Jennifer G. Hill

Professor of Corporate Law, The University of Sydney Law School; Research Member, ECGI.

Legal Personhood and Liability for Flawed Corporate Cultures

14/10/2020

A number of recent corporate law scandals (including the Wells Fargo fraudulent accounts scandal, the Volkswagen emissions scandal, sexual harassment claims at Fox News and CBS, and various banking scandals currently under investigation in a high profile Australian Royal Commission) epitomize the danger posed by flawed corporate cultures. These scandals demonstrate that such organizational cultures can inflict damage on stakeholders, communities and society as a whole.

 

The aim of this study is to explore, from a theoretical and comparative perspective, the issue of accountability for misconduct arising from flawed corporate cultures.

 

This situation raises unique questions as to whom the law should target for misconduct in these circumstances. The research paper examines two specific types of liability which may be relevant in the context of misconduct arising from defective corporate cultures – (i) entity criminal liability and (ii) personal liability of directors and officers for breach of duty to their company. The study compares these forms of liability in the United States, the United Kingdom and Australia, to assess the extent to which they are well-suited to providing accountability for misconduct arising from flawed corporate cultures. As this comparative analysis shows, there are significant jurisdictional differences in these areas of law, which, in some cases, make such forms of liability ill-suited to achieve such accountability.

I. INTRODUCTION

The Symposium, for which this study was originally undertaken, had the ambitious goal of examining ‘legal personality as a tool to benefit present society, future generations and humanity’. This is a critical developing theme in corporate governance. Only a few months after the Symposium, for example, Larry Fink, CEO of BlackRock, one of the world’s largest institutional investors, declared that companies ‘must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate’.

 

This is not the first time that corporations have been urged to play a greater public role. In the early 1970s, a period in US history of great political upheaval and environmental concern, members of the Rockefeller Foundation’s board of trustees stated that American corporations ‘must assert an unprecedented order of leadership in helping to solve the social problems of our time’. During the 1980s, however, this managerialist paradigm gave way to an essentially private conception of the business organization, which quickly became the dominant corporate law paradigm.

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