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Legal punishment for outrage offenses

· Reputation,Ethics,Enron

Outrage and Risk Communications expert Dr. Peter Sandman comments in part III of our review of Enron and discussion on laws versus their principles.

I feel very queasy about any assertion that Enron executives were punished for violating principles, as opposed to actual laws. Legal systems do punish people for that. But I think they shouldn’t.

Sometimes it’s not even principles, it’s outrage masquerading as principles. When the whole society feels outraged at an outcome, it tries to figure out whom to blame. It wants to blame somebody! So outrage sometimes leads to the enunciation of “ethical principles” that not only were never codified into laws; they weren’t even seen as ethical principles until something bad happened that got people outraged.

Sometimes, in fact, these new, ad-hoc ethical principles would look pretty questionable if expressed as abstractions; they’re made-to-order to punish the perpetrators of a particular bad outcome. And then prosecutors and regulators are motivated, or even pressured, to find a legal way to punish the person or company everybody’s trying to blame.

Enron aside, there are far too many instances of that process at work in the U.S. – so there are undoubtedly even more instances in societies with weaker traditions of the rule of law.

See for example the 2010 dialogue on this website entitled “What Did Goldman Sachs Do Wrong?”, in which I argue that widespread outrage at an awful outcome – the Global Financial Crisis – triggered a search for scapegoats that ended in prosecutions for finance industry behavior which, absent the outcome, would have been considered neither illegal nor unethical.

My point in a nutshell: It made far more sense to be angry at government for deregulating the finance industry than at the industry for maximizing profit in ways permitted by the (deregulated) laws. Just as the Enron scandal led to the passage of Sarbanes-Oxley, the Global Financial Crisis led to a multitude of new laws and regulations. That’s at least a strong hint that the crisis was a product more of under-regulation than of corporate malfeasance.

Of course it’s not that simple. Companies lobby. They persuade or push or sometimes even pay government officials to make something legal or keep something legal that ought to be illegal (ought to be illegal because there’s a consensus that it’s unethical, perhaps; or for some other reason, such as because it’s too dangerous to allow whether it’s ethical or not – because it’s dangerously likely to trigger a global economic disaster, for example). Having successfully opposed laws and regulations that would have stopped them from doing what they want to do, companies do it; it leads to bad outcomes; people get outraged; everyone looks for ways to punish the companies – and then someone like me comes come along and say that’s not fair; they just followed the incentive system; we should blame the government, not them. I don’t for a moment dispute that companies have too damn much control over the incentive system.

Once we accept that the distinction between companies and governments isn’t so rigid, that they’re in it together, then outrage is one of the public’s key lobbying tools – a way for the public to counterbalance corporate power. Companies too often lobby governments to make undesirable behavior legal. Public outrage too often motivates governments to treat that behavior as if it were illegal anyway. There’s a kind of balance there.

Still, consider the current effort to prosecute ExxonMobil for “hiding” global warming research. Decades before climate change became a hot public issue, in-house researchers at the company found preliminary evidence that global warming might get bad. They published their studies freely. Their findings also helped convince management to make some internal policy changes in case they were right. But they didn’t convince management to abandon the company’s core business, fossil fuels. In many of its internal decisions and nearly all of its public positions, the company continued to see the threat of climate change as comparatively minor. The company also supported organizations dedicated to pooh-poohing climate change concerns; sometimes the support was public and sometimes it wasn’t. Only much later did ExxonMobil start taking global warming more seriously in its strategic decisions and public statements, for example by supporting a carbon tax.

I find it hard to see misbehavior here – even ethical misbehavior, much less legal misbehavior. ExxonMobil funded research, published the research, considered the research, rejected most of its implications, and tried to convince everybody else to do likewise. I find it especially hard to see this as a violation of RICO, the Racketeer Influenced and Corrupt Organizations Act, designed to facilitate the prosecution of mobsters. For sure ExxonMobil is accountable in the court of public opinion for its long history of doubting the seriousness of climate change and promoting the interests of fossil fuels. But if it were a crime for a company to pay for research, publish the research, and then promote policy positions to the contrary, what company would dare ask its scientists to investigate difficult questions?

I can’t judge if the ExxonMobil prosecutions are showboating or if they actually stand a reasonable chance of succeeding. But public outrage at the company never entirely subsided after the 1989 Exxon Valdez oil spill. There are plenty of climate change reasons and other reasons for millions of people to see ExxonMobil as a bad guy. And outrage leads publics, politicians, and juries to want to get the bad guy. At a minimum, legal proceedings are being used to make ExxonMobil pay a reputational price for its policy positions – and to serve notice on other companies that they may pay a similar price if they espouse viewpoints that a later consensus judges to be wrong.

Readers who have trouble sympathizing with ExxonMobil or entertaining the possibility that ExxonMobil is be being unjustly prosecuted can consider instead the various legal actions against Planned Parenthood for (supposedly) selling fetal body parts. Like ExxonMobil, Planned Parenthood behaved in ways that aroused some people’s outrage, and found itself in outrage-motivated legal hot water, despite the scarcity of evidence that it violated any actual laws

Or think about the crusade the U.S. Centers for Disease Control and Prevention (CDC) is conducting against electronic cigarettes (e-cigs). The weight of the evidence, I believe, supports the view that vaping e-cigs is much, much safer than smoking real cigarettes. CDC periodically publishes research on smoking and vaping. Some of that research arguably contradicts CDC’s anti-vaping policy stance.

As far as I know the research is honest, but there are times when CDC is less than honest in how it interprets the research for the general public. One of those times is detailed in my 2015 column, “A Promising Candidate for Most Dangerously Dishonest Public Health News Release of the Year.”

Sounds like ExxonMobil, doesn’t it? CDC publishes unbiased e-cig research, then spins the results to support its anti-vaping bias. I believe CDC’s opposition to electronic cigarettes is killing people. But CDC presumably believes it is saving lives. And even I wouldn’t support a criminal prosecution under RICO against the agency or its leaders.

As a citizen, I am outraged that outrage motivates criminal prosecutions. But as a consultant, I take that as a given – as one of the many costs of outrage. As I tell my clients, you might just as well be outraged that acid has such a low pH.

I see five bottom-line lessons so far:

  1. Companies are entitled to try to influence what the laws are, just like everybody else. But companies have too much influence, which is itself a source of outrage.
  2. Still, the distinction between doing something illegal and doing something outrage-provoking should be more respected than it is. I don’t support finding (or inventing) ways to prosecute behavior that made people mad but wasn’t clearly illegal.
  3. I’m fine with an outrage punishment for an outrage infraction. Shame people and companies you think should be ashamed. Don’t do business with them. Attack their reputations. But don’t try to imprison them.
  4. I’m also fine with using outrage as an impetus to new laws. If you think there oughta be a law, fight for one. But don’t imprison people for disobeying the law you think there oughta be.
  5. But I’m on the losing end of this debate. In the real world, outrage often leads to prosecution. So smart companies should avoid behavior that’s legal but nonetheless likely to provoke a lot of stakeholder outrage. They should avoid it because they should fear both reputational damage (which they deserve) and legal repercussions (which they don’t deserve).


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