Board Diversity, Corporate Malfeasance and Legal Sanctions

How can society successfully prevent and deter corporate crime? This question is a matter of practical urgency given the extensive costs borne by crime victims and society as a whole. This project examines two distinct but potentially related types of corporate crime control and prevention
mechanisms—one that rests on firm governance (specifically, the Board of Directors) and the other on formal legal interventions. Following Fortune 1500 firms over a twenty year time period (1994-2014), we will track the dynamic relations between a firm’s Board of Directors, company participation in two main types of illegal activities (financial misrepresentation and anti-competitive
behavior), legal responses to violations, and reactions by the firm to discovery and punishment. In particular, we are interested in: (1) the relationship between Board and company top management team characteristics (especially diversity) and firm offending; (2) the evolution of governance structures from pre-violation through discovery, remediation, and post regulatory enforcement and if changes lower the risk of reoffending; and (3) whether certain types of legal interventions(deterrence versus compliance-based; criminal versus regulatory and civil) or targets (responsible individuals, corporations, or both) are more effective than others in lowering the risk of recidivism; more than others; and (4) the extent to which these dynamic processes are general or specific to certain types of illegal conduct.

Our investigation will utilize and supplement data already collected by Co-PI Gerald Martin. The Martin database is a population (universe) of 13(b) or financial misrepresentation enforcement actions from the passage of the FCPA in 1977 with initial enforcement actions beginning in 1978.
Enforcement actions are linked to firm and responsible manager characteristics.

Although the Martin database is rich with case descriptions (including timelines for government actions) and details about firms and their management teams, it lacks detailed and complete information about
Corporate Boards. It is further restricted to enforcement actions initiated by the Securities and Exchange Commission and DOJ. We propose to add details about the composition of and changes to the Board of Directors for the firms already listed in the datafiles. Further, we will replicate
Martin’s data collection strategy by following companies against whom enforcement actions have been brought for FTC Act; Sherman Act (Section 1 and 2), and Clayton Act violations. Details about these firms (including company and Board haracteristics) and enforcement actions brought against
them and responsible managers by the FTC and DOJ will then be merged with the Martin data.

This project contains a research and/or development component, as defined in applicable law.

ca/ncf