Corporate crimes like fraud continue unabated in the United States. Jennifer Taub defines a chief reason as “accountability theater,” or the propensity of government prosecutors to pursue out-of-court civil settlements rather than criminal trials that, though they might lose them, would publicize the extent of corporate misconduct and better deter future abuse.
ProMarket is publishing a series of articles in collaboration with Stanford University’s Program on Capitalism and Democracy. These articles are based on the conversations that occurred during the Program’s 2025 Global Capitalism, Trust, and Accountability Conference. You can visit their website for additional content.
Commercial airplanes falling from the sky, car crashes triggered by faulty ignition switches, rampant prescription opioid overdoses. These recent events, aided and abetted by corporate misconduct, were profoundly tragic for family and friends of the victims and infuriating for all who watched them unfold. The harm was clearly preventable, and neither the people responsible nor the businesses that profited faced meaningful consequences. None of the individuals inside Boeing, General Motors, or Purdue Pharma who were responsible for creating or covering up these scandals went to prison. Let alone the fact that both Boeing and Purdue Pharma were repeat offenders. Even when fired, departing executives cashed in on their multi-million-dollar golden parachutes. Corporate profits were barely impacted. In the Purdue case, the owners of the firm (members of the Sackler family) remained multi-billionaires.
Unfortunately, a lack of accountability and punishment has become the norm in the United States since a brief crackdown on corporate crime following the 2001 Enron fraud scandal. Since then, the U.S. government has engaged in what I call “accountability theater,” in which government prosecutors pursue out-of-court settlements rather than the trials that would allow the public to see the full evidence of wrongdoing and hold these firms to account. These high-dollar settlements make it seem like the government is doing its job—and nominally there are reasons to pursue these settlements, including low win rates in these trials for the government. However, these negotiated arrangements, which often come with a promise not to prosecute, do little to deter corporate crime or protect its victims, but instead encourage recidivism. If corporate governance is to ever evolve to promote the welfare of more than corporate management and board members, accountability can no longer be merely performative but must come with stringent regulations, public litigation, and concrete consequences.
Wither punishment
A chief goal of punishment is to discourage future harmful acts. This includes preventing offenders from recidivism and deterring others who might see all upside and little downside to coverups, fraud, and abuse. However, instead of punishing, the U.S. legal system protects elite offenders through soft punishments and thus promotes corporate misconduct. After a catastrophe, a flurry of lawsuits is typically brought both by government bodies and individuals. But the resulting financial consequences (fines, penalties, and settlements) are relatively minor. Furthermore, they are not even borne by the culpable insiders. Instead, it’s the shareholders still around after the dust settles who face reduced dividends or a lower stock price. For corporate executives with the power to prevent such tragedies, the cost-benefit analysis is clear. At best, getting caught on occasion is just a cost of doing business. If the cost is less than the gain, it’s a no-brainer. At worst, it’s a temporary public relations problem.
The “Corporate Misconduct and the Law” panel at the Global Capitalism, Trust and Accountability Conference held at Stanford University tackled the legal infrastructure that ultimately protects listed corporations from accountability and repeatedly encourages them to choose profits over people. Law professors Ellen Podgor and Elizabeth Pollman provided technical explanations of why the legal tools and enforcement bodies in the U.S. fail to prevent or punish such harm. Fabio De Pasquale, the chief prosecutor for Milan, Italy, shared his personal experiences tackling multinational corporate misconduct. De Pasquale, who successfully helped convict former Prime Minister Silvio Berlusconi for tax fraud, found himself targeted for retribution after the acquittal of several multinational corporations (including Eni and Shell) in a complex bribery scheme involving a highly lucrative oil prospecting license.
