That was quick.
Just yesterday we worried that our optimism about the tide turning against the war on white-collar crime might be misplaced. The Wall Street Journal had just won a Pulitzer Prize for its sometimes misleading “gotcha!” reporting on backdating. We hoped that the backlash against the scandalization of backdating might provoke some rethinking about criminalizing corporate executives.
“I think that it's more likely that the Pulitzer itself will just spur more Watergate-itis in business reporting,” Ideoblogger Larry Ribestein wrote. And a part of us feared that Larry was right. We might be in for a very long haul of journalists, regulators and prosecutors marching against what they see as rampant greed and theft in corporate board rooms and executive suites.
But we hadn’t seen the most recent issue of The New Yorker yet. James Surowiecki, the guy employed by magazine to explain finance to its readership, has a relatively balanced article that echoes a lot of the sentiments expressed here and elsewhere about the criminalization of business going too far.
Sending executives to prison for bad judgment is costly, not just for the C.E.O. but also for the economy as a whole, because it discourages other executives from taking reasonable risks. So we do need to be careful about criminalizing agency costs, to use a phrase coined by Larry Ribstein, a law professor at the University of Illinois.
Surowiecki warns that caution about criminalization need not involve the wholesale rejection of prosecuting white collar criminals. Of course it does not. What academics like Ribstein have been calling for is not immunity for genuine thieves but a re-assessment of the costs and benefits of what seems to have been an abandonment of reasonable caution in the past decade.
The quibble aside, it’s certainly reassuring to see these ideas in a middle-brow, mainstream magazine like The New Yorker. Perhaps our hope wasn’t so misplaced after all.
Free Agents[New Yorker]
Surowiecki on criminalizing agency costs [Ideoblog]