Professor Andre Spicer comments on the organisational effects the new criminal finance bill could have on businesses

There is a larger issue here regarding corporate structures and the idea of limited liability: by holding corporations to account, you effectively let individuals off the hook for bad behaviour. This means companies are punished while individuals can avoid responsibility for some of the worst wrongdoing, turning senior corporate roles into a poisoned chalice.

While increased executive responsibility does not have much of an effect on the supply of aspiring senior business leaders willing to take top positions, this change in policy could load additional and unnecessary responsibility onto the shoulders of senior executives, and senior roles might appear too risky to attract the best and the brightest.

Another argument likely to be mobilised against individual executive responsibility is moral hazard. If senior executives have to shoulder the responsibility for the actions of their employees, it means junior staff members will be let off the hook. If something goes wrong, junior employees will be able to shift the blame by pointing to the lack of enforcement systems.

Although this argument holds some weight, it is usually junior employees who are scapegoated for corporate misdeeds. This is what happened in the banks following various financial scandal. 

Research shows that increased attempts to hold individual executives to account can reduce corporate misdeeds.

But laws on paper only work when they are used in practice. Tough laws only tend to reduce executive misbehaviour when they are backed up with active prosecution of wrong doers. Passing law is one thing, using it is quite another.

Another issue with holding individual executives responsible for their employees’ behaviour is strategic ignorance. If executives are at risk of prosecution, they are likely to encourage their employees not to pass on any information, which could make them appear responsible.

This is what happened at Volkswagen when junior staff edited their emissions reports to erase any ‘bad behaviour’ out of the information they passed up the chain.

Andre Spicer is Professor of Organisational Behaviour at Cass Business School.