Saturday, September 5, 2009

Pfizer fines highlight the danger of corporate statism

OK so the Obama administration went after Pfizer over Bextra, and here's the deal:

Pfizer (PFE) will pay a record $2.3 billion fine and plead guilty to one felony count to settle federal criminal and civil charges that it illegally promoted its Bextra painkiller and other drugs. The fine had been first reported back in January, but Justice Dept. officials disclosed details of the settlement on Sept. 2 in a splashy news conference that served as a pointed warning to other drug companies that it plans to come down hard on the industry for fraudulent marketing.

First off, let's be clear: Pfizer admits, by the guilty plea, to have engaged in fraud to promote Bextra and three other drugs.

But if I plead guilty to a felony--even a nonviolent one--I can reasonably expect to have to do some jail time [Hello, Martha Stewart!].

How do you send a corporation to jail? The stockholders are indemnified against personal liability for the misdeeds of the corporation, and it is the corporation itself that has been found guilty, not any specific individual on the Board of Directors or the CEO.

It is amazing that we could actually prosecute CIA interrogators under certain conditions, but nobody at Pfizer can be held personally accountable for his or her actions because it is the corporation, not the individuals, who are guilty.

In a very real sense, mega-corporations have not only become too big to (allow to) fail, but too big to prosecute as well.

So here's my solution--my initial short-term solution: allow class-action lawsuits to challenge for the revocation of the corporate charter of any corporation either found guilty of a felony or fined in excess of 25% of the previous year's net profits [both would occur in this case]. Do not allow the State, or any State government to bring such a suit, but leave it to the civil courts.

Yes, I am aware this would require changing a number of laws. And yes I am also aware that there would be (at least) the following consequences:

1) Corporations would use their billions to fight on into prolonged court battles if the stakes could conceivably be their very existence. No shit: that's what anybody faced with a serious felony charge faces.

2) Corporations facing challenges to their charters would obviously have a much larger pool of money to use in defending themselves than any challenger. [Think about the tobacco companies and the dying smokers who went to court against the.] But the mere act of challenging a corporate charter would, I think (a) cause investors to think twice about this corporation as an investment, and (b) begin to chip away at the legal fiction of corporate personhood, which is what has allowed this particular government-created and government-chartered business organization to get completely out of hand.

Is this a Libertarian solution? I think so. It reduces the liability protections of those in corporate America who engage in force or fraud and it leaves the actual attack on the charters to private individuals, not the State.


Nancy Willing said...

Bless you, Steve. I am no lawyer but I would like to think that you have thought this through and it is possible.

For a while now I have been saying that the biggest single enemy of the future of life as we know it is the position that even the ACLU has embraced: corporation as person; money as speech.

Miko said...

I'd say that this would be enormously beneficial as a short-term solution. The second critereon (fines in excess of 25% profits) might be problematic, as some firms, especially new firms, have years in which they run a net loss, in which case they could be brought down by, say, a parking ticket. The danger then becomes large corporations using this to proactively destroy potential rivals, as any condition defined in terms of percentages is going to work in favor of a larger firm. I'd be tempted to go with only the first critereon (felony charges) as it seems likely to spawn fewer unintended consequences.

There's also the perennial issue of justice: that even if the state were not to *bring* the suit, it would still be *tried* in a state court. Short term, I see no solution to this.

Delaware Watch said...

Interesting idea, Steve.

I also wish there were some way of keeping rap sheets on corporations and advertising them--say, making it a requirement that notice of their conviction be part of all their advertising.