I wanted to share with you all some thoughts I had on how we can more effectively rein in our new corporate "citizens". Scott Klinger's article If Corporations Were Human, which I recommend reading, was the starting off point for this, though I go in a different direction with it.
As Ambrose Bierce said 100 years ago, "[A corporation is] an ingenuous device for obtaining individual profit without individual responsibility." This is equally true today. If the supreme court is going to say the corporations have all the rights guaranteed to people in our constitution, we need to enforce effective penalties from wrongdoing. If I were to go into my local neighborhood and poison a few dozen people, I would either be imprisoned for life or executed. A corporation who does the same thing gets fined or perhaps sued.
The current system is a bit like the parable for the the blind man and the cripple stealing fruit from the orchard.1 The shareholders say, "I had no idea what was going on, I just invested the money!" While the management says, "We have no responsibility for this, we were just acting in the interests of the shareholders!"2
There are several solutions to this: One possibility would be end limited liability for shareholders. I feel this would be infeasible, as it would pose too large a burden on small investors, who rarely are familiar with the day to day operations of companies they invest in. Also, who exactly would you arrest for corporate malfeasance? You couldn't exactly send everyone who owns any tiny sliver of the company to jail.
Another option is to make managers criminally responsible for their decisions. This is more or less the approach congress took with Sarbanes–Oxley, which required CEOs to certify on penalty of perjury that financial statements are accurate. The downside of this is that often it is hard to show who specifically was responsible for an illegal act, as opposed to simply showing that the company acted unlawfully. Questions of responsibility in structures where your job depends on pleasing your superiors are somewhat tricky to ascertain. For example, if a company dumps waste into a river, who do you hold responsible? The employee who dumped the waste? The manger who told him to? The executive who set a policy of "reducing disposal costs" that implied indirectly that such actions be taken? The CEO who approved the policy, but did not read it carefully? It's not obvious.
Alternately. we could keep the current system of imposing fines, but greatly increase the penalties. For example, it was pathetic the Martha Coakley did not pursue criminal charges against the contractors in the Big Dig collapse because the maximum penalty was a $1,000 fine.3 I would like to see some sort of "corporate death penalty" where a company can be subject to revocation of their business license and forced liquidation of its assets. It's not as satisfying as sending people to prison, but if the penalties are large enough, it may cease to be profitable to engage in illegal activity. I do have some doubt if this alone will be sufficient though, since the perpetrators themselves still get away scot-free.
Lastly, a comment on corporate taxes. The corporate profits tax in the US is on paper one of the highest in the world, at 35%, but in practice few large corporations pay anything close to that. Congress has put in so many loopholes and exceptions over the decades that large companies typically pay little or no taxes on their earnings.
1 In this talmudic story, the blind man carries the lame man and while he picks the fruit from the trees. When they are caught eating their plunder they both deny responsibility, citing their disabilities. See Bavli Sanhedrin 91a.
2 Corporations are legally required to maximize shareholder value and can be sued by their shareholders if they fail to do so.
3 She did file a civil suit instead and got a settlement of $16 million. For reference, $1,000 is also the fine for feeding the pigeons in Portsmouth Square in San Fransisco.