Corporate policing and corporate governance: What can we learn from hewlett-packard's pretexting scandal?

University of Cincinnati Law Review

Volumn 77, Issue 2, 2008, Pages 523-583

  Baer, Miriam Hechler ^a  

^a PRINCETON UNIVERSITY   (United States)

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EID: 67449091731     PISSN: 00096881     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (313)

1. Peter J. Henning, Did Email Cause a Disconnect for HP Lawyers?, LAW. COM, Sept. 27, 2006, http://www.law.com/jsp/article.jsp?id= 1159261524292.
2. "I was told that phone records were one of the key techniques being used in the investigation, along with 'relationship mapping' and what struck me as old-fashioned detective work. I did not find it objectionable that suspected leakers might be followed to see if they were meeting with reporters." Hewlett-Packard's Pretexting Scandal: Hearing Before the Subcomm. on Oversight and Investigations of the H. Cotnm. on Energy and Commerce, 109th Cong. 62 (2006) [hereinafter Hearing] (prepared statement of Patricia C. Dunn, Former Chairman of the Board, Hewlett-Packard Co.), available at http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109-house- hearing&sdocid=f:31472.pdf.
3. The FBI began using undercover investigations as early as 1910 and dramatically increased its reliance on them as law enforcement tactic throughout the 1970s and 1980s. Katherine Goldwasser, After Abscam: An Examination of Congressional Proposals to Limit Targeting Discretion in Federal Undercover Investigations, 36 EMORY L. J. 75, 78 n. 10 (1987) (describing growth of "undercover tactics to conduct criminal investigations").
4. "Like the vassal whose power overshadows the king's, these companies act similarly to traditional nation-states in some ways. They have tremendous economic power, establish security forces, engage in diplomatic, adjudicatory and 'legislative' activities, and influence monetary policy." Allison D. Garrett, The Corporation as Sovereign, 60 ME. L. REV. 129, 132 (2008). Compare with Usha Rodrigues, The Seductive Comparison of Shareholder and Civic Democracy, 63 WASH. and LEE L. REV. 1389, 1390 (2006) (criticizing analogy between shareholder and citizen participation).
5. See Elizabeth E. Joh, Conceptualizing the Private Police, 2005 UTAH L. REV. 573, 615 (2005) (describing and categorizing growth of private police, including corporate security).
6. For a general overview of corporate compliance, see Corporate Compliance Committee, ABA Section of Business Law, Corporate Compliance Survey, 60 BUS. LAW. 1759 (2005).
7. See Lisa Kern Griffin, Compelled Cooperation and the New Corporate Criminal Procedure, 82 N. Y. U. L. REV. 311, 342 (2007).
8. See Memorandum from Mark R. Filip, Deputy Attorney General, on Principles of Federal Prosecution of Business Organizations, to Heads of Department Components and United States Attorneys (Aug. 28, 2008), available at http://www.usdoj.gov/opa/documents/corp-charging-guidelin es.pdf [hereinafter Filip Memorandum]. Filip's Memorandum was preceded by the Memorandum from Paul J. McNulty, Deputy Attorney Gen., U. S. Dep't of Justice, to Heads of Dep't Components and U. S. Attorneys (Dec. 12, 2006) [hereinafter McNulty Memorandum], http://www.usdoj.gov/dag/speeches/20 06/mcnulty-memo.pdf. Prior to McNulty's memorandum, Larry D. Thompson, the predecessor Deputy Attorney General had issued a similar memorandum requiring corporations to employ effective compliance programs in exchange for prosecutorial leniency in criminally charging entities for violations by corporate employees. Memorandum from Larry D. Thompson, Deputy Attorney Gen., U. S. Dep't of Justice, to Heads of Dep't Components and U. S. Attorneys (Dec. 12, 2006) [hereinafter Thompson Memorandum], http://www.usdoj.gov/dag/cftf/corporate-guidelines.htm. See also U. S. SENTENCING GUIDELINES MANUAL ch. 8 (2004) [hereinafter "Organizational Sentencing Guidelines"] (instructing that courts should consider whether company employed effective compliance program).
9. See Organizational Sentencing Guidelines, supra note 8.
10. See, e.g., In re Caremark Int'l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996);
11. Stone ex rel. AmSouth Bancorp, v. Ritter, 911 A.2d 362 (Del. 2006).
12. See Kimberly D. Krawiec, Cosmetic Compliance and the Failure of Negotiated Governance, 81 WASH. U. L. Q. 487 (2003). See also Tanina Rostain, The Emergence of "Law Consultants, " 75 FORDHAM L. REV. 1397 (2006).
