Annex B: Penalties for corporate homicide
Paper prepared for the Scottish Executive Expert Group on Corporate Homicide
August 17 th 2005, by Professor Hazel Croall
Increasing the range of penalties is an essential part of reforming the law on corporate homicide. The problems of viewing companies, as opposed to individuals, as 'guilty' of criminal offences are mirrored in the difficulties of 'punishing' the corporation, characterised as having 'no soul to damn, no body to kick' (Coffee 1981; Croall and Ross 2002). Corporations cannot be sent to prison, the most serious penalty for individual offenders, and are most often given a Fine which may seem inadequate to reflect the seriousness of cases resulting in a homicide conviction.
This paper will start by outlining the arguments for an alternative range of sentences before describing and evaluating a range of options widely recommended for corporate offenders such as more severe monetary sentences, forms of incapacitation, corporate probation, corporate community service and publicity orders, along with suggestions for the introduction of 'corporate inquiry reports'.
Why is a wider range of penalties desirable?
The fine, as currently used in regulatory cases, is widely seen to have serious limitations, particularly as it is generally the only penalty used. The following arguments have been directed against such a reliance on fines:
The level of fines:
Fines are often described as 'derisory' particularly where large corporations are concerned. While there has been an overall increase in Fine levels in the UK (Slapper and Tombs 1999) levels continue to be regarded as too small, particularly in Scotland where, in 1998-9, the average Fine for companies following the death of a worker was £7,083 in Scotland West, the lowest average in Britain, and £23,607 in Scotland East (Unison/ CCA 2002). Following major injuries, the average Fine was £2,655 pounds in Scotland West and in Scotland East, £4,908 pounds. In 2003/4 the average Fine for cases following a death in Britain was £43,113, a 27% increase on the previous year ( www.hse.gov.uk/enforce/off03-04/statistics.htm). These are often seen to be small in relation to the company's resources, their potential deterrent effect and also in relation to the seriousness of the offence.
There was also widespread criticism of the Fines of £1,500 and £750 given to John Barr & Sons in January 1998 for selling meat unfit for human consumption and breaches of hygiene regulations. This followed the death of 21 elderly people in Central Scotland in the outbreak of E.coli associated with the firm's hygiene practices. While the Sheriff took into account the 'notoriety and financial loss' which led to the loss of 40% of the firm's business and balanced this against the duty of the court to 'mark its displeasure' ( The Herald 21/1/98), the fines were widely seen as too low, particularly in view of the butcher's initial failure to co operate and the large number of deaths.
Other sentences have been publicly criticised. In May 1998, British Gas was fined £10,000 after admitting having failures in the servicing of a central heating system in Dunfermline which led to a death. The parents of the deceased, who were also injured, commented that the fine was 'just peanuts' to the company ( Herald 6/5/98). Following the death of an oil rig worker, Shell was fined £2,000 and Expro, a contractor, £1,000. The relatives' solicitor was extremely critical commenting that it was almost impossible to relate the impact of the fines to the devastating loss to the man's family ( The Herald 19/08/98).
The 'deterrence trap'
The size of fines is limited by what is often called the 'deterrence trap'. This refers to the problem that too high a fine might threaten the survival of a business, particularly a small one and might lead to a 'spillover' effect. It might therefore harm those assumed to 'innocent', such as shareholders, whose investment income is threatened, employees whose jobs are placed in jeopardy, and consumers who may have to pay more. Surrounding communities may also be economically damaged if a major business has to close down or cut back its operations.
The unequal impact of fines
Fines may have a more severe impact on the smaller company, whose operations are more vulnerable to a monetary penalty. Even a very large fine for a major corporation may however be regarded as a 'slap on the wrist', and as carrying little deterrent value. This adds to the inequity in prosecutions where it easier to prosecute a smaller company.
Fines, and monetary penalties in general, are largely based on a deterrent rationale. This too has important limitations and the following section will explore how alternative sentencing objectives can be applied to corporate offenders.
Rationales for alternative approaches
Deterrence is often seen as the primary justification for sentencing companies as they are assumed to be 'amoral calculators' who will seek to avoid offending if its costs are seen to exceed any benefits. It has also been widely assumed to be difficult to apply other sentencing objectives, such as retribution, incapacitation or denunciation to companies as opposed to 'guilty' individuals. There is now, however, a considerable literature arguing that these sentencing principles can be applied to companies and that they may be more effective than monetary penalties in preventing future offending and expressing moral disapproval 18.