A Slap on the Wrist
In her follow-on ProMarket article, Podgor enumerates the failures of corporate criminal accountability and the reasons behind them. She reports that while our government “brings criminal actions against corporations, very few proceed to a trial or conviction.” Instead of the sustained negative exposure associated with a public criminal trial, offending corporations are permitted to cut off the negative publicity (and related stock price hit) and accept a settlement. These agreements may briefly receive press attention, but it is not lasting. The government issues a press release, revealing a payment that seems large, but is typically a small fraction of corporate profits. Often after such an announcement, the stock price notches up, reflecting the favorable terms for the corporation.
These out-of-court settlements play the starring role in accountability theater that allow federal prosecutors to save face, declare victory, and move on, thus undermining the prospect of actual deterrence. The types of non-prosecution agreement (NPA), deferred prosecution agreement (DPA), or, in rare cases, plea deals, involve (1) payment of a fine; (2) placement of a monitor inside the business; and (3) agreements to improve compliance programs. Most importantly, the terms of these NPAs, DPAs, or plea deals allow the government to move forward with a prosecution and trial should the firm violate the terms.
The purpose of these arrangements, Podgor notes, is to “incentivize the company to correct wrongdoing.” In reality, though, Podgor informs, “corporations violate the conditions of their NPAs or DPAs without consequence.” Recidivism without consequences has become so blatant that when President Joe Biden appointed Lisa Monaco as deputy attorney general in 2021, a role that traditionally issues guidance on the prosecution of business enterprises, she delivered several public addresses including to the corporate defense bar addressing this concern. While Monaco’s pronouncement was sensible, notifying attorneys that repeat offending was concerning, her words instigated panic among compliance experts. They were alarmed that the Justice Department dared consider past misconduct when deciding whether to charge a corporation with any unrelated crime.
While Podgor does not address the prosecution of senior management or lower-level employees in her article, that is also an option for the DOJ. As a study by law professor Brandon Garrett reveals, in a surprisingly large number of instances where corporations enter into DPAs and NPAs, no individuals are charged with crimes.
Lax Regulators and Other Failures
Accountability theater does not only feature tepid after-the-fact punishment and forgone trials. Podgor also condemns the failure of government enforcers to monitor and “put a check on corporate criminal activity early in the conduct.” The administrative agencies should “catch the activity prior to a larger fraud loss and prior to increased victim casualties,” she writes.
Critics of early intervention and after-the-fact legal consequences warn that these would risk dangers of “over-deterrence.” Proponents of this over-deterrence theory suggest that the mechanism to screen new products and services will slow down innovation or make it more costly, delaying or limiting consumer choice. From a consumer point of view, product safety is not something to trade for speed to the market. That said, as we have seen, even with pre-screening, many regulators are so understaffed, incompetent, or easily captured that even when they are provided with detailed information on imminent harm, they look the other way. Consider both the Securities and Exchange Commission ignoring credible warnings about Bernie Madoff and the Federal Drug Administration allowing Purdue Pharma to market OxyContin in a clearly misleading and dangerous fashion.
One would hope that civil lawsuits by victims would offer another avenue for accountability. Lawsuits by victims and their families do abound typically under common law tort theories, as do, in some cases, civil lawsuits by state governments. The results are typically some form of settlement in lieu of trial, with no admission of liability and payments made that are a small portion of earnings.
Constrained Shareholders
The law also provides methods internal to the firm for addressing corporate misconduct. Pollman, a business law expert, addressed two other avenues for holding corporations accountable for misconduct after the fact: federal securities law and state corporation law.
One might expect that shareholders would be able to hold corporations and their corporate directors and officers accountable. In practice, as Pollman notes, both the legal tools, dulled through state legislators and the courts, as well as the way shares in publicly traded firms are held, put up obstacles. Moreover, in the case of closely held firms like Purdue Pharma, the family (of controlling shareholders) would not hold the corporation to account. If indeed there were a rogue manager who caused problems, they could just fire him. If he were just following orders, such litigation would expose them to liability. And suing their own corporation to recover is as illogical as strangling the golden goose.
