In her memo to her own staff over the hacking scandal Rebekah Brooks wrote “We were all appalled and shocked when we heard about these allegations yesterday………I have to tell you that I am sickened that these events are alleged to have happened…………..Not just because I was editor of the News of the World at the time”. In similar mode Bob Diamond, former chief executive of Barclays, declared to the parliamentary commission on banking standards that he felt “physically ill” when he learnt that Barclays employees had been making false rate submissions in the Libor scandal and that he was “disappointed because many of these behaviours happened on my watch”. These testimonies make it absolutely clear that we need new rules which target personal managerial responsibility when something disgraceful happens.
At present both the US Securities and Exchange Commission and the UK regulatory authorities resolve these scandals of illegal or improper actions by negotiating fines with corporations. This is wrong-headed and morally corrupt for three reasons. First it unjustly punishes the shareholders of corporations who are suffering a reduction in their shareholder value for which they are in no way responsible. Second, the fines imposed/negotiated with huge banking corporations, though seemingly large to the man in the street, are relatively small potatoes when placed beside annual bank profits as chief executives often impertinently make clear. And third, and most important of all, the deterrent effect against future abuses is almost non-existent. If we want a deterrent effect to work, and we desperately do need that, that must mean going after the top executives who presided over these enormous scandals.
Bob Diamond was removed from his post as chief executive by the regulators, but not prosecuted. Rebekah Brooks got way with claims of complete ignorance of what was going on inside her empire which, despite the court’s verdict, many members of the public frankly find hard to believe. In the US Dick Fuld, chief executive of Lehman Brothers, Joe Cassano of AIG and Angelo Mozilo of Countrywide were perhaps more responsible than any others for the global financial crisis which continues to destroy the standard of living for for millions of people in the US and UK, but only Mozilo suffered any penalty, and all are still rich and free.
The answer to this shocking collapse of accountability is strict liability. What this means is that leading executives in corporations are responsible for what happens under their bailiwick – exactly that, no more no less. It is enough to demonstrate that that a disgraceful event has occurred. It isn’t necessary to assess motive, attribute blame, or prove what the executives involved really knew. Strict liability ends the ‘shocked and appalled’ defence. When falsification of reports or mis-selling of PPI is endemic within a corporation, not the criminal activity of an isolated individual, those in charge should be automatically culpable. If you take the bonus, you also take the rap.