In addition to the limitations of the fine outlined above, there are problems with the assumption of deterrence theory that corporations are motivated primarily by economic reasoning. Not all offences are the result of economic calculations - indeed offences so serious as to lead to death or injury could be regarded as economically damaging. Corporate structures and cultures which condone and indeed encourage law breaking and unsafe practices may develop. Deterrent sentences on their own do little to address these underlying factors. Furthermore, they may not address the interests of victims nor do they reflect moral disapproval or condemnation of offences. Indeed a strong argument against fines is that they can, by suggesting that offenders can 'pay' for their crimes, trivialise the gravity of offences and diminish the significance of any non economic harm caused, particularly in cases involving death, injury or serious environmental damage (Law Reform Commission, NSW 2003).
Nonetheless few dispute that deterrence remains a major sentencing objective for corporate offenders or that it can be effective (Law Reform Commission, NSW 2003; Croall and Ross 2002). Some of its limitations can be overcome by increasing the deterrent value of monetary sentences and by combining monetary penalties with others. Increased fines could therefore be combined with publicity orders or punitive orders which would constitute a greater deterrent. Combining fines with probation orders could add a dimension of rehabilitation and prevention, and combining them with community service orders could add elements of retribution and restitution.
A major criticism of monetary penalties is that may be seen as not containing sufficient retribution and do not 'fit' the gravity of the crime, particularly in cases such as homicide where some form of corporate fault is involved. In these kinds of circumstances it could be argued that sentences should be more punitive. This might involve considering how fines can be substantially increased by, for example, using equity fines, punishing the company more severely by restricting its operations or even implementing 'corporate capital punishment' by dissolving the company. The punishment can also be made to 'fit' the crime by ordering companies to contribute in some way to benefit the community.
The penalties at the more severe end of the range also involve elements of incapacitation. While companies cannot be sent to prison, often seen as the main incapacitative sentence, dissolving them or restricting their operations does incapacitate although, as will be seen below, spillover effects are associated with these options.
Many argue that companies can also be subject to rehabilitation, company procedures being easier to change than individual psyches (Braithwaite 1984; Fisse and Braithwaite 1993). This would also have preventative value as probation orders or punitive injunctions are specifically directed at changing the situations in which offences have occurred, thus preventing further offending.
Companies are also 'shameable' (Braithwaite and Drahos 2002), suggesting the utility of 'naming and shaming', denunciatory or expressive penalties. A considerable volume of research and literature confirms that companies place high value on their reputations as seen in contributions to charities or 'image' advertising (Cowan 1992). Moreover they often spend considerable sums defending themselves in prosecutions, even though the eventual fine may not be a major economic consideration, suggesting their concern with prestige and reputation. Senior executives are generally believed to care about their ethical reputation among their family, friends and peer group, suggesting that shaming strategies be carefully targeted and should involve individuals as well as companies (Braithwaite and Drahos 2002; Levi 2002). These arguments suggest options such as publicity orders, community service orders and requirements that senior executives attend sentencing hearings.
A final criticism of many sentencing options for both 'conventional' and corporate offenders is that they do little for the victim of crime. While victims can pursue civil cases and compensation in various forms is already a part of sentencing, taking account of victims could be enhanced, particularly for cases where there may be no direct victim, by penalties involving direct reparation or those which more indirectly seek to recompense the 'community', such as remedial or community service orders. These, along with probation orders may contain elements of restorative justice, which some argue can be a useful strategy for corporate offenders, and may involve conferences between senior personnel of companies and victims before appropriate remedies are agreed (Braithwaite 2002).
A wide range of alternative penalties can therefore be justified by applying a wider range of sentencing rationales, often in combination, as is the case for individual offenders. These approaches are particularly relevant to corporate homicide, where a fine on its own can be widely criticised as inappropriate given the seriousness of the outcome and the situation underlying the offence. Regulatory fines are additionally limited by their focus on the breach, rather than the outcome, a crucial difference between criminal and regulatory prosecutions (Croall and Ross 2002).
A wider range of penalties has been used or suggested in other jurisdictions. In the United States many of the above approaches have been available to courts under the guidelines of the Federal Sentencing Commission for Organizations since the early 1990s. Some are used in regulatory offences in Australian states and a recent report by the Law Reform Commission of New South Wales (Law Reform Commission, NSW 2003), following an extensive investigation of alternative options, recommended their adoption in that state. The following sections will outline these options.
Strengthening Monetary Penalties and Fines
Despite their limitations, most agree that monetary penalties remain an essential sentencing option for companies. In addition to being strongly related to the economic interests of the company, they are easy to impose and collect (Jefferson 2001; Gobert 1998). Determining an appropriate level of fine, ensuring consistency and considering their potential spillover effect are major issues to be considered, and it has been suggested that the factors to be taken into account are spelt out more clearly, that fines be related to profits or turnover and that equity fines be introduced.
