In this season’s law review submission process, I am circulating an article about deferred prosecution agreements (DPAs) and corporate governance. DPAs are controversial tools increasingly-used to settle corporate criminal cases, usually without indictment. Targets admit facts, pay fines and promise governance reforms—such as replacing officers, adding directors and prescribing reporting lines.
Some view DPAs as coerced extractions of overzealous prosecutors, while others say they are mere whitewash that let corporate crooks off the hook. The weight of commentary urges prosecutors to get out of this business, to avoid corporate governance entirely, while some wonder why the intrusions are not deeper and more frequent.
I explain why prosecutors should invest in corporate governance and take a measured approach to reforming it. Ignoring governance can be perilous and embracing it can produce more effective reforms.
My diagnosis indicates a lack of both investment and transparency so I make two prescriptions: prosecutors should profile the corporate governance of businesses they target at the outset and publicly articulate rationales for reforms when settling.
The paper first surveys the landscape of contemporary corporate governance, stressing two normative points. First: one-size-does-not fit all. Corporate governance varies enormously from company to company, depending on such factors as ownership structures, management characteristics and employment policies. Second: failure to appreciate that poses serious risks, always to given companies, and sometimes to the economy at large.
That is the proper lesson to draw from the 2002 case of Arthur Andersen, where an indictment destroyed the auditing firm because it was a partnership owned and managed by its members in the veracity business.
Instead, prosecutors took a broader and cruder lesson: that they should always be averse to indicting any large business. The result of that aversion has been the proliferation of DPAs—which, despite controversy and criticism, is not necessarily a bad effect, so long as these lessons are incorporated into their production.