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Monday, February 7, 2011

Unaccountability at Bank of America

Andrew Cuomo, who was the Attorney General of New York in February of 2010, filed suit then against Bank of America and two of the bank’s employees, Ken Lewis and Joe Price.  In his complaint, Mr. Cuomo said that the bank first chose not to disclose the losses involving Merrill Lynch, which topped $16 billion, to its shareholders who were voting to approve the deal. Then, the bank told federal officials that those same losses had persuaded bank executives to consider backing out of the deal, unless the government provided a second bailout. “Throughout this episode, the conduct of Bank of America, through its top management, was motivated by self-interest, greed, hubris and a palpable sense that the normal rules of fair play did not apply to them,” Mr. Cuomo said. “Bank of America’s management thought of itself as too big to play by the rules and, just as disturbingly, too big to tell the truth.”

While “too big to play by the rules” and “too big to tell the truth” are striking  and warrant serious reflection in an economy wherein corporations are allowed to continue to operate even though they are too big to fail, my eyes are caught on something else in the quotes that is apt to be missed by many readers in the present era of corporate capitalism.  Consider “the conduct of Bank of America, through its top management…”  Does anything seem odd to you about this phrase?  In the wake of the US Supreme Court’s decision that corporations’ “free speech” is protected by the US Constitution’s first amendment, the debate on whether corporate entities should be considered legal persons has emerged from law school classrooms into the public square.  Reading “the conduct of Bank of America, through its top management,” I wanted to rewrite it as “the conduct of Ken Lewis and others in their capacities in working at Bank of America”.  This would be more accurate.  That corporate conduct must be through human beings means that corporate entities cannot themselves act or have conduct.  Accordingly, to say that a corporation apart from its human beings is a person does not make sense (because conduct applies to persons).  To say that BOA conducts itself through people is really to say that the conduct is done by the (human) persons.  

Besides questioning the corporate legal person judicial decision and the related decision that corporate “persons” have the same right to free speech as human beings have, I would argue based on my analysis here that the individual employees who were involved in the alleged understatement of losses and overstatement of an intent (and ability) to pull out of the deal (i.e., holding the economy hostage to get the feds to pony up in the deal) should be viewed as the recipients of the punishment.  Because a corporation is wealth rather than a person (i.e., it cannot go to jail), a fine could also be imposed on it even as the guilty employees go to prison for their conduct (regardless of the size of the fine on the bank).  But this wouldn’t mean that the corporation is being punished.  Rather, the stockholders (and anyone else who could otherwise draw on the retained earnings) would be punished  for lax corporate governance. If the employees’ fraud circumvented reasonable corporate goverance, however, perhaps the stockholders should not be punished/fined.

My point is that we should hold the individual decision-makers (and implementers) accountable (if they committed fraud) because they are persons.  Human beings commit fraud—not corporations.  So we should not fall under the illusion that some corporate entity greater than the sum of its human parts is somehow responsible (i.e., as if a corporation could make decisions apart from the human beings working in it).   A corporation doesn’t have hubris; persons do, which is to say human beings.  Projecting human qualities onto legal entities may feel good and be convenient for those who want to evade responsibility; what concerns me is when the rest of us unthinkingly go along with the illusion and take it for real, writing statements like ”the conduct of Bank of America.”  Reading this, one ought to think to herself, ”that doesn’t even make sense.”  Unfortunately, the lapse is so ubiquitous that few of us object to it, not to mention notice it.  When something that does not make sense comes to be routinely taken as a given, something is really wrong in a society.  The problem is particularly lethal when it is not even transparent because it is akin to flying blind.  Let’s just say that it is the financial interest of those human beings who benefit from corporate wealth that we continue to fly blind.