Marxist Approach to the Discussion of Offending Corporations - Research Paper Example

 Marxist and Critical Approaches to the Discussion of Offending Corporations Introduction Corporate enterprises today pay much attention to designing and following well-structured corporate governance practices so as to be in compliance with the legal policies in force. This will also help them in gaining great public support and avoiding unnecessary lawsuits. Today managements are extremely aware of the growing corporate crimes and subsequent impacts they cause on society in respect to social welfare. “Corporate crime is defined as conduct by a corporation or employees acting on its behalf, which is proscribed and punishable by law” (Simpson, 2002, p.57). Nowadays, corporate crimes mainly account for the environmental harms done by organisations illegally to raise profits. Identifying the huge economic toll that corporate crimes have on the country, today organisations take great efforts to limit the crimes committed by their workforce on behalf of the firm. Whether a corporation or the executives concerned are to be prosecuted for their misconduct is still a debatable topic because different theorists have different opinions on the issue. Marxist approaches take a strict stance on corporate offences because crimes are often committed by the capitalist class and neglected by the society. However, critical approaches to offending corporations argue that it is senseless to punish a fictional body for the legal liabilities charged instead of prosecuting the individuals concerned. This paper will evaluate Marxist and Critical approaches to the discussion of offending corporations. The paper will also discuss the Enron scandal to obtain detailed understanding of corporate crime and regulations today. Discussion of Offending Corporations Corporate offence or corporate crime can be referred to a crime committed either by a corporation or by persons acting on behalf of the corporation. It is important to note that all the negative behaviours of corporations cannot be considered as crimes as laws vary from jurisdiction to jurisdiction. For instance, the practice of insider training is not a crime under some jurisdictions. It is identified that corporate crime may overlap with white-collar crime, organised crime, and state-corporate crime. Since majority of the individuals who act on the behalf of a corporation or represent the interests of the corporation are white-collar professions, corporate crime is greatly linked to white-collar crime. Criminals generally set up corporations for committing crimes or securing their position in a court of law. Statistical evidences suggest that the world’s gross criminal product makes up nearly 20 percent of the global trade. Hence, corporate crime overlaps with organised crime. In many situations, individuals’ chances or tendency to commit crime increases as a result of the relationship between corporation and the state. Thus, corporate offence comprises state-corporation crime too. However, it is to be noted that corporate offences do not generally involve violent crimes such as robbery, assaults, or murder. In order to clearly understand the idea of corporate offence, it is essential to discuss a corporation’s status as a separate legal person. The UK company law and most of the international laws consider corporation as a separate legal entity. In English law, this status was clearly defined in Salomon v Salomon & Co decision (cited in Hannigan, 2012, p.54). As an organisation operates as an artificial legal person, it has all the rights and privileges of an individual person. On the strength of this legal personality, a business concern can acquire assets on its name, open bank accounts, or enter into agreement with other others. The most significant feature of this concept is that shareholders’ personal assets will not be sequestrated for their business liabilities. Since business and business persons are separated according to this view, sometimes this concept assists persons at the helm of business affairs to commit crimes and escape from charges claiming the firm’s legal personality. Today, corporate crime is a politically sensitive issue in many countries. To illustrate, in the United Kingdom, the term corporate offence is frequently used in reference to corporate manslaughter following the great publicity of fatal accidents on the rail and sea transport so as to discuss more about the technological hazards posed by corporate enterprises. According to The Law Reform Commission of New South Wales, corporate crimes raise a set of potential threats to the overall welfare of the community (NSW, n.d.). Since corporations involve in a broad range of social activities and their actions may impact a wider group of people as compared to individual actions, a corporation has the potential to cause severe economic and physical harms on the society (Ibid). It is good to see that corporations introduce new products/services, develop new technologies and more efficient methods of mass production, and promote economies of scale. As authors like Reid (n.d.) point out, on another perspective, corporations play a significant role in ruining the foundations of the civic community, and the lives of its beneficiaries by exploiting the absence of political control today. Civil law or the