Sentencing guidelines and cases
In England and Wales, the case of R v F Howe ( R v Howe and Son (Engineers) Ltd  1 All ER 249) set out level of Fine guidelines. Factors which a sentencing court should take into account included the relation of the offence to the required legal standards; whether a death occurred; whether there had been a deliberate breach of legislation with a view to profit; the degree of risk and extent of danger involved; whether the breach was isolated or continued over a period of time; the defendant's resources and the effect of the fine on the business. It also indicated particular aggravating and mitigating factors:
- aggravating factors include a failure to heed warnings; deliberately profiting from failing to take necessary health and safety steps; specifically running a risk to save money.
- mitigating factors include prompt admission of responsibility; steps taken to remedy deficiencies; a good safety record.
In stating that the fine should take account of offenders' circumstances it concluded that a fine needs to be large enough to send a message to managers and shareholders and, although in general the court accepted that the fine should not endanger the earnings of employees or risk bankruptcy, 'there may be cases where the offences are so serious that the defendant ought not to be in business', thus suggesting that the survival of a business may not be seen as essential (Croall and Ross 2002). While this outlines appropriate factors to be taken into account, the Howe ruling has been criticised by the Centre for Corporate Accountability ( CCA) for ruling out arguments that the fine should be related to the company's turnover or net profit ( CCA 1999).
In the Scottish case Topek (Bur) ( Topek (Bur) Ltd v H.M.A.  SCCR 352), the High court of Justiciary upheld a £20,000 fine amounting to half of the net annual profit of the company. The sheriff felt that this was appropriate as blame attached to the company and a fatality had been involved. The High court agreed without discussion (Croall and Ross 2002). In another case, one of the largest fines in a Scottish Court at the time, £25,000, was imposed on Royal Ordnance following an explosion which seriously injured a worker and in which a 'sad history' of neglecting safety was revealed. Lord Dawson stated that the fine would fall on 'innocent shareholders' and that he trusted they would take action to prevent a similar accident re occurring ( The Herald 27/2/1998).
Fines could, therefore, be related to profits or turnover - a principle incorporated into British law under the Competition Act of 1998, and which has received some support from the CCA (1999). They cite the Criminal Bar Association's argument that the maximum penalty for a corporate offender should be expressed as the greater of either a percentage of the average corporate profit in the 3 years preceding the offence or a percentage of the corporation's turnover during the same period. The CCA suggested a formula for calculating fines for Environmental offences which would involve:
- setting a percentage range reflecting the seriousness of the offence - the sentencing court could use 'culpability' and 'harm' criteria to assess a percentage level which could range from 5% - 15%;
- multiplying the percentage level chosen with a 'measure' reflecting the company's means which might take account of factors such as turnover; profitability and liquidity.
Other models for calculating fines have been considered. An 'optimal penalties model' aims to enhance deterrence by calculating the level of harm in conjunction with the probability of detection and conviction. It is however extremely difficult to develop an objective economic calculation of either harm or the chances of detection and applying the model potentially produced 'astronomical' fines. It was rejected, following business representations, by the US Federal Sentencing Commission (Etzioni 1993) and the Law Reform Commission of New South Wales also ruled it out (Law Reform Commission NSW 2003).
An alternative model was adopted by the US Federal Sentencing Commission in its organizational sentencing guidelines (Law Reform Commission, NSW 2003; Joseph 1998). This involves determining a base fine which takes account of a prescribed minimum for the offence, the organization's pecuniary loss or gain from the offence and the extent to which the offence was caused intentionally, knowingly or recklessly. This is then calculated against a 'multiplier' - a culpability score which takes aggravating and mitigating factors into account. These include the size of the organization, its prior criminal history, violations of court orders, attempts to obstruct justice, the presence of an effective program to prevent violations of law and whether or not the company reported the offence, co operated with the authorities and accepted responsibility. The fine may also be reduced if it is likely to impair the organization's ability to make restitution or jeopardises the existence of the organization. These guidelines have been associated with higher levels of compliance and with the development of compliance systems (Law Reform Commission, NSW 2003; Joseph 1998). These guidelines are mandatory, can arguably lead to rigidity and threaten judicial independence, reasons given by the Law Reform Commission of New South Wales for rejecting such an approach. Its applicability to other jurisdictions may therefore be questioned, a consideration likely to be relevant in Scotland.
Equity fines, sometimes referred to as share dilution, require the convicted company to issue new shares, possibly to a state victim compensation fund with the value of shares equalling the cash fine considered appropriate. This would water down the company's value and is seen as a more punitive option.
The many advantages of such a system include (Law Reform Commission NSW 2003; Coffee 1981; Jefferson 2001).
- Spillover is avoided as the corporation's capital is relatively unaffected.
- It can be used to compensate victims whereas cash fines go to the Government.
- It can enhance deterrence as shareholders may demand internal reforms and a substantial fine could make the corporation vulnerable to a takeover, thus threatening managers.
