Corporations and “Limited Liability”

As I pointed out in the earlier post about PG&E, the corporate structure shields corporate executives from personal responsibility and effectively allows the corporation to pay large sums of money as recompense or as fines, even for felonious conduct that, if attributed to an individual, could well result in prison time. In the San Bruno pipeline explosion of 2010 that killed eight people, injured 58 others, and destroyed 38 homes, PG&E was found guilty of six felony counts of violating pipeline standards, and not a single individual was held responsible. Damages and fines exceeded $2 billion, but Peter Darbee, the chairman and chief executive of PG&E Corp., the utility’s parent holding company at the time, retired a year later with a golden handshake of some $35 million. Christopher P. Johns, who was president of Pacific Gas & Electric Co., the utility subsidiary, in 2010, retired as its vice chairman in December 2015 with a pension package of $17.8 million.

BP [formerly British Petroleum] has literally pages of environmental and safety violations, including the Deepwater Horizon explosion that killed 11 people and injured 16 others, not to mention totally fouling most of the Gulf of Mexico with crude oil. While the company pleaded guilty to 11 counts of felony manslaughter, two misdemeanors, one felony count of lying to Congress, and agreed to pay more than $4.5 billion in fines and penalties, not a single not a single individual was held responsible. Before that, in 2005 the BP Texas city refinery explosion killed 15 people and injured 180 others, and was followed two years later by toxic chemical releases that injured another 143… and again no one was held personally responsible.

The three largest creators of toxic waste Superfund sites are Honeywell, Chevron, and General Electric. General Electric so polluted the Housatonic River in Massachusetts and Hudson River (some 200 miles worth) that both were classified as Superfund toxic waste sites, and despite lawsuits and EPA action, GE still hasn’t completed the clean-up, more than 30 years later. Honeywell (through its subsidiary, Allied Chemical) dumped mercury into Lake Onondaga for over sixty years, and has so far spent over half a billion in remediation. Chevron has acknowledged that it’s a “responsible party” at 180 Superfund sites, and it has over 20 multimillion dollar fines for environmental violations.

In addition to the issue of no executive being personally responsible for criminal environmental violations and felonies, there’s another large problem with the corporate liability structure. That’s the fact that none of the money paid in fines, damages, and remediation comes out of the pockets of corporate executives. It comes out of corporate revenues, and that means that the executives are not only shielded from criminal charges, but they’ve passed off the costs to others.

While some form of limited corporate liability is likely necessary, letting the CEOs and other executives off scot-free is one of the principal reasons why corporations try to pay their way out of trouble with what amount to shareholder funds… and why ethics mean so little to them. They really don’t answer to anyone.

3 thoughts on “Corporations and “Limited Liability””

  1. Tom says:

    “ … the corporate structure shields corporate executives from personal responsibility and effectively allows the corporation to pay large sums of money as recompense or as fines, even for felonious conduct that, if attributed to an individual, …”

    Yet there are circumstances where legally speaking corporations are regarded as “individual”. So why cannot we not apply the same legal consequences? The “law” says different circumstances allow different definitions for the same entity!

    In the January 26th 2019 Economist there were articles about Slowbalisation. In the editorial was a comment that corporations may have difficulties “because they are too big to manage”. Perhaps this is why the executives are not held responsible for the consequences of their businesses. Was not one of the excuses for the financial failures of 2008 that the banks got too big? Rather than that they got too greedy and were too sloppy.

    So what would be a solution? Hold the corporations and their executives to the same standards legally as the military is held during wartime? Should GE be put through a Nuremberg type of trial? There would be a problem with the international corporations since the US does not allow its citizens to be held accountable to international law. Of course now, with Trump as our President, we may have other nations refusing their citizens to be held accountable by some court in New York or Virginia (when we run out of things to tariff to keep other nations docile).

  2. Hanneke says:

    You might consider giving your laws against monopolies and monopsonies some teeth. The way they are set up now, in the US, appears to be that only after a monopoly is in place, and if consumers can prove the monopoly has led to higher prices than would be asked without the monopoly, something can legally be done to break that monopoly. One has only to look at Martin Shrekli (sp?) and other speculators buying medicines and raising their prices through the roof to see how well this works.

    As it’s hard to throw a corporation in jail, one could consider a mandatory breaking up of companies that commit felonies – not just paying compensation, but then also breaking them into smaller competing pieces that are not “too big to fail”. As CEOs of smaller companies get less money, that’ll at least hit their top people in the wallet as well as getting consumers some choice.

    Another law that should be changed is the one that says that a corporation’s primary goal should always be to maximize profit (especially for shareholders). As long as that law is in effect, doing business responsibly – while caring for your local community, the environment, your workers’ wages, working and living conditions – is hard for businesses to compete on, as it all comes back to the bottom line by law.
    Being a responsible business may be good PR, as well as good long-term strategy, but if it costs more and thus diminishes short-term shareholder profits, it is (from what I’ve heard) legally not allowed for US companies, and could get a company in trouble if shareholders complain. That is insane!

  3. Tom says:

    The Corporate Objective after eBay v. Newmark
    John R. Boatright
    First published: 08 March 2017 Cited by: 1

    The Delaware court’s decision in eBay v. Newmark has been viewed by many commentators as a decisive affirmation of shareholder wealth maximization as the only legally permissible objective of a for‐profit corporation. The implications of this court case are of particular concern for the emerging field of social enterprise, in which some organizations, such as, in this case, Craigslist, choose to pursue a social benefit mission in the for‐profit corporate form. The eBay v. Newmark decision may also threaten companies that seek to be socially responsible by serving constituencies other than shareholders at the expense of some profit. This examination of the court decision concludes that a legal requirement to maximize shareholder value may not preclude a commitment to social responsibility and may even permit the pursuit of a social benefit objective, such as the preservation of the culture developed by Craigslist. In particular, the court’s decision in eBay v. Newmark reflects unique features of the case that could have been avoided by Craigslist and by other similar companies.

    The environment drives the crime.

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