Think piece on the extent of corporate crime in business.

1. Martin Dorchester: Think piece corp crime
Does C. Wright Mills (1956) theory of the distribution of power explain how
Corporations avoid criminalisation; and are there policies being developed that will
redress the balance?
Introduction:
The corporation is a relatively new legal and political construction in society. It
emerged in the 17th century in England and was established under Royal Charter to
enable colonisation of India and the Americas. (Muncie et al, 2010). Since that time
the corporation has developed further and today’s dominant form is a limited liability
company, whereby shareholder or owners losses are limited to the original sum they
invest. From what William Jennings Bryan (1912) described ‘the handiwork of man
and was created to carry out a moneymaking policy’, has now come an entity in its
own right, imbued with legal status, rights and obligations. More than that, C Wright
Mills (1956) argues that the corporation has become the dominant force within a
‘Power Elite.’ So given that it could be argued that corporate crime has the greatest
impact and causes the most fundamental damage to society (Mokhiber, 1999; Punch,
2000) the following paper will consider whether C Wright Mills theory of the
distribution of power enables corporations to avoid criminalisation. The paper will
consider a number of harms that corporations inflict on society such as violence, fraud
and theft. It will also aim to find a better understanding of how corporations leverage
their power to avoid criminalisation and will question as to whether the theory of
distribution of power fully explains this. The paper will then consider policy
responses to corporate power with especial reference to globalisation.
The ‘hidden figure’ of corporate crime
The view one takes as to how to define corporate crime has real consequences. Thus
the majority of corporate harms remain either unregulated or non-criminalised. The
following selection of statistics highlights the real scale of corporate crime:
• Globally over 350,000 workers die in incidents at the workplace (ILO, 2005)
• 2.2 Million people per year die as a result of work related injuries or disease
(UN REPORT, 2007)
• In the UK there are 1200-1500 work related fatal injuries each year (Tombs
and Whyte, 2008)
• In the UK there is an estimated 50,000 deaths per year due to work related
injuries or disease (O’Neal et al, 2007)
• 37% of the US population have been the victims of some form of corporate
fraud or theft (Rebovich et al, 2002)
• In the UK there has been an estimated 2.4 million victims of pension fraud
between 1988 and 1994) (FSA, 1999)
• It is estimated that $50 billion per year in tax revenues are lost per year to tax
havens (Pusey, 2007)
• 24, 000 people in the UK are estimated to die as a result of poisoning by
various forms of environmental air pollution (UK Department of Health,
2001)
• 50% of all food poisoning cases in the UK can be attributed to food consumed
outside the home (UK Parliament, 2003)
• Between 100 and 200 people in the UK die each year directly as a result of
salmonella and campylobacter. (Helms et al, 2003)
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2. Martin Dorchester: Think piece corp crime
Even from this brief review of a small subset of corporate harms it is possible to draw
two unequivocal conclusions:
1. People are killed globally each year on a huge scale by corporate
activity.
2. Even on the basis of a small number of ‘known’ corporate frauds and
thefts, the extent – in terms of numbers of people affected and total
economic losses – of such harms is vast
Review
DISTRIBUTION OF POWER
It can be argued that distribution of power is either pluralist or elite (education forum,
2010). The classic pluralist position as suggested by Dahl (1961) argues that power is
diffuse rather than concentrated, whereas elite pluralism recognises that not all
individuals and sections of society are represented. Elitist theories therefore see
power as concentrated in the hands of the few and it is these few that take all the
important decisions in society. C Wright Mills (1956) suggests that there is a Power
Elite, comprising of the business community, the army and the government and these
elites dominate and run society in their own interests:
‘Their private decisions, responsibly made in the interests of the feudal-like world of
private property and income, determine the size and shape of the national economy,
the level of employment, the purchasing power of the consumer, the prices that are
advertised, the investments that are channeled. Not 'Wall Street financiers' or bankers,
but large owners and executives in their self-financing corporations hold the keys of
economic power. Not the politicians of the visible government, but the chief
executives who sit in the political directorate ... hold the power and the means of
defending the privileges of their corporate world. If they do not reign, they do govern
at many of the vital points of everyday life in America, and no powers effectively and
consistently countervail against them, nor have they as corporate-made men
developed any effectively restraining conscience.’ (Third World Traveler, 2010)
In different ways and levels corporations can affect and influence the processes of
