Will the Tyco Convictions Deter Future Corporate Looters?

By Daniel Terris

September 22, 2005

At last, real jail time for men convicted of large-scale white-collar crime. But will tough sentences serve as a deterrent to other would-be corporate looters?

On September 19, Judge Michael J. Obus sentenced L. Dennis Kozlowski and Mark H. Swartz, convicted of siphoning off more than $150 million from the Tyco Corporation, to 8 1/3 to 25 years in the New York State prison system. The former CEO and his lieutenant were led out of the courtroom in handcuffs. They may well serve their time in the maximum security cells of Attica, alongside inmates convicted of violent crimes.

In seeking long prison sentences, prosecutors and judges are trying to "send a signal" that swindling executives will pay for their crimes in jail, not just through raids on their well-padded bank accounts. To some extent, this will probably work. The record suggests that the prospect of punishment effectively deters the timid and the cautious, those who carefully weigh the benefits of wrongdoing against the risk of getting caught. The dangers of guilt-by-association may also serve to embolden potential whistle-blowers and watchdogs.

With hundreds of millions of dollars at stake, however, the bold and the ruthless may still be willing to take their chances. Tough sentencing practices have not eliminated the illegal drug trade in the United States, and there is no reason to think that they will be an all-purpose solution to white-collar crime.

More importantly, focusing on the actions of men like Kozlowski and Swartz covers only one swath of the problem. The fact is that most breaches of law, ethics, and trust in corporate life are not the acts of individual malfeasance. They are instead collective actions, in which many individuals are implicated, and for which responsibility is easily diffused.

Fraudulent accounting practices are not a matter of one person manipulating a spreadsheet on a desktop. Back-door deals between government and corporations involve more than a single handshake. The complexity of contemporary business means that shady business practices are often the result of risky decisions talked through in meetings, justified as creative business practices, and carried out in full sight of many people at different levels of the organization. Not to mention the crass violations of law and ethics that involve a corporation's impact on community and society: neglect of the environment, exploitation of workers, and shielding harmful information about a company's products from the public.

Collective breaches are harder to monitor and harder to punish, precisely because they involve the witting and unwitting collusion of so many people. By the time the damage becomes public, those responsible have often moved on or out of corporate life.

But the impact of these breaches on the lives of individuals lasts for years.

Keeping an eye on the ethical "culture" of an organization requires a special kind of vigilance. Inside, corporations have to be willing to scrutinize themselves, empowering internal and external ethics officers and auditors to ask tough-minded, independent questions about basic business practices. Watchdogs from outside corporations need to be attuned not only to flagrant violations and to questions of intent, but to the day-to-day impact of corporations on the lives of people and communities. It will take a mindset attuned to the problems of collective responsibility to catch problems before they turn into full-blown disasters.

It is heartening to see our justice system begin to recognize that a man who steals millions of dollars from workers and shareholders deserves at least as much prison time as a man who robs a convenience store. But let's not fool ourselves that that we can stop corporate crime just by locking the bad guys up and throwing away the key.

Daniel Terris is director of the International Center for Ethics, Justice and Public Life at Brandeis University and the author of Ethics at Work: Creating Virtue in an American Corporation.