This copy is for your personal, non-commercial use only.
It’s not every day that a former corporate lawyer comes out in favor of stronger regulation of big business.
And it’s not every day the former general counsel of a major American corporation comes out and urges the federal government to force major corporate wrongdoers to admit to their wrongdoing.
But today is that day.
Lawrence Stentzel is the former general counsel for USAir.
He then went on to join Morgan Lewis & Bockius in Washington, D.C.
And now, he’s speaking out about corporate crime and wrongdoing.
He has written a paper titled — Federal Regulation is Not an Effective Deterrent to Corporate Malfeasance.
In the paper, Stentzel chastises federal regulators for not holding corporate wrongdoers’ feet to the fire.
“Conscientious and effective corporate governance in the United States has been declining sharply for at least the last two decades,” Stentzel writes.
“Most of the large, publicly held corporations comprising the Dow Jones Industrial Average have been implicated in egregious corporate wrongdoing in recent years. When the wrongdoing has been challenged, more often than not the consequences to the corporation have been minimal in comparison with the advantages gained by the wrongdoing. In nearly all instances of multi-million dollar settlements with regulatory agencies, the corporation has been permitted by the regulatory agency to refrain from admitting wrongdoing.”
Stentzel focuses on “the failure of our regulators and legal system to impose meaningful sanctions on corporate malfeasance.”
“The recently increased use of so-called deferred prosecution agreements and non-prosecution agreements attests to this fact,” Stentzel writes.
“The actions and inaction of our regulatory agencies often encourage, rather than discourage, corporate wrongdoing because sanctions are infrequently imposed and, when imposed, are often insufficient to deter future wrongdoing that would enhance short-term corporate profitability.”
Stentzel surveyed the nation’s 30 largest publicly held companies and found “numerous instances in which the Securities and Exchange Commission (SEC) or the Department of Justice and other federal regulatory agencies have settled cases of serious corporate malfeasance without insisting on an admission of wrongdoing by the corporation.”
“In many, if not most, of these settlements, the benefits to the corporate wrongdoer probably greatly exceeded the fines imposed,” Stentzel argues.
“Furthermore, many instances of corporate wrongdoing are never challenged by the regulatory agencies. In a financial system so narrowly focused on short term profits, this combination of lenient sanctions and infrequent regulatory challenges encourages the types of wrongdoing that will enhance profits, if undetected.”
“Not only does the corporate entity emerge from those SEC and DOJ proceedings virtually unscathed, but almost invariably senior management is also unscathed. In many such cases the prior knowledge of the offense by senior management is apparent. When a member of senior management encourages, condones, has prior awareness of or reasonably should have had prior knowledge of the malfeasance, that member of senior management should be charged with wrongdoing and the corporation should not be permitted to settle without admitting the wrongdoing. Wrongful actions or inaction by senior management should have widely publicized adverse consequences for both the corporation and the senior manager.”
Stentzel is disturbed by the failure of regulatory agencies to force corporate wrongdoers to admit to their wrongdoing.
“What is the reasoning underlying the reluctance of the SEC and DOJ to insist upon an admission of wrongdoing by the corporation?” Stentzel asks.
“One convenient — but fallacious – excuse is the regulators’ professed concern about the impact of a corporate admission of guilt upon innocent shareholders. This erroneous reasoning ignores the widespread harmful consequences to both investors and the general public of these SEC and DOJ whitewash proceedings. This policy encourages and greatly exacerbates future corporate wrongdoing.”
“If an admission of wrongdoing were required when the SEC or DOJ settlements are entered into, analysts would not have the luxury of ignoring the wrongdoing and the investing public would have much greater visibility of the widespread corporate misconduct that has become more the rule than the exception with large public corporations in the United States,” Stentzel writes.
“In fairness to the analysts, it is difficult for them to ascribe significance or importance to a settlement and payment of even a sizeable fine when the SEC or DOJ has seen fit to settle without an admission by the corporation. If challenged in an analyst report, the corporate wrongdoer would probably respond that it was innocent but wished to avoid the expense of litigation. The initial charges by the regulatory agency are often a better indication of the challenged corporate misconduct than the settlement agreement. These charges never appear in an analyst report and are rarely conclusively documented because the regulator habitually settles without an admission of wrongdoing.”
Stentzel also chides the government for not creating a user friendly database of corporate wrongdoing.
“There is no user-friendly SEC or DOJ or other governmental agency website that reveals all of the charges against, investigations and convictions of and settlements with any particular company,” Stentzel writes. “Both the SEC and DOJ should have websites on which the entry of a corporation’s name or listing symbol would reveal all of that company’s involvements with that regulatory agency for the greater of a ten-year period or the incumbency of the current CEO.”
Stentzel says he has written to two U.S. Attorneys General and two chairs of the SEC urging such a database be created — to no avail.
In his paper, Stentzel writes:
“A return to the sound perspective about corporate size of Supreme Court Justice Louis Brandeis and President Theodore Roosevelt is not feasible.”
We asked him — why not?
“Do you see this ad (AT&T commercial) on television?” Stentzel asks.
“I cringe every time I see it. It’s a young man sitting down with five or six little children in a circle. They ad states — bigger is better. That’s what is happening in our society. Growth is so important. We are developing into a country dominated by massive corporations and lobbyists who control our Congress and have captured some of our federal regulatory agencies.”
Do you know of any other corporate lawyers like yourself who are speaking out?
“I do know them,” Stentzel told Corporate Crime Reporter in an interview last week. “But they are pessimistic about the future and believe that greed has overtaken everything else.”
What’s going to turn it around?
“A return to good governance could be encouraged somewhat by federal regulatory agencies,” Stentzel said.
“Get rid of this neither admit nor deny because that lets the analysts off the hook. If there is an admission of wrongdoing, the analysts aren’t going to be able to ignore it. They are going to have to talk about it.”
Russell Mokhiber edits the Corporate Crime Reporter.
[For the complete transcript of the Interview with Lawrence Stentzel, see 27 Corporate Crime Reporter 19(12), May 13, 2013, print edition only.]