Should Corporations Go To Jail?

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Whenever the subject of whether or not corporations are people comes-up in conversation, the most likely answer is “No! Are you kidding?” The conversation inevitably winds around to why corporations have rights that US citizens do not (they do, by the way) and if corporations are going to be deemed people, then why shouldn’t they go to jail just like people can. I’m the sort who doesn’t think it’s a matter of “if” (it’s pretty clear, to me, that they should) but how, exactly. So, here’s how it could work…

First, why shouldn’t corporations go to jail for the same kind of dangerous, anti-social behaviors that individuals can? Corporations are chartered from the government for the express purpose of serving society — really, read about it here. There is a history.

There’s no reason why corporations shouldn’t suffer for their actions and, indeed, there are already mechanisms to penalize organizations for wrong-doings (even if these penalties are often laughably light). If they can benefit from society, they can contribute to it. Already, leaders in corporations can go to jail for grievous activities. And, a company can face fines, limitations, and other consequences of its actions — just not the ultimate consequences: incarceration (or death, for that matter*).

Second, the most common rebuttal to the idea of companies going to jail is: “It couldn’t work! How could a company be put in jail?”

Consider what already happens to a sole proprietorship when that sole proprietor is found guilty of a crime that deserves a jail sentence — they go to jail and their company is crippled and cannot function without them. So, this happens already, just with small companies. Sending other forms of corporations to jail wouldn’t be that different.

When a person goes to jail, what happens? Their freedom to operate in society is suspended. They lose the ability to manage their affairs outside (buy or sell things, manage their accounts, enjoy the freedoms that society grants, etc.). A corporation in jail would lose these rights, as well: their accounts would be frozen and inactive, their assets secured but insolvent, their debts as well as their revenues frozen, and the vast majority of their activities halted. In other words, it would be a big mess — possibly a catastrophic one… just like with people. If it’s OK to do to people, why shouldn’t it be OK to do to corporations?

Employees would have to seek other employment in order to live — again, just like family members of someone incarcerated.

Now, there’s always someone to interject, “But, it wouldn’t be fair to the employees!” and, it wouldn’t be. It would be no more fair to an employee than to the dependent of any other felon. Besides, employees regularly lose their jobs already — they’re often the first casualties of an organization in trouble, as it is. How is this any different? Employees are at risk of being fired (for cause or not) or laid-off for any variety of reasons (bankruptcy, market forces, selling-off a division, redundancy, etc.). If citizens face bankruptcy while doing time (and many do), why shouldn’t corporations?

Another common complaint is that, whatever the corporation has done wrong, it’s not the fault of all of the employees. You can already imagine where this line of thinking goes: it’s also not the fault of every family-member either when a parent or loved one goes to jail but that doesn’t stop the system from putting the guilty in jail.

Leaders are shielded from many kinds of decisions that create bad corporate behavior or consequences. That’s fair in many cases. But, if a company’s leaders are shielded from responsibility, why does that make the responsibility evaporate, altogether? The corporation, then, should face the consequences, and the investors and shareholders should feel the blow.

To be clear, we’re talking about truly grievous behavior on the part of a corporation — the same kinds that land people in jail. If a person can be convicted of fraud, injury, or murder because they knowingly (rather than accidentally) committed these crimes, why can’t a company? In fact, the threat of corporate jail might just be the missing incentive to make better corporate decisions that seem to be missing, today. If an investor’s equity can be frozen when a corporation goes to jail, you can be damned sure that investors would be more careful about where they invest and who is leading those companies. This threat, alone, might change corporate investment and behavior for the better. Likewise, it would make employees more discriminating in the actions of the organizations they serve (and where they accept employment). They wouldn’t turn a blind eye to dangerous behavior nor would they be inclined to cover it up.

So, what would corporate jail look like? Here is the start to a proposal:

For the same actions that people can go to jail, corporations could. They would be convicted within the same laws and rules of justice. Incidentally, this would create great pressure to revise laws and processes that don’t serve people equally or fairly. Organizations should be in the same boat and subject to the same protections and Byzantine legal processes as citizens.

Corporations found guilty of crimes severe-enough to require jail time would see their assets, liabilities, and accounts frozen. They might be granted a grace period, during sentencing, to get their affairs in order, just like citizens. This might trigger selling-off some resources or using cash to pay certain liabilities, making creditors whole before the company is temporarily frozen.

Perhaps, patents and other intellectual property might be frozen, as well, meaning a company couldn’t enforce claims of infringement. Perhaps, the protection periods of intellectual property might be extended. Or, maybe not.

Trading of stocks, bond, and other equities would be frozen as well. Markets wouldn’t be able to list or transact these forms of equity. Perhaps, it’s not fair to investors but, then, neither is bankruptcy. Shareholders have little ability to affect decision-making now and already suffer devaluation when a company behaves poorly, either in poor decisions about what and how to offer products and services or from negative public reaction to bad behavior. Jail time isn’t much different and this, too, would force shareholders to be more involved in the kinds of organizations and leaders they’re willing to invest in.

Ideally, during jail time, leaders and volunteers can be allowed to work to improve the company’s structure or other affairs and “rehabilitate” it so that it’s in better shape when it reemerges into society. By all means, these organizations would be at a severe disadvantage and their assets and stock could be vastly devalued — just like (you guessed it) actual people.

Corporations that correct glaring problems or compensate victims for their offenses might earn time-off their sentences for “good behavior.”

At the end of their time served, their affairs and accounts are unfrozen. For sure, most of the employees won’t be around nor willing to come back. That’s OK. That’s the price of felonious behavior. If the company has done the work and can be a contributing member of society, then it will attract new employees (assuming it has a viable business model — or ever did).

I get it. All of this sounds like crazy talk to” traditional” business folk. But, it’s neither impossible nor inappropriate.

The alternative, as I see it, is to continue to declare corporations as special cases, subject to some rights and laws actual people are subject to but not all. The current reality is that they’re declared special people which, by the way, has never had any legal standing to begin with (look into the cases of Santa Clara County v. Union Pacific Railroad and San Mateo County v. Union Pacific Railroad, where corporate personhood was declared erroneously and illegally by a corrupt and bribed US Supreme Court— these will blow your mind). And, really, shouldn’t that be the case anyway?

As Sloan Sabbith on The Newsroom asked, “Have you ever held the door open for someone? Did you ask them for money first? That’s the difference.” You also don’t marry one. Corporations are incredibly useful mechanisms to serve society and return legitimate investment value. They can do things for society that aren’t easily done otherwise. And, they can have certain protections, in order to do these things. But, those protections don’t need to extend to make them people. And, they shouldn’t protect the kind of behavior that throws real people into jail. We don’t allow people to own other people, for example (well, not anymore anyway, that’s called slavery), but if corporations are people, how do we allow people (investors) to own parts of them?

There are just too many unsavory deficiencies in the ideas and the mechanisms for corporate personhood. It’s incompatible with nearly every part of our Constitution. If it weren’t for a corrupt Supreme Court in the 1800s, it wouldn’t even exist (nor would Citizen’s United). It’s time to bring some rationality to this situation. If corporations are to be people, they need to be accountable in the same ways citizens are. Otherwise, they need to not be deemed individuals, with the same rights and responsibilities. The days of having it both ways need to end because the results are destroying the very society that props them up.

*Well, corporations can certainly die but they can’t be sentenced to death—yet.

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Nathan is a serial entrepreneur, including the new SEED digital currency: &

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