- It may have an impact on those responsible for the offence particularly in situations where managers are also shareholders.
At the same time equity fines have attracted criticism. Issues raised include:
- They could lessen a potential fine as courts could take the impact on shareholders into account.
- They may have an unfair effect on shareholders and fail to distinguish between shareholders who have little control over corporate activities and those who do - although against this it could be argued that shareholders voluntarily expose themselves to risk.
- Although in theory a deterrent impact is assumed, it is not guaranteed as they do not involve any specific intervention and shareholders may not complain particularly if their investment is a small one.
- As is the case for all monetary penalties they may not reflect the seriousness of the offence and may be more appropriate for regulatory offences.
- It could be difficult to calculate the appropriate amount and they may be difficult to administer.
- They are limited in application, not being appropriate for private companies or public bodies.
These limitations lay behind the rejection of equity fines by the Law Reform Commission for New South Wales, although their punitive nature and their potential for enabling larger fines with fewer spillover effects means that they continue to attract support. Objections that they aim primarily at deterrence can be resolved by combining them with other penalties.
Monetary fines can therefore be strengthened by more consistency and by imposing higher amounts by using equity fines and/or relating fines to profit or turnover. Spillover remains an issue particularly in relation to potential effects on shareholders, employees or consumers, although it can be argued that sentences for individual offenders also have a spillover effect as happens for example when the family of an offender who is sent to prison suffers (Law Reform Commission, NSW 2003; Jefferson 2001). Considerable debate also surrounds the extent to which shareholders should be penalised and whether they should be seen as 'innocent'. On the one had it is a common objection that it is unfair in principle to penalise shareholders who may be remote from the actions leading for example to a death or injury and who may have little power to affect day to day management. On the other hand there are strong arguments that shareholders have voluntarily taken a risk by investing, may well profit from offences, should be encouraged to ask more questions and do have an impact on management decisions (Croall and Ross 2002; Slapper and Tombs 1999). These factors may vary across companies and it could be argued that such variations could be taken into account by the sentencing court.
While companies cannot be sent to prison (although individual managers who have been found guilty can, and many argue, should be), they can be incapacitated by being disqualified from carrying out some activities or, in more extreme cases, by being dissolved.
The Law Reform Commission for New South Wales identifies the following ways of restraining companies' activities. Orders can be imposed which:
- Require corporations to cease certain commercial activities for a particular period;
- Require corporations to refrain from trading in a specific geographic region;
- Revoke or suspend licences for particular activities;
- Disqualify the corporation from particular contracts;
- Freeze the corporation's profits;
Disqualifications, sometimes described as 'quarantine,' can be seen as analogous to imprisonment with the time period of an order being equivalent to the length of a prison sentence. They are punitive and retributive and can be regarded as reflecting the seriousness of an offence. A number of limitations have been associated with these strategies (Law Reform Commission of New South Wales 2003; Miester 1990) including:
- Spillover: Disqualification orders will very often have an impact on shareholders and more particularly on employees if the order involves the company closing down part of its operations.
- They are primarily punitive and deterrent and may leave little scope for rehabilitation.
- They may be difficult to implement, particularly for companies with extensive operations.
- Revocation of licences is only appropriate when a licence is required.
Freezing a company's profits may be less harsh as it limits spillover and allows them to continue with their legitimate activities. The Law Reform Commission of New South Wales recommended that provisions should enable disqualification orders and the denial of corporate profits for a fixed period of time equivalent to a period of imprisonment.
Likened to 'corporate capital punishment' (Braithwaite and Geis 1982), is the strategy of dissolving the corporation and placing its assets into the hands of receivers (liquidation) or the government (nationalisation). Its main advantage is stopping the operations of companies which pose a serious threat to safety or health, and where other penalties are considered inappropriate. It is also recommended for primarily criminal organisations such as those involved in trafficking illegal drugs or people.
Dissolution is associated with severe problems. It would almost always involve issues of spillover and those involved in a dissolved company can reincorporate. Moreover, while in theory it may pose a higher deterrent, it is likely to be used so rarely that any deterrent value would be lessened. Despite these disadvantages it may be appropriate in cases of homicide and the Law Reform Commission of New South Wales recommended that it should be provided for but used only for homicide and for 'criminal' corporations.
Corporate probation, based on largely rehabilitative arguments, is widely recommended. It generally involves the court making an order requiring action in relation to organizational features associated with offences such as developing and implementing a 'compliance' programme which might involve changing methods of production, changes in personnel, education and training of staff, making sure that compliance procedures are adequately monitored or other provisions connected with the commission of the offence (Law Reform Commission NSW 2003; Gruner 1993). Companies can be invited to present proposals to the court and to implement programmes, all at their own expense (Jefferson 2001). Orders can be enforced by specially appointed 'experts' drawn from appropriate professional groups.