criminalisation and regulation. Muncie et al (2010) suggest a number of ways that
corporations operate to affect the process of criminalisation: Corporations can and do
engage in direct interventions in policy making, lobbying of governments and policy
makers being a prime example. Corporations can also work actively within
government, representing interests on quasi-government organisations and
committees. Covertly, corporations can also intervene in the policy making process
by agenda setting, mobilising bias and by not making decisions. The case of
asbestosis is a prime example of this. Although the UK government were aware in
1907 that asbestosis was terminal it was not until 1969 that any effective legislation
was put in place (Tweedale, 2000). Tweedale (2000) suggests that a number of covert
methods were used to do this including the co-opting of the medical profession,
suppression of knowledge, manipulation, financial pressures as well as lying to
workers and regulators. Finally corporation’s ability to influence regulation also
enables them to avoid criminalisation. As well as corporations defining their own
regulations (Mokhiber, 1999) regulation is contingent on the economic, political and
social context within which it takes place (Tombs, 2004). Corporations are therefore
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3. Martin Dorchester: Think piece corp crime
viewed as being law abiding citizens, responsive to the logic of the business case and
more likely to respond to compliance by indirect commercial power. Regulation is
often introduced to manage conflict. Perhaps the current initiatives concerning the
regulation of the banking system is a good example of this. As a result therefore it is
plausible to suggest that regulation can be economic or social (Goetz, 1997) and
understood better through power.
THEFT AND FRAUD
McBarnet (2006) calls it “creative compliance, Pussey (2007) calls it “financial
crime” and Sutherland (1983) calls it “white collar crime”. Whatever the name given
to it, the cost of theft and fraud is significant. Donald Rebovich and John Kane
(2002) have estimated that 37% of the US population have been victims of some form
of corporate theft or fraud. Mohkiber (1999) asserts that every year healthcare fraud
costs Americans between $100 and $400 billion. Research by Clinard (1990),
uncovered a number of corporate crimes in the defence and pharmaceutical industries
in the US during the 70’s and 80’s covering areas including: fraudulent overcharging
and illegal gifts to government personnel. Further research has identified corporate
price fixing (Slapper and Tombs, 1999; Croall, 2001). Guinness was found guilty of
manipulating markets and even following a number of convictions still remains
successful and respected (Punch, 2000). Evidence here would seem to suggest that
corporations commit acts of theft and fraud, yet as in the case of Guinness they escape
being criminalised.
Is corporate fraud and theft an example of the distribution of power enabling
corporations to avoid criminalisation? Enron was a high profile case, with reported
losses in excess of $70 billion yet only six people have been sent to prison for periods
of three to five years. (McBarnet, 2006). In the case of Enron the ability of
corporations to keep things off the agenda can be clearly seen in: the circumvention of
the financial reporting used in its accounts, the problems with regulation, especially
around tax, and the collusion amongst some of the world’s leading organisations.
(McBarnet, 2006). However, the distribution of power does not fully explain the how
corporations avoid being criminalised. McBarnet (2006) cites ethics as part of the
problem. Many leading corporations were involved in the Enron scandal and
although they may have operated within the word of the law it can be argued that they
acted against the spirit of the law. The banking crisis in the UK government may be
seen in a similar light, where unethical business practices were challenged.
VIOLENCE
From the explosion of the Union Carbide factory in Bhopal, India (Shrivastava, 1987)
to the Ford ‘Pinto’ automobile case (Swiggert and Farrell, 1980/81), to the Herald of
Free Enterprise in 1987 to the issue of Thalidomide (Knightley et al, 1980) there is a
plethora of evidence that indicates that business kills, maims and poisons (Punch,
2000). Estimates from the Independent Labour Organisation (ILO) are that 2.2
million people die as a result of work-related injuries or disease per year, that there
are approximately 270 million occupational injuries and 160 million victims of work
related illnesses annually (Independent Labour Organisation, 2005). Add to this the
125 workplace-related deaths per hour worldwide (Mokhiber) and the 345,000
workers that died in different regions of the world (Centre for Corporate
Accountability, 2004) and the scale of the harm becomes overwhelming. Is it
therefore then that: ‘Companies then get away with “murder” because the law and the
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4. Martin Dorchester: Think piece corp crime
courts are not geared to organisational deviance and corporate violence’ (Punch,
2000 p 243) or as Tombs (2007) suggests a result of the distribution of power?