13. See Margaret M. Blair and Lynn A. Stout, Trust, Trustworthiness, and the Behavioral Foundations of Corporate Law, 149 U. PA. L. REV. 1735 (2001) (arguing that internal behavioral norms may better restrain misconduct in firms than contractarian or external regulatory approaches);
14. Renee M. Jones, Law, Norms, and the Breakdown of the Board: Promoting Accountability in Corporate Governance, 92 IOWA L. REV. 105 (2006) (contending that personal accountability for directors is necessary to counteract other psychological phenomena that permit directors to engage in socially undesirable conduct).
15. Although disclosure is a presumed norm, not all shareholders welcome it. See Donald C. Langevoort, Resetting the Corporate Thermostat: Lessons from the Recent Financial Scandals about Self-Deception, Deceiving Others and the Design of Internal Controls, 93 GEO. L. J. 285 (2005).
16. "Undercover informants, those willing to pose as co-schemers, accomplices, or confidants of criminal suspects, are the lifeblood of innumerable investigations and prosecutions. They offer police and prosecutors the prospect of gaining admissible, incriminating, and extremely persuasive evidence: damning statements that suspects make to those whom they mistakenly trust." Steven D. Clymer, Undercover Operatives and Recorded Conversations: A Response to Professors Shuy and Lininger, 92 CORNELL L. REV. 847, 847-48 (2007).
17. See also Bruce Pringle, Comment, Present and Suggested Limitations on the Use of Secret Agents and Informers in Law Enforcement, 41 U. COLO. L. REV. 261 (1969) ("most authors ultimately conclude that informers and secret agents are a necessary component of law enforcement");
18. Ueana N. Saros, The Undercover Operation: Indispensable Tool of Law Enforcement, 9 CRIM. JUST. Q. 27, 27 (1985) (prosecutor arguing that undercover operations are necessary to pierce the "veil of secrecy" surrounding various crimes).
19. See Bruce Hay, Sting Operations, Undercover Agents, and Entrapment, 70 Mo. L. REV. 387 (2005).
20. "Virtually all interrogations-or at least virtually all successful interrogations-involve some deception. " Laurie Magid, Deceptive Police Interrogation Practices: How Far is Too Far?, 99 MICH. L. REV. 1168, 1168 (2001) (prosecutor's observations and arguments in favor of using certain levels of deception in interrogations).
21. See Graham v. Allis-Chalmers Mfg. Co., 188 A.2d 125, 130 (Del. 1963) ("absent cause for suspicion there is no duty upon the directors to install and operate a corporate system of espionage to ferret out wrongdoing which they have no reason to suspect exists"). The Delaware Supreme Court repudiated Graham in Stone v. ex rel. AmSouth Bancorp, v. Ritter, 911 A.2d 362, 369-70 (Del. 2006) (holding that "director oversight liability" applies when directors fail to assure "a reasonable information and reporting system exists" within the company) (quoting In re Caremark Int'l Inc. Deriv. Litig., 698 A.2d 959, 971 (Del. Ch.1996)).
22. The 1963 Delaware Supreme Court described corporate compliance as a "system of espionage...." Graham, 188 A.2d at 130.
23. Although a few authors have examined several issues raised by private policing, none have addressed implications for corporate governance. See Elizabeth E. Joh, The Paradox of Private Policing, 95 J. CRIM. L. and CRIMINOLOGY 49 (2004) (citing dearth of analysis on topic of private policing);
24. David A. Sklansky, Private Police and Democracy, 43 AM. CRIM. L. REV. 89 (2006) (raising concerns that private policing undermines democracy);
25. David A. Sklansky, The Private Police, 46 U. C. L. A. L. REV. 1165, 1167 (1999) (noting that scholars "have tended to ignore private security").
26. See Pui-Wing Tam, Hewlett-Packard Board Considers a Reorganization, WALL ST. J., Jan. 24, 2005, at A1.
27. See John Markoff, Fiorina Pursued Least at HP, Too, N. Y. TIMES, Oct. 5, 2006, at CI; James B. Stewart, The Kona Files, THE NEW YORKER, Feb. 19 and 26, 2007 at 152.
28. Hearing, supra note 2, at 45 (prepared statement of Patricia C. Dunn, Former Chairman of the Board, Hewlett-Packard Co.).
29. Id.
30. Id. at 52-53 (describing contacts with Ron Delia).
31. Id. at 56.
32. Id. at 55-56. (describing her inquiry: "I asked Mr. Delia at every point of contact for his representation that everything being done was proper, legal and fully in compliance with HP's normal practices. I did this because it is the role of directors to ask questions and seek such representations from the right people. Indeed, reliance on representations from trusted sources is a bedrock concept in board governance for the express reason that directors cannot directly supervise management's actions.").
