Criminal liability is one of the central aspects of a democratic system, assuring that wrongdoers will be punished for acts committed against the society as a whole. Criminal law has an important role to play in regulating the behavior of individuals, ensuring they abide by criminal law and are criminally responsible for their acts.
As such, a corporation is a legal person and thus criminally liable. This has some negative aspects. Notably, innocent shareholders may bear some cost of the serious criminal offences committed by their company, in that share prices may suffer. Nevertheless, this essay argues that even though holding a company liable for crimes can be costly to shareholders and creates negative externalities, the broader advantages arising from such a policy allows one to say it is efficient.
To demonstrate this statement, this essay will argue that corporate liability is a beneficial policy in the sense that its advantages outweigh its disadvantages. It will then focus on the shareholders to show that even if they suffer from the crime, this burden is legitimate to a certain extent and they are not the only one to bear the cost of the offence. It will focus on the UK context but will also refer to other legal jurisdictions where relevant.
[...] He/She can first suffer from personal criminal liability. But most importantly and more relevant to our subject, he/she will probably suffer from the condemnation of the firm by losing his/her job or being set aside. Thirdly, as briefly mentioned above, a broad range of people is going to be indirectly accountable for the corporate offence. Other constituencies, such as creditors, employees and consumers feel the cost of the corporate crime more critically than shareholders, because of what has been described as an “overspill problem”. [...]
[...] Finally, it has been demonstrated that financial penalties imposed on corporations may sometimes have just limited consequences on the value of the shares. Indeed, such penalties do not always affect the company above the price of the fine itself. Some authors have shown that when the trading partners of the firm are not affected by the wrongdoing, no matter who else is affected, the prices of the shares will not fall abruptly. Thus, the burden of criminal liability on shareholders is sometimes not as important as can be suggested. By contrast, other persons can suffer much more than the shareholders themselves. [...]
[...] Shareholders assume partly the consequences of the criminal liability It has been argued that the shareholders are the first to suffer from the company being held liable for a criminal offense even when the liability is the direct consequence of a failure of the top management. Of course, the conviction of the company will be felt by the shareholders. However, as has been previously seen, it is a necessity as far as corporate law itself is concerned, since it is a mechanism that forces the shareholders to react in case of failures of management. [...]
[...] This source of power can be seen in the Model Articles, which highlight that the general authority of the board and its ability to delegate its power are subject to the articles. Considering that under UK corporate criminal law the criminal offence has to be committed by the directing mind and will of the company, it is probable that the offender will be an executive director or a manager. Directors receive their powers from the shareholders, and managers from the directors and thus indirectly the shareholders. [...]
[...] Conclusion Corporate criminal liability for serious offences is an efficient policy in that it does not over penalise the shareholders. The negative points of such a liability must not hide the fact that it is highly beneficial to every member of the society when we consider the society itself. Certainly, the shareholders bear part of the cost of the crime, but less than many other people concerned. Actually, individuals less responsible for the crime than shareholders may suffer much more than them. [...]
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