’.^[62] In 2020, the DOJ released a set of more than 100 general balancing factors to evaluate corporate compliance programmes; the same guidance warns that evaluation in practice involves ‘individualized determination’ and additional unspecified factors.^[63] Few commentators are persuaded that federal prosecutors are competent to make these determinations or that the guidance signals a significant step up in sophistication. The DOJ should draw more generously from the ‘considerable experience [that regulatory agencies have] with compliance programs’.^[64]

Although present-day organisational science is far from complete, all legal authorities should be drawing on the most up-to-date insights. Present indications are that prosecutors and judges are largely ignorant of recent data and technologies.^[65] By tying projects of reform to the best present-day understanding of what works, authorities can maximise the prospect that monitors will succeed in rehabilitating corporations.^[66] A data-driven approach would also help to secure more cooperation and confidence from the corporations that are undertaking the effort and expense of complying with monitors’ instructions.

In addition to having more detailed and informed terms for monitorships, more effort should be made to make monitors’ progress reports publicly available. Part of the rationale behind keeping reports secret is to protect corporate business and legal secrets.^[67] Indeed, these should be protected. However, to the extent not absolutely necessary for that goal, publicising monitor reports would have three distinct advantages. First, it would help advance organisational science. With more available data about what corporations have tried in various industries, scholars and authorities could get more insight into what works and what does not. Once these insights filter into the work that monitors undertake, the prospect for successful reform would improve. Second, publicised reports would give the public more exposure to and a better understanding of what monitorships involve. With this, the public may come to see that monitorships adequately satisfy the expressive interests society has in corporate criminal justice. Third, publicised reports may help authorities to keep tabs on monitors. Prosecutorial follow-through is an enduring weakness of corporate sanctions. Bringing the light of day to monitors’ reports could effectively crowdsource the work by allowing the public and media to follow a corporate criminal’s progress towards reform.

Footnotes