Corporate or organizational probation is possible under regulatory statutes in Australia and was strongly recommended by the Law Reform Commission of New South Wales. It is mandatory under the US Federal Sentencing guidelines which stipulate that it must be given where:
- an organization with 50 or more employees does not have a programme to prevent and detect violations of the law;
- it is necessary to ensure that changes are made to reduce the likeliehood of future criminal conduct;
- it is necessary to accomplish one or more of the purposes of sentencing.
The duration of an order is 1-5 years for a felony and no more than five years for all other offences.
It has been suggested by research that these provisions have helped to deter future offending and have led to an increased attention to compliance (Law Reform Commission NSW 2003; Joseph 1998).
In England and Wales, the Law Commission was criticised for rejecting corporate probation in its early corporate killing proposals in 1994 and for its optimistic assumption that the stigma of conviction would be such that no respectable company would not take action against the systems or people responsible for offences (Jefferson 2001). Its later draft bill included proposals for a 'remedial order' which could be applied for by the prosecution and/or the HSE, and is contained in the current proposals.
Many advantages are associated with corporate probation including that it:
- is interventionist, unlike many other options;
- aims at reform, rehabilitation and prevention of future occurrences;
- is flexible and can be directed at the features of organizations; associated with the offence;
- can be combined with a fine or other options;
- is particularly appropriate for smaller companies;
- has few problems of spillover;
- can encourage regulatory innovation and companies may be more willing to comply with requirements that they participated in determining;
- can be paid for by companies themselves;
- is directed at non financial values;
- can enhance deterrence.
A number of potential limitations have been identified, although most are readily countered by its advocates. These include:
- In some jurisdictions Probation is available only as an alternative to sentencing but this can be overcome by legislation;
- Probation officers or, in Scotland, Criminal Justice Social Workers, are not well equipped to supervise or enforce orders. This can be overcome by appointing suitable 'experts' such as auditors, accountants, management specialists, academics or others with appropriate knowledge.
- As is the case for other offenders, probation might be seen as a 'soft' sentencing option, particularly relevant to cases involving death or serious injury. On the other hand, it can be combined with other, more punitive, options.
- It might be costly. This objection can be overcome by requiring those companies who have the resources to bear the cost themselves.
- It could have some adverse impact on shareholders or those employees who might bear the burden of carrying out the orders. Spillover problems are however seen as considerably less for this option than for others.
"Punitive injunctions", a term used by the Law Reform Commission for New South Wales (2003) are often seen as a form of probation, albeit a more punitive option. These set out conduct that the corporation must not engage in or specify actions that the corporation must undertake. They may also identify particular personnel responsible for offences. For environmental offences for example, they may contain provisions that the company must prevent or control any harm to the environment associated with the offence and/or to make good any resulting damage, or to prevent a recurrence of the offence. Failure to comply with such an order would be an offence. These are similar to the remedial orders proposed in the legislation on corporate killing in England and Wales which would require corporations to take steps to remedy whatever 'management failure' had caused the death in question.
These have the advantage that they:
- underline the unacceptable nature of offences;
- can be associated with prevention, rehabilitation and deterrence along with restitution and redress;
- can be more effective than monetary penalties particularly for small companies;
- are more tightly focussed than probation orders.
These may overlap with community service orders, to be discussed below, and can also be associated with disqualification. The concept has much in common with regulatory orders, such as prohibition notices and improvement notices under the Health and Safety at Work etc. Act 1974. Under that Act these are issued by the HSE to employers in breach of the Act and it is a criminal offence to fail to comply with such notices. A more general provision could be provided. The Law Reform Commission for New South Wales recommended the introduction of these 'punitive injunctions' which would, in Scotland, more properly be referred to as an 'interdict' (the equivalent of an injunction to stop someone doing something) or a 'specific implement' (to require someone to do something). These are enforced by proceedings for contempt of court. Being more punitive than probation they might be seen as particularly appropriate in cases of corporate homicide.
Community Service Orders
Community Service Orders involve a corporate offender undertaking a project which benefits the community or sections of it, or contributing to projects relating to the offence (Law Reform Commission, NSW 2003; Croall and Ross 2002). Companies can be ordered to undertake work, or, as with probation, could suggest appropriate schemes to the court for approval (Jefferson 2001). In this way the technical or professional expertise of the company could be used to benefit the community or to repair the damage caused by the offence. Like community service for individual offenders they have reparative, rehabilitative, deterrent and retributive elements along with having the potential to express moral condemnation of the offence.
