Corporate Liability And Collateral Consequences

Financial penalties imposed on malfeasant corporations can produce “collateral consequences,” or unintended negative impacts on employees, customers, and society more broadly. I show that the vast majority of government bodies that assess organizational penalties have adopted policies to reduce corporate liability where collateral consequences might otherwise result. Moreover, I demonstrate that officials do re- duce penalties in line with these policies, undermining deterrence, and compensation. However, evidence from reductions given to publicly-traded firms suggests that officials are often wrong in their assessment of firms’ financial health, thereby awarding reductions to healthy firms where collateral consequences are unlikely to occur. I discuss how officials should approach imposing penalties when they are concerned about prospective collateral consequences.