33. Dawn Kawamoto and Tom Krazit, HP Outlines Long-term Strategy, CNET NEWS, Jan. 23, 2006, http://news.com./HP+outlines+long+term+strategy/ 2100-1014-3-6029519.html.
34. Hearing, supra note 2, at 60 (prepared statement of Patricia C. Dunn, Former Chairman of the Board, Hewlett-Packard Co.).
35. Report of Kevin T. Hunsaker, "Unauthorized Disclosure Investigation, " May 24, 2006, at 3-4, available at http://www.thesmokinggun. com/archive/0929061hp2.html.
36. Hearing, supra note 2, at 61.
37. Patricia Sellers, The Survival of Pattie Dunn, FORTUNE, June 11, 2007, at 110.
38. See Hearing, supra note 2, at 64-65 (prepared statement of Patricia C. Dunn, Former Chairman of the Board, Hewlett-Packard Co.);
39. Stewart, supra note 21, at 162-63 (During a meeting, "Baskins and Sonsini said that it would be improper to keep the information from the full board, " and so, Dunn debated whether to send the information first to the governance or audit committees.).
40. During this conversation, Keyworth allegedly indicated that he would have readily admitted this had anyone directly asked. Stewart, supra note 21, at 163 (reporting that Keyworth's response was, "Why didn't you just ask me?").
41. Id.
42. Hearing, supra note 2, at 68-69 (prepared statement of Patricia C. Dunn, Former Chairman of the Board, Hewlett-Packard Co.). Perkins and Dunn have provided different accounts of what sparked Perkins's ire. According to Perkins, he objected both to the investigator's tactics and to Dunn's decision to bring the matter before the entire Board and embarrass Keyworth. See Stewart, supra note 21 at 163. Dunn, however, contends that Perkins never alluded to the investigation itself during the Board meeting, and was referring solely to Perkins's request "to cover up the name of the leaker." Id. (quoting Dunn's oral testimony before the Transcript of Hearing of Subcommittee on Oversight and Investigations, Committee on Energy and Commerce, U. S. House of Representatives, September 28, 2006, available at http://www.washingtonpost.com/wp-srv/business/documents/HP-hearing09282006.html) .
43. See Hewlett-Packard Targeted Board in Leak Probe Resigned Director Says Company Fraudulently Obtained Phone Records, THE SMOKING GUN, Sept. 5, 2006, http://www.thesmokinggu n. com/archive/0905061hpl.html (attaching Letter From Thomas J. Perkins to The Directors of the Hewlett-Packard Co. (Sept. 5, 2006), Email from Larry Sonsini to Thomas J. Perkins (June 28, 2006) and Letter from Travis M. Dodd, General Attorney, AT&T Services, Inc., to Thomas J. Perkins (Aug. 11, 2006) (detailing how Perkins's personal phone records were accessed by the creation of an online account and the use of Perkins's Social Security Number)).
44. See Hewlett-Packard Co., Current Report (Form 8K) (Sept. 6, 2006).
45. See News Release, Hewlett-Packard Co., George Keyworth Resigns as HP Director (Sept. 12, 2006), http://www.hp. com/hpinfo/newsroom/press/2006/ 060912b.html. The source of the 2005 Wall Street Journal article was never identified.
46. Jim Hopkins and Jon Swartz, Investigations Continue at HP: Scandal Gets Scrutiny From Several Fronts, USA TODAY, Oct. 5, 2006, at 2B.
47. Hurd apologized profusely and characterized Kona II as a "rogue investigation. " See Hearing, supra note 2, at 728 (testimony of Mark Hurd, President, Chief Executive Officer, and Chairman of the Board, Hewlett-Packard, Co.).
48. Peter Carey, HP Insiders Charged with Felonies, KNIGHT RIDDER TRIBUNE BUS. NEWS, Oct. 4, 2006, at 1.
49. Jessica Guynn, Final Charges Dropped in HP 'Pretexting' Case, S. F. CHRON., June 29, 2007, at D1. The court commented that in its opinion, the conduct "amounted to boardroom politics and a betrayal of trust and honor rather than criminal activity." Id.
50. Jordan Robertson, Plea Deal Advances HP Case, HOUSTON CHRON., Jan. 13, 2007, at 3. The investigator, Bryan Wagner, worked solely at the direction of companies that HP had contracted with for the investigation. As a result, HP's employees had far less control over, and knowledge of, the techniques that Wagner used to obtain the telephone records.
51. Suzy Jagger, Tech Nerd on the Board of Hewlett-Packard who Fought with Chairman over Company Culture, TIMES (London), Nov. 5, 2007, at 52 (discussing interview with Perkins and his complaints that Dunn was more interested with corporate governance and "box-checking" than with the company's underlying business and technology concerns).
52. See SFGate.com, http://www.sfgate.com/chronicle/pictures/2006/09/ 29/mn-doc.pdf (last visited Oct. 1, 2008) [hereinafter SFGate Documents] (Letter from K. Lee Blalack II and Cristina C. Arguedas to Comm. on Energy and Commerce (Sept. 28, 2006)).
53. Id. (Draft Memorandum of Interview with Kevin Hunsaker from Bahram Seyedin-Noor and Trevor Lain to HP Securities Litigation Team (Aug. 21, 2006), at ¶ 41).
54. See id. (E-mail from Kevin Hunsaker to Ann Baskins (May 1, 2006)). The law firm- Bonner, Kiernan, Trebach and Crociata-happened to share office space with Ron Delia, the private investigator that HP had hired to direct the pretexting investigation.
55. See Stewart, supra note 21, at 160 (discussing HP security officers Fred Adler and Vince Nye reservations, who concluded in an email to Hunsaker that pretexting "is very unethical at the least and probably illegal").
56. Damon Darlin and Matt Richtel, Fuzzy Laws Come into Play in the H. P. Pretexting Case, N. Y. TIMES, Sept. 19, 2006 (citing difficulties in proving culpability under either state or federal laws).
57. See 15 U. S. C. §§ 6821-6827 (2006).
58. Dave Gussow, Verizon Lawsuit Says Phony Callers Are Committing Fraud, ST. PETERSBERG TIMES, Jan. 30, 2006 (reporting lawsuits by Verizon Wireless, Sprint Nextel and the Florida Attorney General).
59. Letter from Chris Jay Hoofnagle, Director, Electronic Privacy Information Center West Coast Office, to State Ethics Comm. (Feb. 21, 2006), http://epic.org/privacy/iei/attyltr22106.html.
60. See Fed. Trade Comm'n, Facts for Consumers, Pretexting: Your Personal Information Revealed (Feb. 2006), http://www.ftc.gov/bcp/edu/pubs/consumer/ credit/crelO.shtm. One might have concluded that the FTC's statement was aimed at brokers who obtained telephone records under pretext and then sold that information to someone else at a profit.
61. See CAL. PENAL CODE § 538.5 (West 2008) (criminalizing fraud in obtaining customer records from public utilities).
62. Stewart, supra note 21, at 167 (noting HP's financial strength throughout the pretexting scandal).
63. HP also settled charges with the SEC for failing to disclose the reasons for Perkins's resignation from the Board in May 2006 without monetary penalty. Therese Poletti, Hewlett-Packard Probe by SEC Is Settled, KNIGHT RIDDER TRIBUNE BUS. NEWS, May 24, 2007, at 1.
64. Matt Richtel, Hewlett-Packard Settles Spying Case, N. Y. TIMES, Feb. 14, 2008, available at http://www.nytimes.eom/2008/ 02/14/business/media/14hp. html?st=cse&sq=hewlett+packard&scp=l (reporting HP's settlement with the New York Times and three Business Week journalists).
65. Professor Viet Dinh, a former DOJ official who advised Tom Perkins during the HP scandal, opined: "[I]t was unconscionable for a chairman to spy on her own directors." Viet D. Dinh, Dunn and Dusted, WALL ST. J., Sept. 26, 2006 at A. 14.
66. Hearing, supra note 2, at 5 (opening statement of Rep. Diana Degette).
67. Hearing, supra note 2, at 96 (testimony of Patricia C. Dunn, Former Chairman of the Board, Hewlett-Packard Co.). See also id. at 62 (prepared statement of Patricia C. Dunn, Former Chairman of the Board, Hewlett-Packard Co.) (describing the investigatory methods as "old-fashioned detective work").
68. See discussion infra at Part II. B.
69. [Boardroom] leaks are terrible and pernicious. They can undermine a company's planning and its proposed courses of action before they're ever tested in the crucible of the marketplace. They may prevent frank discussion if board members think their statements will become public fodder. It's unquestionably wrong for corporate directors to use the media to vent their disapproval of, or disagreement with, various corporate initiatives. Harvey L. Pitt, Looking for Leaks in All the Wrong Places, FORBES. COM, Sept. 19, 2006, http://www.forbes.eom/leadership/2006/09/l 9/leadership-pitt-hp-lead-govern-cx- hc-0919-pitt.html (arguing that Dunn should have sought to minimize risk of future leaks by increasing board's collegiality). See also Simon A. Rodell, Note, Plumbing in the Board Room; Plugging Boardroom Leaks Through a Good Faith Duty of Confidentiality, 59 FLA. L. REV. 631, 646 (2007) (arguing for a director "duty of confidentiality" in part because media leaks "manipulate boardroom actions").
