Wednesday, March 26, 2014


Companies fined while
Executives unpunished

The Boston Globe headlines an AP article by Eric Tucker Toyota case shows it’s hard to prosecute execs that basically tells readers what they already suspected: organizations are fined for misdeeds while the organizations' executives are unscathed by any penalties.

Or, put another way, the stockholders and - in the case of merchandise, future purchasers - pay for the executives' folly. In many cases, the executives who headed the organization while it failed its customers are rewarded by the organization's board with often extravagant bonuses.

While the AP article focuses on Toyota, it could be almost any major corporation.

According to the article, the Justice Department socked the car company with a $1.2 billion penalty but brought no criminal charges against individual executives, an unsatisfying resolution for consumer activists who say prison is the best deterrence for corporate malfeasance.

Prosecutors say they had little choice, in part because of constraints with evidence and the challenge of gathering testimony and information from witnesses abroad.

Still, court documents accuse Toyota of intentionally withholding information about problems.

Toyota, however, is an organization. It is an organization managed by real people, people who made the decision to put other people at risk and who, in Toyota's case, KNEW their product could - and did - kill.

True, guns also kill, but that is their purpose. An automobile's purpose is to move people from Point A to Point B, not to kill is occupants.

The American Lawyer Web site notes that Sen. Arlen Specter recently drafted legislation that may become the next battleground in the tort reform wars. The bill would impose criminal penalties on employees who "knowingly and recklessly" allow defective products into the marketplace, imposing up to 15 years if a death results. Larry Fineran, VP of the National Association of Manufacturers, says business leaders are "appalled" that they could face jail time for making fundamentally subjective decisions about risk. (Unfortunately the former senator from Pennsylvania died in 2012.)

A search of the WWW for executives who were jailed for faulty products turns up only a few cases where any jail time was ordered.

The most notable is that of a breast implant company. According to an NPR article titled French Court Sentences Executive For Selling Faulty Breast Implants, states that A French court has sentenced Jean-Claude Mas, the founder of Poly Implant Prothese (PIP), and three colleagues for the sale implants found to have a high rupture rate.

Mas was sentenced to four years

A U.S. Justice Department release bragged that Thomas Higgins, 55, of Berwyn, PA, Michael Huggins, 54, of West Chester, PA, and John Walsh, 48, of Coatesville, PA, all former executives with Synthes, Inc., and its subsidiary Norian Corporation, were each sentenced to prison today for charges related to illegal clinical trials of a medical device without the authorization of the Food and Drug Administration.

Higgins and Huggins were each sentenced to nine months in prison; Walsh was sentenced to five months.

In another DoJ case, Marc S. Hermelin, the former chairman of the board and chief executive officer of St. Louis-based KV Pharmaceutical Company, pleaded guilty and was sentenced today in a case involving KV’s production and distribution of oversized morphine sulfate tablets, the Justice Department announced. U.S. District Judge E. Richard Webber of the Eastern District of Missouri ordered Hermelin to pay a $1 million fine, forfeit $900,000 and serve a sentence of 30 days in jail.

With picayunish incarceration penalties - from 30 days to nine months - there is little to encourage executives to actually do "due diligence" on the products for which they have responsibility.

Harry S Truman, the U.S.' 33rd president, accepted the responsibility of his office and reminded visitors of this with a desk plaque reading "The Buck Stops Here."

We need more executives with Truman's mentality.

No comments: