Personhood, Procedure, and the Endurance of Corporate Compliance

Despite its significant role in preventing and deterring wrongdoing, corporate compliance’s long-term prospects remain an open question. How strongly does a company’s inclination to redress wrongdoing rest on a credible threat of outside enforcement?

This is one of the questions I tackle in a new book chapter, Personhood, Procedure, and the Endurance of Corporate Compliance. The chapter, which is forthcoming in the Research Handbook on Corporate Purpose and Personhood, begins with a prediction. For a number of reasons, the government may find its constitutional access to corporate information significantly narrowed in the future. I set forth the basis for this prediction and its implications in a recent article, Law Enforcement’s Lochner, 105 Minn. L. Rev. 1667 (2021). The book chapter picks up where the article left off and inquires how changes in enforcement might affect the corporate compliance function.

Currently, the government encounters few constitutional hurdles in its quest for corporate information. It usually enjoys the fruits of so-called internal investigations, notwithstanding the fact that the “privateness” of those investigations can verge on fiction. More directly, the government can secure information by relying on grand jury and administrative subpoenas. Beyond meeting a bare “reasonableness” requirement, the government need not worry that its compulsory document requests will be subjected to the Fourth Amendment’s search requirements, much less fall within the Fifth Amendment’s privilege against self-incrimination. The privilege, the Supreme Court has long asserted, applies only to natural persons and not collective entities.

This is the constitutional framework that lurks in the background when we talk about corporate crime and its enforcement. Scholars often presume that corporate compliance arises out of substantive criminal law’s breadth and collateral consequences. But the government’s leverage depends just as heavily on the procedural doctrines that enable the government’s collection of information.

Two areas of Supreme Court jurisprudence are likely to shift these procedural issues to the center of discussion. Through a spate of cases, the court has recognized certain “rights” in corporations that have enabled them to effectively opt out of certain regulatory schemes. Several of the court’s opinions have voiced support for an associational theory of personhood that awards a company rights in service of protecting shareholders and even other stakeholders. As I explain in my chapter, a theory of corporate personhood that derives corporate rights from those of its employees opens the door for corporate litigants to challenge the collective entity doctrine. Were the Supreme Court to revisit this doctrine, the Fifth Amendment’s privilege against self-incrimination would suddenly be in flux.

Simultaneously, the court has also initiated a major shift in its Fourth Amendment jurisprudence, backing away from long-held doctrines that supported the highly deferential treatment of documentary subpoenas under the Fourth Amendment. If the court measures Fourth Amendment “searches” by the volume and nature of information collected, and not some abstract, fictional expectation of privacy, arguments long withheld from corporations will be back on the table.

Thus, if both lines of jurisprudence continue along their respective paths, corporations could enjoy stronger personhood rights, which in turn endowed them with paradigm-shifting procedural protections. Law Enforcement’s Lochner inquired how these developments might affect government enforcement agencies. The present chapter turns its attention inward. How might this change affect the corporate compliance function? The chapter lays out two potential scenarios.

The rosier one presumes that compliance continues to play an important role within the firm. There are plenty of reasons to remain bullish on compliance, even if the government’s access to information narrows. After all, the enforcement scenario I describe would not alter substantive law or the corporate board’s oversight duties established by state corporate law. Moreover, there might be some good to come from partially decriminalizing and defederalizing the corporate compliance function. Freed of the obligation to please federal prosecutors, a company’s compliance department might focus less on playing the role of internal sheriff and instead focus more on developing synergies with other pro-social efforts such as the burgeoning Environmental, Social, and Governance (ESG) movement. Compliance would finally be centered in values and norm-building, and not in overseeing ever more expensive surveillance mechanisms. Depending on how one feels about extant levels of corporate policing, this could be a positive story.

The alternative scenario, however, is less heartening. New constitutional rules of procedure would, as I explain in the chapter, “open up new channels of resistance for corporate lawyers. Instead of spending as much money as it currently does on self-policing and negotiating for leniency, the compliance function (or really, the company’s legal function) could reallocate some of the company’s burgeoning compliance budget towards litigation challenging the breadth of subpoenas.”

How would stakeholders greet this adversarial stance? As the chapter theorizes, they might support it:

There is a heroism inherent in the corporation-versus-the-Government story, and the Court’s corporate personhood rhetoric encourages corporate managers to embrace that heroism. One can imagine the company email that explains the company’s latest litigation, “We felt we owed it to our owners and our employees to protect their privacy and to challenge government demands that violated our collective Fourth and Fifth Amendment rights.” What’s not to like? The firm that promises to protect its employees’ privacy and remove invasive policing tactics will almost certainly garner the appreciation and support of scholars, privacy advocates, and much of the workplace. The only problem, of course, is that such heroism might well shield corporate management’s opportunistic behavior, including behavior that harms investors and numerous third parties and eventually weakens faith in markets.

The above excerpt touches on a more fundamental question, which is the degree to which constitutionally driven reductions in enforcement would affect a manager’s or employee’s inclination to violate the law in the first place. If individuals are motivated primarily by external risks and rewards, the answer to this question is obvious: Wrongdoing will increase because the probability of detection will almost certainly fall if the government encounters a more difficult procedural landscape.

If, however, internal motivations really matter, and the compliance function has successfully shaped corporate attitudes and cultures, wrongdoing might not spike as much as we fear. People might hold back from engaging in wrongdoing just because they know it is the wrong thing to do.

Thus, a changing constitutional framework forces us to confront a thorny but important question: How elastic is corporate compliance?

We may soon find out.

This post comes to us from Miriam H. Baer, a professor at Brooklyn Law School and, this year, a visiting fellow at the Edmond J. Safra Center for Ethics at Harvard University. It is based on her recent book chapter, “Personhood, Procedure and the Endurance of Corporate Compliance,” which was written for the Research Handbook on Corporate Purpose and Personhood (edited by Elizabeth Pollman and Robert Thompson) and is available here.

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