Thousands of workers and members of the public die in Britain every year in work
related incidents (Tombs, 2007; Muncie et al, 2010) yet few are ever reported and
some not even investigated. This ability to keep things off the agenda is a key factor
in corporations avoiding criminalisation. Similarly the lack of convictions following
the sinking of the Herald of Free Enterprise (Punch, 2000) suggests that in the current
political economy a dominant value is not occupational safety (Tombs, 2007). Punch
(2000) and Mokhiber (1999) assert that corporations are seen as legitimate businesses
and clean cut executives pursuing business are not seen as criminal and they also have
the financial, legal and social power to bargain their way out of trouble. Punch (2000),
Mokbiber (1999) and McBarnet (2006) all see the use of corporate power as an
enabler to avoid sanctions and criminalisation: be it through plea-bargaining into civil
courts, self and increased regulation, mobilisation or making deals with the
government. Punch goes further than this though, and suggests that there are more
facets to the distribution of power that enable corporations to avoid criminalisation.
As well as the distribution of power Punch (2000) highlights a number of other key
factors such as: legal systems have great difficulty in tracing decision making from
the boardroom to the scene of the disaster or accident, it is very difficult to make an
explicit connection between corporate policies and violent outcomes. Punch also
notes that the law is fundamentally focused on the individual and not the organisation
at a structural as well as ideological level. To criminalise corporations will therefore
require significant cultural, ideological and structural change.
MEDIA
It could be argued that the British newspaper industry was built on the foundation of
business and commercial news (Lloyd, 1999). From the inception of the British press
in the 17th century, the establishment of the Economist in the late 19th century to the
rise of the popular press there has been a strong watchdog tradition, often referred to
as the fourth estate. Muncie et al; (2010) suggest that reporting on corporate crime is
much less visible in the media and if reported it tends to be done so in the more
specialist financial and business pages. In terms of distribution of power and
corporations avoiding criminalisation this therefore can be viewed as an effective way
of screening out corporate crime.
Lloyd (1999) and Punch (2000) both cite defamation laws and possible legal action as
strong reasons for the lack of investigative journalism thus pointing very clearly at the
distribution of power. Lloyd goes further though and suggests that current value
systems and culture have changed. Rather than corporations screening out corporate
crime there has been a shift in the publics’ taste from investigative journalism to what
he terms ‘celebrity journalism’. This is the culture of venerating business leaders
such as Alan Sugar and Richard Branson rather than look at businesses operating
criminally. Instead of investigative journalism there is market driven journalism. In
terms of value systems there has also been a drive towards more ethical standards of
privacy, both in individual terms and corporate terms thus the media has to act with
restraint. Finally crime, especially financial, can be hugely complex and technical
and crime protection agencies, let alone the media are finding it difficult to deal with
(Lloyd, 1999)
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5. Martin Dorchester: Think piece corp crime
GLOBALISATION
The concept of globalisation in corporate terms can be used to imply the way that
economic forces have shifted power and authority away from national governments
towards external, transnational capital. (Drake et al, 2010). Greider (1997) argues that
as capitalism has become increasingly globalised even states such as the US have
found themselves subjugated to the imperatives of the global market. Held (2004,
p10) states: ‘The notion of globalisation implies the centralisation of power in the
hands of just a few major organisations’ Elite corporations with revenues in excess of
some countries GDP operate around the globe and it could be argued that these
corporate empires have replaced political ones. (Held, 2004). Nader (1999) goes even
further and suggests that the world is ‘witnessing its subjugation to the large corporate
model of economic development, the large corporate model of technology and the
large corporate model of culture itself.’ This concept of globalisation resonates with
C Wright Mills work the Power Elite (1956) where he views a world where a few
corporations make decisions upon the military and political as well as the economic
developments around the world. In terms of the global economy, many transnational
corporations are now operating in the ‘global south’, exporting goods and services
there, leveraging the inequalities of power in labour and consumer markets and
operating in countries where the laws in relation to the workplace and environment
are less well developed than in most westernised economies. (Muncie et al, 2010).
