Can a business be evil?

The financial papers are filled with discussions of Goldman Sachs and their alleged misconduct in the trading of certificates linked to the housing crisis. Executives at Goldman Sachs  [stckqut]GS[/stckqut] have had to testify in front of congressional committees and it appears that at least one Attorney General is investigating them for crimes committed.

The result will likely be fines for the company.  But is the company evil? Should the company be punished?  The company is officially only a filed document in some state. The reality is the company is a group of shareholders that employ some managers to run a company to make a profit. Therefore, the company itself is not evil, even if there is a chance that some of those managers or employees are criminally negligent.

If there is wrong-doing at a company then the company should be penalized in some way since the proper safeguards were not set up to prevent the practice. This company punishment should be reflected to the stockholders as well, since they hired the directors to run the company well. The directors of the company should be punished because they didn't effectively run the company. Also individuals should be punished for breaking the law.

In the current system, the majority of the punishment is against the shareholders. A fine is levied on the company which hurts the company's bottom line. It is then up to the shareholders to exact punishment against board members and executive management.
In most cases, a deal is made for some sort of fine. This deal nearly always includes a clause that says the company doesn't admit any guilt. While this is okay, since a company cannot admit guilt (since a company is not evil), it should not be allowed that this agreement flows to the individuals, their managers, and the directors. The popular 'deal' results in a fine that hurts the company's bottom line (and therefore the shareholders) but rarely includes a penalty against the directors and executive management. This unfairly punishes the stockholders and doesn't adequately punish the people that screwed up.
Here are my suggestions:
  • Fines against individuals should be more severe and should probably include some kind of moratorium on against their employment at similar companies.
  • Executive management and directors should be very severe and might include losing a 'license' to be on the board of a publicly traded company (which would mean the total turnover of the board and executive management in severe cases).
  • Fines against the company should be eliminated as the stockholders will be punished enough by losing their executive leadership. Stock prices would surely take a major hit in that situation.
Companies are not evil. Companies do not break laws. People at those companies break the laws and therefore it should be the people that are punished along with their managers that allow improper activity to continue. Stockholders should be punished only in that they have hired negligent directors and when those directors are fired, the stockholders take a significant hit.

1 Comment

  1. Very well thought out comments. I agree in most part.
    Another ripoff is corporate stock options.
    Stock options are ok if used modestly.
    But in most cases stock options are extremely bad for shareholders and institutional investors.
    Larry Ellison at Oracle… the last few CEOS at Disney
    made off like bandits.
    The shareholders lost big.
    If you track Ellison’s stock options executed and then the sale you will see a pattern of how it depressed the stock over years from time to time. They are basically raiding the company. This was not known years ago..25 or 30 because the SEC sent out reports via paper to the press and it was hard to go through it all. However, today the internet does a good job disclosing it but no one talks about it. Check the stock option buying and selling in AKRX and you will see them using stock options just before earnings report time and selling. Best.

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