criminal law performs the task of regulating behaviours. In order to proceed with the criminalisation of a particular behaviour, the legislature needs to make the political judgment that this behaviour is potential enough to deserve the stigma of being treated as a crime. In law, corporations may also commit the same offences. Although it is commonly presumed that justice requires intervention of the criminal law, this practice is often not possible in the business sector because the politics of regulating corporations that deliver a functioning economy is really complex. Bribery and corruption are the most common forms of corporate offence. In addition, other corporate offences include misrepresentation of financial statements, commercial bribery, stock market manipulation, misappropriation of funds, other falsification activities. Discussion of corporate offences has been a priority topic of national governments for the last two decades, and state legislatures give particular importance to intervening and preventing corporate crimes. Evidences suggest that corporate offences would adversely affect the economy as a whole and notably inhibit the private sector growth. Experts opine that corporate crimes cost countries millions of dollars each year. Enron case study In order to make the discussion of offending corporations more effective, it is better to evaluate a case study pertaining to corporate crime and regulation today. Enron started its operations in 1985 as an interstate pipeline company following the merger between Houston Natural Gas Omaha-based InterNorth that resulted in the formation of Enron Corporation. The former CEO of the Houston Natural Gas Kenneth Lay achieved the title of Enron CEO and he was later elected as the chairman of the company in the next year. The company gained a terrific growth rate and spread its business to several other sectors over the next few years under the leadership of Kenneth Lay. Industry analysts published many reports praising this unbelievable growth of Enron and those positive reviews greatly assisted the company to attract more potential investments when many other contemporary corporations were struggling to survive stiff market competition. Since Lay was impressed in the skills and abilities of the previous Enron consultant Jeffrey Skilling, he was appointed by Lay as the chairman and CEO of the Enron Finance Corp. in 1990. With the support of Lay, Skilling gained fast job promotions and he achieved the title of President and Chief Operating Officer (COO) of Enron Corporation in 1997. The innovative corporate leadership of Skilling assisted Enron to achieve new heights of success through establishing its broadband sector services in 1999. The company launched its website ‘Enron Online’ in the same year to keep the company live in the area of online business too. The website attained the status of world’s largest business website within a short span of time and gradually the company raised nearly 90 percent of its sales from the business over Enron Online (CBS News, May 25, 2006). By the end of the 20th century, the organisation achieved annual revenue of $100 billion in US and became the seventh-largest company in a Fortune 500 survey. In addition, the company was the sixth largest energy company in the world at that time and this favourable market position helped the firm increase its stock price to US $90. In fact, Skilling and his crew managed to achieve this astounding stock price through the use of a set of fraudulent accounting practices. Using accounting loopholes, Skilling created a sequence of special purpose entities in order to keep investors and shareholders uninformed of the net financial losses the company suffered from failed projects. With the support Chief Financial Officer (CFO) Andrew Fastow and other senior executives, Skilled misled the board of directors and the audit committee and thus he could continue the high risk accounting practices invincibly. Skilling also pressured his followers to simply ignore the misappropriations identified and to keep silent about the fake financial status of the company. Although Skilling and his team took great efforts to hide the actual debt status as well as the financial position of the company from stakeholders, finally the accounting pitfalls began to appear in 2001. In the first phase, industry analysts and other market reporters raised numerous questions regarding the accuracy and reliability of Enron accounting practices. A Fortune write up titled ‘Is Enron Overpriced’ sparked a series of discussions and media reports challenging the feasibility of Enron’s unbelievably high stock prices. The article attacked the Enron management arguing that the company had not kept its stakeholders informed of the way it maintained high stock prices even in the midst of industry slumps and global market downturns. In response to such reports that suspected the fairness of Enron’s accounting practices, Skilling and Fastow verbally abused the reporters. Sometimes they personally attacked people who raised their voice against the doubtful accounting treatments of the firm. Despite those aggressive efforts, the whole corporate world soon became distrustful of the integrity of Enron’s financial reports published. The firm’s share prices began to fall in spite of the doubling revenues, and it was really