Risk & Compliance

A New Way to Punish Wrongdoing: Anger Investors

To prevent white-collar crime, prosecutors are now focusing on raising shareholder ire.
Iris DorbianJuly 17, 2014
A New Way to Punish Wrongdoing: Anger Investors

Prosecutors are now contending that if you want to prevent white collar crime, then imposing stiff penalties on companies might be the solution, according to an article in The Wall Street Journal. That way, they argue, shareholders will get so incensed they’ll demand changes.

shareholdersIt’s a strategy of deterrence that is markedly different from the usual approach employed by the Justice Department and the Federal Bureau of Investigation, which consists of sending individual corporate wrongdoers to prison. In this context, it’s now the corporations themselves that become the target.

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And it might be working. Just this week Citigroup agreed to pay $7 billion to settle an inquiry into possible mortgage misdeeds. Other financial titans suspected of similar machinations have offered settlements.

Commenting on the BNP Paribas deal, FBI head James Comley was quoted by the WSJ as saying, “Until shareholders demand from their boards that those boards choose leaders who understand what it means to create a healthy culture of compliance, the money will keep walking out the door.”

WSJ noted that no individuals were specifically charged in either the Citigroup or BNP Paribas case. And interestingly enough, following news that their firms agreed to settle, investor confidence was in full display with their stock prices rising the same day.

The focus on punishing companies via shareholders could be a bit unrealistic considering their history of complacency. “Shareholders aren’t going to take action,” John Coffee, director of the Center on Corporate Governance at Columbia University, told WSJ. “They haven’t taken it in the past, they won’t take it in the future.”

Image: Thinkstock

Source: WSJ — Prosecutors Change Their Tune on Deterrence

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