Many advantages are associated with community service orders (Croall and Ross 2002; Croall 2001; Jefferson 2001; Law Reform Commission, NSW 2003) including that they:
- have a considerable symbolic value, which emphasises the social unacceptability of the offence;
- can be tailored to fit the circumstances of the offence and the offender;
- have limited spillover effects;
- can be used for companies where a punitive fine would threaten survival;
- can considerably benefit the community;
- require the corporation to exert time and effort which may also have a rehabilitative and deterrent potential;
- are particularly appropriate when an offence affects a community as opposed to an individual victim.
Community service orders have been used in the United States where for example the Danilow Pastry Corporation, found guilty of price fixing, was ordered to supply goods to organizations assisting the needy. In this case Fines would have bankrupted the company and caused unemployment. In other cases companies were ordered to contribute to charities or make endowments. These latter kinds of orders attracted criticism on the grounds that courts could favour 'pet charities' and that merely requiring companies to make some financial contribution was similar to a cash fine and did not require management or employees to internalise the seriousness of offences. The subsequent US Federal Sentencing Guidelines limited community service to cases where it was designed to repair the harm caused by the offence. Others have argued that where possible, high level personnel should be involved in implementing orders as attitudes of managers are less likely to be affected if they can delegate orders to lower level employees and they may also have a more skills to offer (Gruner 1993). In Australia orders are used particularly in cases involving environmental protection, and courts have ordered companies to fund relevant social projects. The Law Reform Commission of New South Wales recommended that orders should bear a reasonable relationship to the offence.
As is the case with other options, a number of issues have been raised in connection with corporate community service orders including arguments that they:
- Do not guarantee corporate reform. They can however be used in combination with other penalties.
- May not reflect the seriousness of offences or might be regarded as a 'soft option' - again an objection which can be overcome by combining community service with other orders.
- Might incur costs to the company exceeding those of fines. This can be countered by requirements that the cost should not exceed the maximum amount of the fine applicable to the offence.
- Create problems in connection with supervision. As for probation orders, this can be overcome by the appointment of appropriate persons.
- Might not attract sufficient public reaction (Slapper and Tombs 1999; Croall and Ross 2002). This could be overcome where necessary by combining them with publicity orders.
- Companies could benefit from community service orders by using them to attract favourable publicity. This would be most likely negated by the adverse publicity attracted by the initial offence or by a publicity order.
Overall, therefore, community service orders have attracted considerable support particularly for offences without direct victims such as environmental offences which have a more direct impact on local communities. This has led to some questioning their applicability to corporate homicide which does have direct victims (Miester 1990). Others however argue that they can be appropriate. One suggestion is for example that transport or rail companies could be ordered to undertake research into ways that 'disasters' could be prevented in future rather than such research being carried out at the taxpayers expense (Gobert 1998; Jefferson 2001). Suitably devised orders could therefore be a useful addition to monetary penalties.
Publicity orders involve the publication of the offender's conviction and other details of the offence such as its consequences for either a specific group or for the general public (Law Reform Commission NSW 2003; Fisse and Braithwaite 1983). Their rationale is primarily denunciatory although a deterrent effect is also possible. They have been used throughout the ages for commercial offences - offenders against weights and measures acts could, for example, be placed on the stocks to be publicly shamed and during the 19 th Century, Bread Acts required that convictions of offenders be made public. As seen above there have been many arguments that companies do worry about their image and adverse publicity can lead to loss of business. An example often cited is the returning, by thousands of consumers, of Exxon credit cards following the 1989 Exxon oil spill (Law Reform Commission NSW 2003; Curcio 1996).
Publicity orders are argued to:
- be more deterrent than a Fine as corporations value their reputation highly;
- adversely affect consumer confidence;
- compromise the corporation's autonomy;
- threaten morale within the company - requiring positive action
Publicity orders are allowable under the US Federal Sentencing Commission Guidelines for Organizations and in Australia they are provided for under Trade Practices legislation, as they are argued to be particularly appropriate for crimes where consumers might avoid or boycott the company's products. A number of issues have been raised in connection with these orders including:
- They may become routine and the public might not pay sufficient attention to them. This can be overcome by targeting orders to audiences where they will attract maximum attention. Orders could require for example that companies place details of the conviction on their prospectus.
- The exact effects of orders may be uncertain - they have been described as a 'loose cannon'. This means that their impact is difficult to calculate.
- They might lead to serious losses which could cause considerable spillover. Research indicates however that this was likely to be the exception rather than the rule and no evidence of an adverse effect on workers was found (Fisse and Braithwaite 1983).
- Companies might use counter publicity to negate the impact. Research suggests however that this would be an exception and found that the majority of companies felt that counter publicity risked generating further bad publicity (Fisse and Braithwaite 1983). Courts can however be given powers to restrain any counter publicity.
There is widespread support for publicity orders, and the Law Reform Commission of New South Wales, in an attempt to answer some of the above issues, suggested that they would be most appropriate in cases where:
- The judge has reduced a monetary penalty due to the corporation's financial circumstances but it is considered that an additional penalty may help to express the community's reprobation.