a shock for the investors that Enron suffered huge financial losses from the Dabhol Power project launched in India. Although Skilling and his subordinates had acted cleverly to hide the actual financial background of the organisation, Enron stakeholders realised the truth when the firm’s share prices plummeted from US$90.75 a share in mid-2000 to less than US$1 a share by the end of 2001 (Riley & Hunt 2014, pp.256-257). In response to this deception, Enron shareholders filed a lawsuit (US$40 billion) against the company and subsequently the US Securities and Exchange Commission (SEC) declared an investigation. As a result, Enron Corporation was forced to file for bankruptcy protection under the Chapter 11 to become the largest bankruptcy reorganisation in the US history at that time. In addition to the Enron collapse, a number of other corporate and accounting scandals including Tyco International, Adelphia, Peregrine Systems, and WorldCom cost investors billions of dollars. In response to these corporate scandals, the United States enacted a federal law called Sarbanes–Oxley Act of 2002 or Sarbox that set enhanced standards for US public company boards, corporate managements, and accounting firms. Today, this regulatory framework plays a great role in ensuring that US companies perform better in terms of corporate governance. Marxist approaches to offending corporations According to the Marxist viewpoint, the term corporate crime or corporate offence may be referred to the fraudulent activities committed by business persons holding power on behalf of their organisation to increase profits. Marxist theorists indicate that the estimated economic cost of corporate crime may be between 24 to 42 times greater than the cost caused by traditional property crimes. The Marxist view of ‘false consciousness’ is a major contributory factor to the Marxist approaches to the discussion of offending corporations. Referring to some scholars, this concept reflects how material, ideological, and institutional processes would mislead members of the proletariat in a capitalist society (Gabel 1997, p.61). Although the left environmentalism supports the need for continued economic growth, the leftist approach gives particular focus to the false consciousness concept. Although the Marxist ideology fails to clearly state how to achieve continued economic growth, it is more consistent than right views in keeping the environmental issues in a sensitive zone. According to the Marxist view, multinational corporations must be blamed for most of the environmental problems. Referring to the traditional notion of false consciousness, left environmentalism holds the view that marketing and advertising play a significant role in controlling the material desires of individuals. In this perspective, exercise of great control over market forces and corporations is inevitable to lessen environmental harm. As Marxism considers corporations as the representatives of a capitalist society, Marxist theorists adopt a hostile approach towards offending corporations. They opine that although corporate crime is widespread, it most often goes unprosecuted and unpunished, and the situation gives a moral support to corporate offenders. In the Marxist perspective, corporate crimes can have dreadful consequences on the overall welfare of the society. In the modern industrial world, most of the serious anti-social and predatory acts committed constitute corporate crimes. As compared to street crimes such as burglary, violence, and murder, which are usually considered the most serious types of crime, corporate crimes pose more serious threats to the society. To illustrate, on an average, nearly 20,000 people are murdered in the United States whereas this figure is 600 in case of Britain (Marxism and Crime). At the same time, US has an annual death toll of 14,000 from industrial accidents, 10,000 from workplace related diseases, and tens of thousands of deaths from cancer caused by environmental pollution (Ibid). Likewise, worksite accidents result in 600 deaths and 12,000 injuries in Britain annually. Financial losses associated with crime account for approximately $4 billion each year in the United States while corporate crime relating losses amount to an estimated $80 billion (Ibid). Some of the well publicised corporate crimes include the Zeeburge ferry disaster, Bhopal disaster that killed thousands of Indians, and the Hatfield train crash. From subsequent investigations, it was identified that the companies involved had prioritised profit over safety. In the United Kingdom, the concept of corporate manslaughter was introduced to make the corporation as a whole responsible if similar tragedies occur again. Such a legal policy is feasible according to the Marxist criminology norms. According to Marxist ideology, the government and the law enforcement system should not focus only on the street crimes committed by the working class. The essence of the Marxist approach to crime is that poor criminals are more cruelly treated than rich criminals. When the Marxist ideology gives particular emphasis to white collar or corporate crimes, it adopts relatively a favourable attitude towards blue collar variants. Marxists views suggest that crimes committed by the upper class people can exert a greater economic toll on the society than the crimes of the