The distribution of power in part explains corporations ability to operate in Export
Processing Zones (EPZs) such as Saipan, where immigration controls and labour
rights are controlled differently, it enables corporations to pressure countries into
removing worker rights (Michalowski et al, 1987), it can influence government
decision making to make economies more attractive to them by influencing social and
environmental regulations, taxes and so on. Further to this: “There is evidence,
however, that companies take decisions that will lead to what might be considered the
dispersal or export of suffering – as in the transfer of hazardous technology to third
world countries, in the huge advertising drives for an increased market share of
cigarette and tobacco consumption in Eastern Europe and the Far East, and in the
dumping of out of date drugs in developing countries.” (Punch, 2000 p 251). From
the formation of what Muncie et al (2010) calls the space between laws and Export
processing zones to Giddens (1999) view of globalisation as in part economic, it
would seem that globalisation enhances and affirms the unequal distribution of power.
Corporations operating across the globe commit a number of criminal acts yet fail to
be criminalised. The ability of transnational corporations to influence countries into
reducing its regulatory standards could be attributed to the distribution of power.
However, Tombs and Whyte (2003) argue that ‘it is governments that still decide
when, how and to what extent corporations should be regulated.’ Muncie et al (2010)
suggest that EPZ’s reflect a wider phenomenon known as the ‘race to the bottom’.
Regulatory standards are deliberately reduced because developing countries are
suffering from pressure and this pressure could come from institutions such as the
International Monetary Fund or World Bank loan agreements. The recent financial
crisis where governments around the world have intervened to support the economy
shows how much power the state retains in controlling business and capital flows.
Globalisation and the increasing power of transnational corporations therefore does
not fully explain how corporations avoid criminalisation. As much as it is a strong
example of the distribution of power, the political, social and economic situation is
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6. Martin Dorchester: Think piece corp crime
just as important. As is the power of the nation state which has as much if not more
impact in either criminalising or enabling the corporation to avoid being criminalised.
Policy
A number of policies have been introduced to redress the balance of power between
corporations and society. McBarnet (2006) suggests that Enron had put ethics, culture
and the spirit of the law on the corporate professional and regulatory agenda, and as a
result of this and other financial issues, the US government introduced the Sarbanes-
Oxley Act on corporate governance. Pussey (2007) also suggests that as a result of
the high profile financial cases such as BCCI and Barings both the United Nations and
The Basle Committee on Banking came together to produce the Vienna Convention
1988 and the Basle Concordat which addressed the issue of money laundering.
Further policies from The Financial Action Taskforce were introduced to further
combat money laundering and after the terrorist attacks of September 11th. This was
then enlarged to include the issue of terrorist financing. In many ways these policy
responses are highly technical and are narrowly focused on one type of crime, that is
financial and I would challenge that, rather than a policy response targeted at reducing
or redressing corporate power, this is a tightening of fiscal controls.
Of perhaps wider impact and of more relevance in terms of how corporations have
been able to avoid criminalisation is what Muncie et al (2010) describe as the attempt
to close the ‘space between laws’. If powerful corporations can leverage their
financial, political and economic power to influence government and government
policy, if they can operate across borders and ignore or flout the laws and conventions
of their resident country, then how can policy redress the balance?
In terms of policy Muncie et al (p159, 2010) state that: ‘International law has so far
failed to develop universal legal stands for corporations.’ However the establishment
of the Norms on the Responsibilities of Transnational Corporations and Other
Business Enterprises with Regards to Human Rights, published by the UN
Commission on Human Rights and adopted by the UN in 2003 provides a policy
response that attempts in someway to redress the balance in the distribution of power
between corporations and society. The Norms include:
General obligations: States have primary responsibility for ensuring that transnational
corporations and other businesses respect human rights. Corporations also have an
obligation to promote and respect human rights, including vulnerable groups and
indigenous peoples:
Rights to equal opportunity and non-discriminatory treatment: Corporations have the
responsibility to ensure equality rights are derived from international instruments and
national legislation, including international human rights law.
Rights to security of person: Corporations should not benefit from war crimes, crimes
against humanity, genocide, torture, forced labour and security provision shall
observe international human rights norms.
Rights of workers: Corporations shall not use forced labour, shall respect the rights of
children, provide a safe working environment, provide wages commensurate with the
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7. Martin Dorchester: Think piece corp crime
provision of adequate living conditions and finally corporations shall ensure freedom
of association.
Respect for national sovereignty and human rights: Corporations shall recognise and
respect international laws, national laws and the regulatory environment and respect
the countries’ policies which they operate in and do so with transparency.
