JURIST Contributing Editor Nancy Rapoport of the University of Houston Law Center says that new instructions to federal prosecutors not to demand privileged documents as a means of inducing corporate co-operation with investigations may help preserve useful corporate structures while recognizing that threats of wholesale corporate prosecutions may not prevent wrongdoing by corporate officers...
This is, of course, the same Office of the AG that told corporations not to pay the attorneys' fees for their employees if the corporations wanted to "cooperate" with the DOJ's investigation. (In non-DOJ terms, the technical term for that instruction would be "intentional interference with a contractual obligation.") Now the McNulty memorandum has backed off the use of that tactic as well. Another way to put the McNulty Memo in perspective is to say that the government can't use dirty tricks to get to the facts about what a corporation did or didn't do.
Don't get me wrong: I'm all for finding out about corporate wrongdoing and prosecuting the offenders. I find it appalling that, less than five years after the Enron-WorldCom-Global Crossings-Tyco-Adelphia-Parmalat-Royal Ahold-etc. scandals, we have to remind executives that backdating stock options is A Bad Thing. We can't always rely on the research of "intrepid academic[s]" to ferret out the newest dirty tricks of officers and directors. (FORTUNE MAGAZINE used that phrase in writing about University of Iowa Professor Erik Lie's research on the backdating of stock options. See Geoffrey Colvin, A Study in CEO Greed: How one intrepid academic exposed the latest stock option scandal, May 30, 2006. The government does need to investigate alleged wrongdoing.
But why was the DOJ engaging in those types of pressure tactics in the first place? Is it truly important to society to indict entire corporations? (Just ask dear, departed Arthur Andersen how it feels to be vindicated by the U.S. Supreme Court.) Is wiping out jobs for the many honest employees of a crooked company better for our economy? There were good people at Arthur Andersen. There were even good people at Enron, although Enron still sets the standard for corrupt companies. Enron, now just a shadow of its former ("real asset") self, has good people on its payroll. Do we want the government threatening to shut down an entire organization to shake the few bad apples off the tree?
What makes the McNulty Memo even more welcome is something that the DOJ doesn't want to admit: those people clever enough to conceive of new ways to cheat investors aren't going to be deterred by wholescale prosecution of corporations anyway. I don't think that any punishment is going to deter them. The next Skillings-in-waiting aren't reading about Bernie Ebbers's drive to prison (in his Mercedes, no less) and thinking that they should cancel their plans to raid the corporate coffers. They're thinking that they're smarter than Bernie, and Jeffrey, and Andy Fastow, and all the rest of the ones who got caught. No bullying tactics by the government will change the calculus of hubris that these evil geniuses cook up. The Office of the AG has figured out that there are easier, and fairer, ways to get at the information that it needs. Score one for justice â this time.
Nancy B. Rapoport is a professor of law and the former dean of the University of Houston Law Center.