Death by Indictment...A High Caller for Business Bloggers
Joseph Grundfest, writing in the New York Times, discusses the recent unanimous Supreme Court ruling overturning Arthur Andersen's conviction for obstruction of justice in the Enron case. Unfortunately for Andersen the vindication that the ruling bestows is of little consolation: the firm is now defunct:
The Supreme Court has overturned Arthur Andersen's conviction for obstruction of justice in the Enron case. But to Andersen, the court's ruling doesn't matter, the original trial at which it was convicted didn't matter and the verdict at any coming trial won't matter.
Andersen was destroyed when it was indicted. No exoneration at trial and no ruling by the Supreme Court will cause it to rise, Lazarus-like, from the dead. History will decide whether it was right or smart to destroy Andersen before trial. But Andersen's demise did serve as a stern reminder to corporate America that prosecutors can bring down or cripple many of America's leading corporations simply by indicting them on sufficiently serious charges. No trial is necessary.
Grundfest clearly and correctly articulates the consequences, both pro and con, of this ruling on the American business community:
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The upside of this arrangement is clear. Corporations now have an even more powerful incentive to abide by the law, to root out wrongdoing, and to cooperate with governmental authorities. Unbridled prosecutorial discretion will not end fraud in corporate America, but wrongdoing will certainly decline as executives learn that they are expendable if a prosecutor simply threatens the corporation. Because the only sure defense is not to attract the prosecutor's attention in the first instance, the rise of prosecutorial power may be society's strongest tool to enforce corporate integrity.
The downside is just as clear. The prosecutor's decision to indict is largely immune from judicial review. The prosecutor acts as judge and jury. Traditional due process safeguards, like the right to confront witnesses, can't protect the potential corporate defendant. The innocent can therefore be punished as though they are guilty, and penalties imposed in settlements need not bear a rational relationship to penalties that would result at a trial that will never happen.
According to Grundfest, the only way that upside can dominate is when
... prosecutors are uniformly careful in interpreting the law, scrupulous in understanding the facts, and balanced in settlements imposed on effectively defenseless defendants.
The problem, of course, is that few institutions have the incentives to provide or insure the needed checks and balances on prosecutorial discretion:
Where will these safeguards come from? We can't look to the courts, because well-established doctrine protects the prosecutor's decision to indict as non-reviewable. At the federal level, will Congress and Justice Department officials more actively review the decisions made by line prosecutors? Will commissioners at the Securities and Exchange Commission exercise greater oversight of staff investigations and settlement negotiations? At the state level, the problem is tougher because prosecutors like Eliot Spitzer often need answer only to Eliot Spitzer, at least until the next election.
Or will the press become the watchdog, hunting for prosecutors who interpret the law too aggressively, or who construe evidence in an unbalanced manner? Corporations have no incentive to publicize claims of questionable prosecutorial conduct because these allegations can only inflame the prosecutor, and that wouldn't be in the corporation's best interest. The corporation's silence makes the story harder for the press to report while simultaneously making it more important to cover.
As Plato long ago observed, "That a guardian should require another guardian to take care of him is ridiculous indeed." But in the wake of the Andersen ruling, that is indeed the problem that looms before us now.
Perhaps this guardianship role is one that business bloggers can assume. Bloggers on the legal, media, political, and military fronts have demonstrated their capacity to bring abuses of power to light, to provide perspectives on vital events that the mainstream media can not or will not, and to keep important stories alive after the MSM has moved on to other topics. I see little reason why business bloggers could not do the same. If not us, then who?
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