ordinary class. Referring to Marxist beliefs, corporate crimes are often neglected by the society because such crimes are likely to be committed by the capitalist class or its agents (cited in Chapman, 2004, p.136). Corporate crimes are usually invisible to the public because there are no physical remnants of the crime. In addition, corporate crimes are complex as they are characterised with the application of technical, financial, or scientific knowledge. Marxist approaches make it clear that most of the corporate crimes go unpunished because they seem to be morally ambiguous. For instance, people may not consider tax evasion wrong as mugging. In the opinion of Marxist thinkers, the increased economic inequality prevailing in the society is one of the major reasons that help corporations to easily get rid of the legal charges imposed. Governmental and judiciary systems tend to adopt a friendly attitude toward corporations as they play a vital role in determining the overall performance of the economy. This situation greatly assists the capitalist class to obtain an unfair power over the working class and to exploit the weaker sections of the society. On the strength of this unfair advantage, persons at the helm of corporations may sometimes try to torture the working class people. According to Marxist supporters, it is pitiable to see that the issue of corporate offence has not been well researched or documented by criminologists even though this issue is potential enough to impede the economic growth of a country as a whole. Hence, judiciary bodies must take extra efforts to identify the crimes of corporations and punish them in accordance with the level of legal liabilities charged. Referring to Marxist approaches, prosecution of corporations for their offence is extremely important to reduce the level of social class inequality in a community. Critical approaches to offending corporations There are several critical approaches to offending corporations. In countries like United States, England, and Canada, treatment of corporate offence is still a debatable topic because regulators are not certain whether it is juridical and ethically proper to punish an offending corporation rather than punishing individuals within it. Today majority of the people think that there is nothing unethical in charging corporations with criminal offences. As a writer pointed out, “early decisions in this area evidence a reluctance to convict a corporation of a crime requiring criminal intent, but now it is almost unquestioned that an agent’s intent, knowledge, or wilfulness may be imputed to the corporation” (cited in Gies and Dimento, 1995, p.72). However, still some authors claim that the idea of corporate criminal responsibility is backed up by expediency rather than sound logic or empirical reasoning. A Canadian court has clearly stated the need of imposing corporate criminal liability in R. v. St. Lawrence Corp. Ltd., 1969. The court observed that corporations are more powerful and materially equipped when compared to individuals, and if corporations are allowed to run unchecked in business, they are more likely to pose greater threats to the public than what their weaker competitors do. The United States v. Hilton Hotels Corp. (1972) also indicates the rationale behind the idea of corporate criminal responsibility. In this court case, the hotel’s purchasing agent boycotted a vendor for some invalid reasons. As a result, the Hilton chain and its Portland branch manager were accused of violating the Sherman Antitrust Act. During the course of trial, the organisational defendant told that the hotel chain’s president and the manager had twice directed the purchasing agent not to proceed with the boycott. However, the purchasing agent’s personal anger at the recalcitrant supplier had persuaded him to ignore those warnings. The court ruled that criminal liability shall be imposed on a corporation “without proof that the conduct was within the agent’s actual authority, and even though it may have been contrary to actual instructions” (Gies & Dimento, 1995, p.73. The judge added that charging corporations with criminal liability is vital to stimulate a maximum effort by business owners and other top executives to make sure that their workforce complies with various business laws and Acts. The court stated that it was ‘reasonable to assume’ that the Congress had intended to enforce the law in such a way (Ibid). Some legal commentators strongly claimed that even though a crime was committed on behalf of a corporation, in fact the crime has been committed by individuals and therefore the guilt must be always personal. Another notable argument against corporate criminal responsibility is that punishment for a crime could not be actually borne by a fictional entity (corporation), and hence it does not make any sense. It is meaningful to prosecute human beings rather than motionless corporate entities when there are no convincing reasons other than the involvement of a thought called corporate personality. In contrast to such views, a group of legislators strongly claim that corporate criminal liability is particularly essential to effectuate regulatory policy. Some legal professionals opine that the corporate criminal liability may sometimes result in the direct violation of the fundamental criminal law doctrine of mens