Overview of Corporate Liability

Criminal Liability

Criminal charges against a corporation, or an agent of a corporation, represent formal public disapproval and condemnation because of the failure to abide by the generally accepted social norms, codified into the criminal law.  If successful, a prosecution of corporate crime reinforces social values and shows the government’s willingness to uphold those values.  A trial is more likely to be high profile and attract more publicity when the activities of a previously respected business leader, instead of the actual corporate entity, are called into question.  Regardless of who is charged, a judgment against a corporation may cause a loss of corporate reputation and, in turn, a loss of profitability.

Big corporations, however, are better equipped to ride the storm.  Because of their immense political power, big corporations have the resources to defend themselves in courts of law and in the court of public opinion.  Few prosecutors are willing to subject themselves to the constant legal and public relations barrage that a corporation’s well-connected and high-priced legal talent can inflict.

In contrast with a civil lawsuit, a criminal prosecution justifies more severe penalties because it is necessary to overcome the higher burden of proof (beyond a reasonable doubt) to establish criminal liability.  But the high burden means that it is more difficult to secure a judgment than in the civil courts, and many corporations are wealthy and can afford to pay large fines without difficulty.  If a corporation is facing criminal charges and knows that the fine is going to be severe, it may be in the corporation’s best interest to seek bankruptcy protection before sentencing. 

Civil Liability

With the lower burden of proof and better case management tools, civil liability is easier to prove than criminal liability, and offers more flexible remedies that can be preventative as well as punitive.  But there is little moral condemnation and no real deterrent effect, so the general management response may be to see civil actions as a routine cost of business, which is tax deductible.