- The corporation has a poor record of compliance in which case it may be used in combination with a probation order.
- It is considered that the corporation's customers, creditors and shareholders should know about the conviction or where news coverage is likely to be insufficient.
In addition they argue that the courts should have the power to stipulate a target audience, the content of the publicity, the consequences of the offence, the nature of any punishment and any other information which the court feels is appropriate.
It might be argued that most cases of corporate homicide would attract publicity although this is by no means guaranteed particularly where individual as opposed to multiple deaths are involved. Indeed one writer argues that even opponents of publicity orders accept their usefulness in cases involving homicide (Miester 1990) and it could be seen as particularly appropriate in cases where little publicity might otherwise be expected.
Requiring senior officer(s) to attend sentencing
While not a penalty as such, denunciatory arguments also underlie proposals that the Chief Executive Officer and/ or other senior officers should be required to be present during sentencing as 'the company' cannot physically be present in court (Law Reform Commission, NSW 2003; Barnard 1999). In this way the court would be able to express community disapproval and underline the seriousness of the offence to a senior representative of the company. It could also act as a deterrent as senior officers might wish to avoid what has been described as a 'shaming ceremony'.
In the United States, under the Federal Sentencing Guidelines, the sentencing judge may require the CEO to appear in court personally. This serves three main purposes (Barnard 1999):
- to impress on the CEO the gravity of corporate wrongdoing
- to signify to the community that the leadership of the corporation has accepted responsibility for the crime
- to extract some indication that the corporation intends to comply with the law in the future.
It further ensures that the conviction does come to the attention of corporate management rather than being left to lawyers. In the US the provision is discretionary and limited to cases where the corporation has pled guilty and thereby accepted its responsibility. Those who plead not guilty and are subsequently convicted are not eligible and it only applies to the CEO rather than members of the Board. These, it has been argued, are important limitations.
It has been suggested that these proceedings play a symbolic and retributive role and should include an expression, by the sentencing judge, of community abhorrence, an exploration with the CEO of how the offence occurred along with a discussion about the response of the organisation, an assurance that similar offences will not recur and an acceptance by the judge of this assurance followed by an admonition (Barnard 1999).
In Scotland, in a case involving the Prison Service, the Court of Session considered who would be the appropriate person to attend court to make an apology for contempt of court. While no penalty was being imposed it considered that a finding of contempt is a matter of great importance and that it should make an order for appearance "so that the court can make a formal finding of contempt in open court". It further stated that it should order the appearance of the Chief Executive of the Scottish Prison Service and the Governor in charge of HMP Peterhead. The Chief Executive is "the civil servant who should be regarded for present purposes as representing the alter ego of the respondents", and the Governor is "responsible for the failure to take reasonable steps to ensure that the respondents' undertaking was complied with" ( William Beggs v Scottish Ministers 2005 CSIH25 available at http://www.scotcourts.gov.uk/opinions/2005CSIH25.html).
A provision to require senior officers to attend court for sentencing was recommended by the Law Reform Commission of New South Wales, who suggest that the court should be able to compel persons acting as chief executive to be present regardless of whether a corporation pled guilty or not and that the option of compelling Directors should also be introduced - both provisions designed, they argue, to achieve improved internal accountability (Law Reform Commission, NSW 2003). As it may not always be easy to identify the chief executive or highest ranking officer nor might it always be desirable to single out the chief officer, it further recommended that the court should have the discretion to decide which corporate officers, such as directors, the company secretary and executive officer, would be most appropriate, depending on the circumstances of the case. It could further be argued that these kinds of requirements are particularly appropriate in cases of homicide, where there is fault on the part of the organization and where a more expressive form of condemnation is seen as appropriate.
The above represent the main alternative options for sentencing corporate offenders. In order to assist the court in making decisions as to which options are most appropriate and to calculate if necessary the amount of any monetary penalty it has also been suggested that a form of 'corporate inquiry report' should be introduced, which is discussed below, followed by a brief consideration of how penalties can be enforced.
The provision of Inquiry reports
The court regularly receives background information on individual offenders by whereas it may receive only haphazard information on company accounts, sometimes based on solicitors version of 'draft' accounts as happened in the Topek (Bur) case cited above. It was further recognised in Howe that it was difficult to obtain 'timely and accurate' information about the defendant's means. Information provided by the company is more likely to be in the context of mitigation and is more likely to stress its poor position than to provide full details of assets (Croall and Ross 2002). In the United States a Federal Law officer undertakes an investigation into each convicted corporation. There have accordingly been suggestions (Bergman 1992; CCA 1999; Law Reform Commission, NSW 2003) that courts should routinely receive a form of Corporate Inquiry Report and should, where necessary, have powers to appoint a relevant expert to provide a professional assessment, paid for where appropriate by the company itself.