rea, which represents an individual’s awareness of the fact that his/her conduct is criminal. Referring to this doctrine, they claim that it is really illegal to impose criminal liability on corporations even when their agents’ acts are unauthorised. In addition, placing the burdens of legal charges on corporations and their stakeholders is any easy way to avoid the difficulty of proving the guilt of the culpable individual. In the words of William and Mueller, the concept of corporate criminal liability is not supported by economic or sociological data, and it is preceded by a hit or miss method (Ibid). The authors continue that there are many instances that completely disprove the widespread belief in the effectiveness of corporate criminal liability (Ibid, p.73). Studies indicate that the fear of corporate reprisal often forces employees to keep their managers pleases and hence they would be willing to break law in certain instances. More clearly, employees are not fared of violating legal policies if such a practice would secure their job advancement. For instance, employees may be willing to meet with company competitors to fix prices (even if they were not ordered to do so) in violation of the anti-trust regulations in practice if they believe that this practice would please their managers and thereby contribute to their long term career development goals. In this situation, it is unethical to prosecute individuals for their misconducts because they were motivated to do so out of the fear of corporate reprisal. At the same time, it is to be noted that there are many employees engaging in criminal offence so as to entertain their greedy financial motives. Those people should be clearly distinguished from others who violate corporate laws for securing their jobs and prosecuted individually. There is another category of employees who commit crimes for the hidden purpose of making their managers criminally accountable thereby enjoying an unfair advantage of resisting the pressures from superiors. Under such circumstances, individual employees should be prosecuted and punished for their crimes rather than imposing the legal charges on the corporation. In most of the jurisdictions, corporations bear the burden of criminal charges if the misconduct involves the element of environmental harm. Here, courts think that it is senseless to punish individuals for firms’ environmental misconducts, which were basically emerged from the organizational objective of profit maximisation. Conclusion From the above discussion, it is clear that there is a well defined set of Marxist approaches as well as several other approaches to the discussion of offending corporations. The definition and scope of corporate offence may vary from jurisdiction to jurisdiction and all negative behaviours of a corporation cannot be considered criminal. The concept of corporate crime overlaps with white-collar crime, organised crime, and state-corporate crime. In business law, an organisation’s status as separate legal entity assists board of directors and shareholders to get rid of the legal charges arising out of corporate crimes to some extent. As compared to individuals, corporations involve in a wide variety of social activities, and therefore the societal impact of corporate crimes would be greater than that of individual crimes. The case of Enron scandal makes clear that how a corporate crime might impact the corporate stakeholders. The top executives of Enron Corporation used fraudulent accounting practices to keep the firm’s financial position better in the eyes of investors. Enron shareholders lost billions of dollars when the firm’s share prices plummeted from US$90.75 per share to less than US$1 per share over one year period. The Marxist approach to crime is that governments and law enforcement systems often ignore corporate crimes while focusing much more on street crimes. In the Marxist perspective, corporate crimes are usually committed by upper class members of the society and hence they are barely prosecuted and punished. In addition, most of the serious anti-social and other crimes represent corporate crimes and they cost a country billions of dollars each year. From the Marxist viewpoint, corporate crimes would more severely affect the economic growth of a nation than any other type of crime would do. In addition, a number of varied critical approaches have been developed to the discussion of offending corporations. Corporate criminal liability is one of the major approaches to offending corporations because an organisational agent’s intent and wilfulness may be imputed to the corporation. In contrast, another approach reflects that it does not make any sense to prosecute and punish a fictional entity (corporation) for the misconducts of the individuals in it. References CBC News (May 25, 2006). The rise and fall of Enron: a brief history. Available at: http://www.cbc.ca/news/business/the-rise-and-fall-of-enron-a-brief-history-1.591559 Chapman S (Ed.) (2004) Sociology. Letts and Lonsdale. Gies G & Dimento J (1995). Should we prosecute corporations and/or individuals? In F Pearce & L Snider (Eds.). Corporate Crime: Contemporary Debates. University of Toronto Press. Gabel J (1997) Ideologies and the Corruption of Thought. New Jersey: Transaction Publishers. 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