Monday, January 31, 2005

Now, Execs Pay for Firms' Wrongdoing

This is an interesting article about corporate executives being personally liable for wrongdoing by their corporations. It's an interesting development in our law; corporate liability was a necessary development to shield or protect investors, who before that were discouraged from investing in useful business activities because owners were held personally liable for its liabilities (mostly torts and contracts, back then). But the protection of owners from liability beyond their actual investment seems to create higher agency costs with wayward managers. When I was at the Attorney General's Office (in CT, before this position), one of the cutting-edge areas of environmental enforcement was "responsible officer/manager" liability. The corporations themselves often operate through a series of "shell" or holding companies, and the managers (often entrenched because of their holdings of corporate shares) had little incentive to avoid dumping and other environmental wrongdoing - but this trend addresses that.