NY State Judge Talks Corporate Culture Reform at Stanford
The Stanford Graduate School of Business recently looked in what the best methods to stop white collar crime may actually be. A recent article from the school examines the incentives that might alter the behavior of companies that consider fines mere collateral damage.
Jed S. Rakoff, Senior Judge U.S. District Court for the Southern District of New York, spoke as part of Stanford’s Finance and Society Visitor Program about a variety of evasive legal tactics in the corporate toolbox. Rakoff who spent his early career prosecuting white-collar criminals and then switched to defending them now presides over major criminal corporate cases.
It will come as a surprise to no one that few executives actually pay the piper when laws are broken—the Department of Justice tends to “prosecute corporations instead of the people who run them.”
Rakoff explains, “Building a criminal case against a high-level executive is a lengthy and complex process, [while] prosecuting a corporation is faster and cheaper.” The stakes are too high for corporations to be in a perpetual state of war with the U.S. government, according to Rakoff.
This creates little motivation for corporate executives to play by any rules—except for potential jail time, according to Rakoff. “I found that [executives accused of white-collar crimes] feared prison, and they feared it mightily. They would have paid any amount of money, done anything to avoid going to prison.”
In an attempt to tighten corporate loopholes, prosecutors in the late 1990s began leaning heavily on a prohibition-era legal strategy called “deferred prosecution,” where, in lieu of jail time, guilty corporations agreed to “pay a fine and to adopt various measures designed to rehabilitate the company’s culture.”
After 20 years of deferred prosecution of white-collar crime, Rakoff confirms that the tactic is largely useless. The U.S. Sentencing Commission “found that more than half of the people who committed serious fraud offenses in the last few years were recidivists.”
Rakoff concludes, “The practice of going after companies but not individuals has not changed the corporate culture in which most white-collar crimes are committed. But even if deferred prosecution were effective, it would not excuse not going after the individuals, because they are still the people who did the crime.”
About the Author
Jonathan Pfeffer
Jonathan Pfeffer joined the Clear Admit and MetroMBA teams in 2015 after spending several years as an arts/culture writer, editor, and radio producer. In addition to his role as contributing writer at MetroMBA and contributing editor at Clear Admit, he is co-founder and lead producer of the Clear Admit MBA Admissions Podcast. He holds a BA in Film/Video, Ethnomusicology, and Media Studies from Oberlin College.
