July 27, 2011
The Swashbuckler Problem: Rethinking Increased Liability
I have been a critic of BP and their role in the Deepwater Horizon disaster that dumped to 4.9 million barrels of oil into the Gulf Mexico, but that doesn’t mean I think we need a vast set of new laws to help avoid the problem in the future. In my research for a current project questioning the value of drastic new laws increasing penalties, while reducing the mens rea requirements, for environmental law violations, I came across an interesting article about Sarbanes-Oxley that I thought was worth passing along. Regardless of your views on Sarbanes-Oxley, it’s worth a look.
The article is ‘Left Behind’ after Sarbanes-Oxley, by Craig S. Lerner (George Mason University) & Moin A. Yahya (University of Alberta), and the pdf is available here:
The “Left Behind” from our title is an allusion to the series of novels that are based on the religious doctrine of Rapture — that is, the doctrine that believers will, “in the twinkling of an eye,” be taken body and soul into heaven. Left behind here on earth, according to this view, will then be the unbelievers and the unrighteous. Likewise, albeit on a rather more mundane note, we propose to ask whether, in the wake of criminal laws such as Sarbanes-Oxley, certain kinds of corporate executives may decide to flee the scene and, if they do, what sort of men and women will be left behind. We suggest that there may not only be growing numbers of risk-averse “bean counters,” there may also be an emerging class of entrepreneurs whom we call “swashbucklers.” These men and women have no special regard for the strictures of the criminal law and they may thrive in the post-Sarbanes-Oxley world.
More on this project later, but suffice it to say, my project has made me question a number of assumptions, and articles like the one above have me rethinking my views on a number of things, including this post from a few weeks ago.
Good perspective on the law of unintended consequences. But putting mens rea back into malum prohibitum laws could have its own baleful consequences. Prosecutors would have a much more difficult time gaining convictions from a jury that barely understands the issue, much less the law. The result is likely to be decreased prosecutorial enthusiasm for these cases, which often require an inordinate amount of time and effort. Far better for a career to snag easy convictions of half a dozen little guys. That's what makes the class action lawyers, no matter what one may think of them, such a vital part of our system.
Other point: The same general observation about unintended consequences can be made about most financial regulation. The laws are drafted by a few humans, and then scoured for loopholes by armies of highly paid expert lawyers, accountants and other abetters. It would be interesting to compare the level of fraud before the 1933 and 1934 Acts with that of some more recent time, with its Enrons and a myriad other massive ripoffs of a public which believed it was protected by the SEC. My observation was that all of the complex rules administered by that agency added to the costs for honest folk, and were of little value in stopping the real bad guys. It has been noted that no big fish has been called to account at the criminal bar for the recent crash.
Posted by: Arthur O. Armstrong | Jul 28, 2011 2:20:12 PM