SHOULD THE BEHAVIOR OF TOP MANAGEMENT MATTER?

Vikramaditya S. Khanna

Boston University School of Law Working Paper 02-18

Abstract

Recent events, such as the Enron, Worldcom, and Global Crossing debacles, have brought to the forefront the issue of corporate and organizational wrongdoing and the involvement of top management in it. To date, the law's response to the knowing or reckless involvement of top management in corporate wrongdoing has been primarily two-fold. First, it increases the sanction imposed on top management. Second, it increases the sanction imposed on the corporation (i.e., the shareholders). This paper examines the second response.

The second response can be examined in multiple ways depending on the analytical perspective being utilized. In this paper I consider the question from three perspectives. First, whether our current law can be justified under a deterrence-based approach to corporate criminal liability. This is the bulk of the paper as that has been where much of the literature in the corporate crime area has developed. Second, whether our current law can be justified under an expressive approach to corporate criminal liability. Third, whether our current law might reflect an attempt to place most of the risk of liability on the corporation, which is generally a better risk bearer than top management. My conclusions are that our current law is difficult to justify under any of these approaches and that it is likely imposing costs on society. This suggests that our current law is in need of reform.

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Vikramaditya S. Khanna Contact Information

vkhanna@umich.edu (email address for Vikramaditya S. Khanna)
who is now at The University of Michigan Law School.

University of Michigan at Ann Arbor - Law School
625 South State Street
Ann Arbor, Michigan 48109-1215
(734) 615-6959 (Phone)
(734) 764-8309 (Fax)


To be published in:

Georgetown Law Journal, Volume 91 (2003)

Found on the Social Science Research Network at:

SSRN SITE

Also found on Harvard Law & Economics Website (No. 382) at:

Harvard Site

and on the Columbia Law School Law & Economics Discussion papers at:

Columbia Site



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