A developing theme in corporate governance is the extent to which public corporations are expected to play a positive role in society. In 2018, for example, Larry Fink, CEO of BlackRock, one of the world’s largest institutional investors, declared that companies ‘must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate’.
This is not the first time that corporations have been urged to play a greater public role. In the early 1970s, a period in US history of great political upheaval and environmental concern, members of the Rockefeller Foundation’s board of trustees stated that American corporations ‘must assert an unprecedented order of leadership in helping to solve the social problems of our time’. During the 1980s, however, this managerialist paradigm gave way to an essentially private conception of the business organization, which quickly became the dominant corporate law paradigm.
A variety of recent international corporate governance developments that emphasize corporate culture suggest that the pendulum is again swinging toward a more public conception of the corporation, as a social, rather than a merely economic, entity.
The corporation, which Adam Smith regarded as having little future, has become entrenched in modern times as ‘a basic unit of communal activity’. However, recent corporate history provides numerous examples of corporate scandals involving communal activity that falls well short of providing benefit to society. Scandals, such as the Wells Fargo fraudulent accounts scandal among others, epitomize the damage that flawed corporate cultures can inflict on stakeholders, communities, trust and corporate reputation.
This study is less about how to use corporations to benefit ‘all of their stakeholders…and the communities in which they operate’ than it is about how to ensure accountability, when corporations harm their stakeholders and society as a whole. Legal regimes need to respond adequately to serious corporate wrongdoing. The study explores liability for defective corporate cultures through the lens of legal theory. It focuses on two specific types of liability for misconduct arising from flawed corporate cultures: (i) criminal liability of the corporation as a legal person (‘entity criminal liability’); and (ii) personal liability of directors and officers for breach of duty to their company. It examines these forms of liability from a comparative perspective, focusing on the legal regimes in the United States, the United Kingdom and Australia. As this study shows, corporate theory and the ambiguous private/public nature of the corporation are highly relevant to this inquiry.
Professor of Finance
Korea University Business School
Michael E. Patterson Professor of Law, NASDAQ Professor for Law and Economics of Capital Markets
Associate Professor, National University of Singapore