Regarding the "Can/should a CEO or officer be held liable?" dialogue, there is already at least one precedent.
The 2002 Sarbanes-Oxley (SOX) Act:
> The law states that if top corporate executives knowingly sign off on a false financial report, they’re subject to a prison term of up to 10 years and a fine of up to $1 million, with penalties escalating to 20 years and $5 million if their misconduct is willful. [0]
Now, would it work? The linked article details reasons that make it challenging in the SOX context.
1. sounds like a variant of "everything is securities fraud"[1], where you can't prosecute someone for [bad thing] so you prosecute them for lying about [bad thing], where [bad thing] could be anything between causing global warming to getting hacked.
2. It's highly unlikely they'll ever get anywhere near the maximum[2].
From history, Al Capone wasn't charge with murder, violence, assault, battery, embezzlement, theft, etc. He was charged with ... Tax Evasion (!) and it stuck. As far as I can tell, Al Capone just needed to incorporate his criminal enterprise, and then his corporation would penalized, but he wouldn't go to prison.
As to securities fraud, if a publicly traded company lies facts material to criminal acts, then yes it should securities fraud -- particularly if it hurt the stock holders (and in this case it did!). This would be different than say a CEO cheating on his wife and lying about it.
"Knowing" and "willful" can be a bit confusing. Generally in statutes you do something "knowingly" if you have knowledge of it. If you know the report is false when you sign it you have "knowingly" signed off on a false report.
"Willful" means that you knew that you were doing something that the law forbids. If you knew the reports was false but did not know that the law forbids doing that then it would not be willful.
Here's a more detailed explanation from the DoJ [1]. That's in general rather than specifically about Sarbanes-Oxley but a quick grep in SOX didn't turn up any SOX-specific definitions for those terms.
I've always found those distinctions in legal code to have the (possibly deliberate) side effect of encouraging deliberate ignorance. It is not wilful or knowing if they make no effort to know or understand what the implications of their decisions were. I strongly believe this to be a wrong approach that does nothing to change MBA approach to decision making: It is all about a buck now and the less they know about consequences later the better (for them personally, not for the rest of us)
The law tries to address this. If a defendant is aware that there is a significant risk of [X], but deliberately avoided information that might confirm [X], then knowledge that [X] can often be imported to them under the "willful blindness" doctrine. Though, as you can imagine, it can be difficult to apply this in practice since it is difficult to articulate the level of suspicion a defendant must have had in order to have been "willfully blind" rather than just ignorant.
Actually in most places, technically as president/CEO of a firm you are already liable for any criminal conduct by your firm/employees-on-the-job. The corporate lawyers should have clearly warned them about this already. Additionally, any criminal lawyer should have warned Boeing people it is often around a 10 year jail term for criminal negligence.
Unless the president/CEO can prove they enforced policy to mitigate the issues, than the board may still be in real trouble internationally.
Their best bet is to delay long enough that the general public loses interest in the case.
Have a great day, and remember free parachutes is not a real solution... =3
> Actually in most places, technically as president/CEO of a firm you are already liable for any criminal conduct by your firm/employees-on-the-job.
This isn't true as written. CEOs aren't automatically liable for crimes of the company or employees.
If a CEO intentionally facilitates or participates in those crimes: Yes, open to liability.
If an employee or department commits crimes without the knowledge of the CEO: Very different situation.
The cynical take is that CEOs are always aware of crimes or that they're encouraging the crimes to happen. I've personally seen several cases of people committing fraud and even a federal crime on the job, and in every case it was done secretly with the belief that it was going to be an undiscovered way of advancing the person's career. People try to game the advancement system at every level, including executive levels.
In the US, sometimes the court may “pierce the corporate veil” when actions are particularly egregious or unlawful and hold the shareholders or directors personally liable.
Rather than go into all the specifics of law (since I'm not
a lawyer), I'll cite some examples where corporate executives were charged personally:
Limited liability only protects the shareholders. It exists because shareholders have no control over the corporation. It does not protect agents of the corporation, such as management, because they do have control of the corporation.
It is right on the incorporation forms prior to entity approval, and in my jurisdiction the Lawyer made this very clear as I make choices hiring ex-servicemen contractors/staff (numerous PTSD issues can limit roles... like "dealing" with aggressive/rude customers can be a bad idea etc.) Additionally, blindly using Lexis Nexis forms can cause issues too, as the same clauses have different legal definitions in different regions.
While a C firm does _often_ protect board member personal assets from civil cases, it also does not guarantee protection.
Also, international investors do not usually create a US LLC given it usually trips 2 tax codes. Talking with awesome AMCHAM reps about this area is probably in your best interest, but most international firms create a Type C corporation on US soil.
Ask your local corporate tax lawyer about liabilities to confirm whether your jurisdiction has harmonized corporate laws.
Being a president/CEO is not what most assume, and even a shareholder can get messy too. Despite pop-culture urban legends, it is not a role for clowns or cons. =3
Agreed, the key phrase here is _limited_ liability not immunity.
I am still trying to figure out how Boeing got around their commercial insurance companies? There is a bag of vipers also waiting for their turn with the CEO for sure... =3
Isn’t LL about protecting your assets not you from jail time? I can’t start a LLC, have the LLC pay someone to kill you, and be scott free. “Sorry you can’t go after me, go after this shell company and try to put it in jail ha ha”
Yep, people should talk with a real local corporate lawyer or AMCHAM if unsure.
The hubris on YC from those that assume the rules don't apply to them is hilarious. But, I guess someone has to pay for the lawyers kids to get though university.
So the TL;DR is a) SOX forced companies to improve internal controls, which we can all agree is a good thing, and b) when things still go wrong, the execs are usually committing other crimes that make it more feasible to prosecute those instead.
Seems to me to me more legal inside baseball than an indication execs are getting away with more fraud than before. Seems prosecutors are just choosing to charge other crimes when they know they have a good case.
The 2002 Sarbanes-Oxley (SOX) Act:
> The law states that if top corporate executives knowingly sign off on a false financial report, they’re subject to a prison term of up to 10 years and a fine of up to $1 million, with penalties escalating to 20 years and $5 million if their misconduct is willful. [0]
Now, would it work? The linked article details reasons that make it challenging in the SOX context.
[0] https://www.reuters.com/article/idUS3512973425/