30 January 2019

ECGI: Legal personhood and liability for flawed corporate cultures

Although the phrase, ‘corporate culture’, has been described by commentators as ‘inherently slippery’, it is now a central feature of a range international discussions about corporate governance and risk management.

Numerous international regulators, such as the Basel Committee on Banking Supervision, the UK FRC, the Central Bank of Ireland and the Australian Securities and Investments Commission (‘ASIC’) have promoted the need for a positive corporate culture. It is also currently a major theme in the British Academy’s Future of the Corporation Research Program and in Australia’s high-profile Banking Royal Commission. The importance of culture is also becoming increasingly important in corporate governance codes, such as the 2018 UK Corporate Governance Code, and proposed amendments to codes in Australia and Germany, which stress, respectively, a listed corporation’s ‘social licence to operate’ and its ‘role in the community and its responsibility vis-à-vis society’.

In Hill´s recent study, ‘Legal Personhood and Liability for Flawed Corporate Cultures’, she examines the issue of liability arising from defective corporate cultures.  She discusses a number of recent corporate law scandals (including the Wells Fargo fraudulent accounts scandal, the Volkswagen emissions scandal, sexual harassment claims at Fox News and CBS, and various banking scandals under investigation in the current Australian Banking Royal Commission), which epitomize the danger posed by flawed corporate cultures.

These scandals demonstrate that such organizational cultures can inflict damage on stakeholders, communities and society as a whole.

Legal regimes need to respond adequately to serious corporate wrongdoing. Her study explores two potential types of liability for wrongdoing that arises from defective corporate cultures: (i) criminal liability of the corporation itself as a legal person (‘entity criminal liability’); and (ii) personal liability of directors and officers for breach of duty to their company.

Full paper

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