Corporations shall not offer, condone or engage in any acts of bribery and corruption.
Corporations shall refrain from any activity which supports or encourages abuses of
human rights nor should they provide goods or services that can be used to abuse
human rights. Corporations shall respect the rights of people and contribute to the
realisation of a better and improved standard of physical and mental health as well as
improved education, housing and civil rights.
Obligations with regard to consumer protection: Corporations shall market their
products in line with fair business standards and not produce, distribute, market or
advertise harmful or potentially harmful products for use by consumers.
Obligations with regard to environmental protection: Corporations shall observe
national laws and regulations relating to the preservation of the environment and also
seek to conduct their activities in a manner contributing to the wider goal of
sustainable development.
(Adapted from UNCHR, 2003)
From reviewing these obligations it is possible to note responses to the power that
corporations can leverage. In terms of corporations leveraging their ‘economic
attractiveness” to influence countries to relax their employment and equality laws we
can see that there are obligations concerning equal opportunity and non-
discriminatory treatment. In terms of pollution and incidents such as the Union
Carbide factory there are obligations concerning the environment. Instruments such
as Export Processing Zones can now be challenged as the obligations cover workers
rights, standards of living. The policy also covers consumer protection, thereby
addressing incidents such as the Cadbury’s and salmonella outbreak in 2006. There is
a very clear link between the act and the corporate harms that corporations inflict.
It must be noted though that these are obligations not legal sanctions. Corporations
comply voluntarily with the principles of the policy and these principles must be
legally sanctioned in national courts or through international instruments. A number
of significant challenges can therefore be made. The first challenge concerns the use
of Export Processing Zones: as an example of what Muncie et al (2010) has referred
to an Export Processing Zone such as Saipan operates within and without of the US.
Within, in terms of labelling, without, in terms of external to the rules, regulation and
enforcement of the American jurisprudence systems. Saipan though, can only operate
because the American government allows it to do so. The principle of the norms can
only be sanctioned by national or international law and here is a prime case of a
nation state saying one thing, i.e. adhering and supporting international human rights,
and doing another. Examples of this can be seen in China, and Nielsen (2007) asserts
that there are over 260 EPZs in 67 countries. Another significant challenge facing the
norms is the ‘economic” need that, those developing countries have and the pressure
that loans from the IMF and the World Bank impose. Many developing countries
need to encourage large corporations to come into their markets to drive prosperity,
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build infrastructure and so on. A method of doing this is to make the regulatory
system as amenable as possible, thus negating many of the obligations concerning
workers rights and consumer’s rights. At the same time pressure from loan
agreements can induce countries to provide what are considered more favourable
business conditions. Finally, it can be argued that underpinning the norms would
require a global or international form of jurisprudence. Given the variance in laws
between countries, the variance in the value sets between people, the variance in the
uptake or interpretation of human rights between countries there is, and will continue
to be great difficulty in harmonising what is criminal and what is not in a global
business environment.
Conclusion
‘The corporate culture is a century or more in the making. It will take a while before
we figure out how we got ourselves into this soup – from a situation where we
controlled corporations, to where corporations are controlling us.’ (Mokhiber, 2009).
The evidence suggests that there are significant harms created and inflicted by
corporations on society and that corporations do leverage power to avoid
criminalisation. The challenge though is that the distribution of power alone does not
explain fully how corporations avoid criminalisation. Corporations are expert in
agenda setting, lobbying and ‘managing’ regulation, yet I would suggest that in
tandem with this there has been an ethical shift from what is the right thing to do, to
what can be gotten away with or ‘gaming’ the system as McBarnet (2006) puts it. In
line with this ethical shift there has also been a move in value sets and consumer
demand. The media was once viewed as the fourth estate, the watchdog of corporate
intransigence but now a different form of journalism is demanded, market driven
consumer journalism. Rather than an expose on high level corporate fraud the news is
about how many millionaires there are. Value sets also appeared to have changed, its
okay to defraud the taxman, yet global economies lose $billions of dollars each year.
These frauds are not necessarily the result of corporate power; they are more of
cultural and ethical stance. Policies such as the norms and principles set out by the
United Nations can address the balance of power but in a global economy where
nation states continue to wield significant amounts of power it is difficult to see how a
voluntary code will ever be truly effective.
References
UN Commission on Human Rights (UNHCR) (2003) Norms on the Responsibilities
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