The Law Reform Commission of New South Wales received positive responses in their consultation about this suggestion. Suggestions as to which information should be provided (Law Reform Commission NSW 2003; Bergman 1992; Jefferson 2001) include details of:
- any prior convictions;
- any new compliance systems implemented to prevent repetitions of the offence;
- what existing compliance systems were already in place;
- the previous positive and negative record of the corporation;
- any attempts at reparation;
- any prior convictions of high level personnel of the corporation.
- Financial information such as the company's turnover and annual profits;
- the history of the company's relationships with regulators and in for example, safety cases, its general health and safety record.
The Enforcement of orders
Any legislation introducing such orders would require some mechanism to deal with offenders who do not comply and who fail to pay fines such as further penalties or, as happens in the United States, making any breach subject to 'contempt of court'. This is necessary as corporations, unlike individual offenders, cannot be imprisoned. In addition the order could be continued or extended. The New South Wales Law Reform Commission recommended that in the event of a breach the following would apply:
- Continue or extend the term of the order
- Impose additional or more restrictive conditions
- Revoke the orders and re sentence the corporation.
On re sentencing a court should be able to take into account the extent to which the corporation had complied with the order before failure. For default of fines it recommended the option of heavier sentences including incapacitation.
Summary and Conclusions:
It is widely accepted that monetary penalties alone are insufficient for corporations or organizations convicted of serious offences such as homicide or causing serious injury. By applying sentencing principles widely used for individual offenders such as retribution, incapacitation, rehabilitation and denunciation a wide range of innovative penalties have been advocated and used in other jurisdictions, all of which are relevant for cases of corporate homicide.
All of these options also apply to a wide range of corporate and regulatory offences. While considering their broader application lies outside the remit of the Expert Group and this paper, their potential application in for example Health and Safety, Environmental or Consumer legislation should be stressed.
It should also be stressed that while the emphasis of this paper has been on penalties for corporations, they are also appropriate for individual managers found guilty of offences involving death or serious injury. Individuals can be imprisoned and it is widely argued that potential imprisonment acts as a deterrent for managers. Sentences other than monetary penalties may also bring home the seriousness of offences, and as seen above, it is considered to be important that senior management are involved in the implementation of community service orders. Managers are also 'shameable' and may fear adverse publicity.
While not always seen as relevant in cases of homicide, elements of restorative justice can be a feature of corporate sentencing, and can involve senior executives. Restorative justice by means of conferences with employees, management and regulators can be a part of regulatory strategies. It can also form part of shaming or denunciatory strategies. In one Australian case, senior executives of an insurance company which had deceptively sold policies to remote Aboriginal communities were sent to the communities to negotiate a settlement. Executives reported that they experienced considerable remorse (Braithwaite 2002).
Monetary penalties remain an important feature of any proposed range of penalties and it has been argued that they could be considerably strengthened by introducing the options of equity fines and calculating fines taking into account the profits and turnover of the company. Monetary penalties can also be usefully combined, in appropriate cases, with a range of other options which may add elements of retribution, denunciation and incapacitation.
As convictions for corporate homicide will only be taken where there is evidence of some form of corporate 'fault', it would seem appropriate that penalties are directed at these underlying circumstances. A number of innovative strategies can be introduced through enabling corporate probation or community service and other orders. Probation orders or punitive injunctions, appropriately renamed, are appropriate to meet these circumstances and are particularly relevant in cases where the circumstances of the organization limit the size of a fine, as would be the case for example with a small company or a public organization where a large fine would fall on the taxpayer. Community service orders are also appropriate to meet further demands that some reparation be made or that penalties symbolically reflect some element of moral disapproval. This is also the case with publicity orders, which may additionally enhance the deterrent impact of a sentence and be appropriate where a large fine is not possible. In the most serious cases, where the organization's activities are particularly threatening to health and safety, incapacitation may be seen as an appropriate step.
A broad range of options is also necessary to take account of the wide variety of circumstances likely to be found in both the offence and the offending organization. Probation, community service and other orders add an important dimension of flexibility in which the penalty can be seen to 'fit' the 'crime' and can be tailored in accordance with the circumstances of the individual case. This is particularly relevant to the contrasting circumstances of a smaller or larger company.
It can therefore be argued that all of the above options be adopted and they were widely supported in evidence submitted to the Expert Group. They could be regarded, as the CCA suggest in their response to the proposals in England and Wales, as essential to any new law whose impact would be lessened without tough sanctions. In addition, an inquiry report should precede sentencing in order that full information is available to the sentencing court to assist the determination of the most appropriate penalty.
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Professor of Criminology
Glasgow Caledonian University
17 August 2005