As Pollman explains, shareholders can sue corporations and their senior management under the federal securities laws for material misstatements made about business operations. Such lawsuits are challenging to bring as class actions, given decisions by the U.S. Supreme Court, including Halliburton Co. v Erica P. John Fund, Inc., in 2014. This makes it easy for defendants to defeat class certification and thus block any discovery of wrongdoing. And, even if such a case moves forward, it will almost always result in a financial settlement. Even when there are individual defendants involved who face liability, they pay little to nothing out-of-pocket in terms of legal representation or the ultimate settlement amounts, thanks to what Pollman refers to as “extensive insurance coverage.”
State law provides another toolkit for shareholders seeking to discipline directors and officers for either failing to detect and prevent misconduct or for making business decisions directly related to such bad behavior. In the U.S., the majority of large, publicly traded firms are incorporated in Delaware. Thus, nearly all matters involving the internal affairs of such businesses are governed under that state’s corporation law, which has been amended and interpreted in favor of directors and officers, not owners. For example the “business judgment rule” prevents litigation against most directors and officers for nearly all business decisions unless there was a conflict of interest or made in bad faith. And even if such cases move forward, the law allows corporate charters to immunize them from personal liability. Even when shareholders are able to bring what’s referred to as a derivative action—an action pursued on behalf of the corporation against its officers and directors—it’s very difficult to survive a motion to dismiss. Further, though directors are supposed to be keeping an eye out for misconduct to protect the corporation, as it happens, Delaware law holds them to a very, very low standard. Only if the angry shareholders can show, as Pollman notes, “an utter failure of a board to implement monitoring systems or, having implemented such systems or controls, a conscious failure to monitor or oversee operations, such as a knowing disregard of red flags,” can the case proceed.
Backlash against Prosecutors
When it comes to criminal enforcement against multinational corporations, as De Pasquale recounted during the conference and in his article, “La Grand Illusione,” the prosecutors can themselves be targeted. DePasquale served as a prosecutor in Milan, Italy for three decades. During his career he participated in the team that prosecuted former Prime Minister Silvio Berlusconi on corruption charges.
DePasquale worked in the Transnational Economic Crimes Unit within the Milan Public Prosecutor Office. Through that office’s “Clean Hands” investigation, DePasquale came to the realization that “the unlawful actions of corporations, their leaders, their political protectors had generated enormous illicit profits and created a huge criminal power.”
His article also reveals how judges in Italy (who deliver verdicts in criminal cases) feel the “too big to fail” pressure from fellow jurists and defense counsel. He writes “Moreover, in the course of trial, the courts can be influenced either subtly (messages from other judges, especially high ranking judges) or bluntly (“Your Honor understands the devastating effect of this trial for the national economy, the investors, thousands of jobs…”) or worse.”
Presently DePasquale is dealing with the aftermath of a criminal case brought against him for allegedly failing to disclose to defense counsel apparently esculpatory evidence which he says had been in the possession of defense counsel for years. Understandably, he believes this case was brought as retribution against him due to his prosecution of a bribery case concerning the award of an oil license in Nigeria to Eni S.p.A. and Royal Dutch Shell. The investigation was wide-reaching and long-lasting. Ultimately, in 2021 the court acquitted the firms, and the case dropped in 2022.
We can not dismiss De Pasquale’s saga as something isolated to Italy. While, just a few years ago, such an event would have been unthinkable in the U.S., government officials here who challenge the most powerful, are facing similar retribution. Consider that our Department of Justice has targeted those federal prosecutors who previously investigated and charged the president. So far no indictments have been issued. However, threats to prosecutorial independence in criminal cases implicating corporate leaders or public officials may become the new normal. Coupled with a presidential pardon, this act of retribution against prosecutors is the last stop for the powerful when all other systems slanted in their favor fail them. In theatrical terms we might call this a deus ex machina.
Author Disclosure: The author reports no conflicts of interest. You can read our disclosure policy here.
Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.
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