70. Pitt suggests that Dunn could have asked all directors, "at a face-to-face meeting, to make their telephone and e-mail records available to a third party investigator." Pitt, supra note 62. Had several directors refused on principle to provide such information, however, the investigation would have proceeded no further. Moreover, Pitt's direct-confrontation method would not prevent a director from handing over incomplete information (i.e., telephone records for one phone line, without disclosing the existence of another). For a discussion of other deceptive, but legal practices, that HP's investigators could have employed, see Daniel Fisher, Get Hunt and Liddy on the Phone, FORBES. COM, Oct. 2, 2006, http://www.forbes.com/forbes/2006/1002/040.html.
71. Hurd described the operation as a "rogue investigation" that went against the company's "values." Hearing, supra note 2, at 728 (testimony of Mark Hurd, President, Chief Executive Officer, and Chairman of the Board, Hewlett-Packard Co.).
72. The criminal liability of corporate entities has been well debated. See Jennifer Arlen and Reinier Kraakman, Controlling Corporate Misconduct: An Analysis of Corporate Liability Regimes, 72 N. Y. U L. REV. 687 (1997);
73. Daniel R. Fischel and Alan O. Sykes, Corporate Crime, 25 J. LEGAL STUD. 319 (1996) (questioning the imposition of corporate criminal liability);
74. Andrew Weissmann with David Newman, Rethinking Criminal Corporate Liability, 82 IND. L. J. 411 (2007) (arguing for duty based liability).
75. "I take the phrase 'governance' to mean the collection of law and practice that regulates the conduct of those in control of a business organization. " Lawrence A. Cunningham, Comparative Corporate Governance and Pedagogy, 34 GA. L. REV. 721, 722 (2000).
76. ADOLF A. BERLE, JR. and GARDINER C. MEANS, THE MODERN CORPORATION and PRIVATE PROPERTY (1932).
77. See DEL. CODE ANN. tit. 8, § 141 (a) (2006).
78. Stone ex rel. AmSouth Bancorp, v. Ritter, 911 A.2d 362 (Del. 2006).
79. Every theory of corporate governance is, at heart, a theory of power. In this view, the corporation is a nexus of power relationships beyond being a nexus of contracts. The corporate setting is rife with agency relationships in which certain parties have the ability (power) to unilaterally affect the interests of other parties notwithstanding preexisting contractual arrangements. Amir N. Licht, The Maximands of Corporate Governance: A Theory of Values and Cognitive Style, 29 DEL. J. CORP. L. 649, 653 (2004).
80. The basic and simple notion is that if a country's legal regime provides more investor protection, investors will be more willing to invest. That willingness will, in turn, translate into: companies being able to raise more money, more quickly and cheaply; into deeper and more liquid capital markets; and ultimately into economic growth. Robert A. Prentice and David B. Spence, Sarbanes-Oxley As Quack Corporate Governance: How Wise is the Received Wisdom, 95 GEO. L. J. 1843, 1861 (2007).
81. Id. at 1858-59 (arguing "that capital markets are improved by vigorous securities regulation featuring mandatory disclosure requirements, insider trading prohibitions, strong public enforcement, and provision of private remedies for defrauded investors").
82. Larry E. Ribstein, Market vs. Regulatory Responses to Corporate Fraud: A Critique of the Sarbanes-Oxley Act of 2002, 28 J. CORP. L. 1 (2002).
83. FRANK H. EASTERBROOK and DANIEL R. FISCHEL, THE ECONOMIC STRUCTURE of CORPORATE Law (1991).
84. Dodge v. Ford Motor Co., 170 N. W. 668, 684 (Mich. 1919). For an argument that Dodge did not stand for such a broad rule, see Blair and Stout, supra note 12 at 301-02 (arguing that court's decision reflected special duties shareholders owe each other in close corporations).
85. See, e.g., Henry N. Butler and Larry E. Ribstein, THE SARBANES-OXLEY DEBACLE: WHAT WE'VE LEARNED; HOW TO FIX IT (2006);
86. Roberta Romano, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance, 114 YALE L. J. 1521 (2005).
87. For debates over regulation versus private ordering, see Romano, supra note 76; Butler and Ribstein, supra note 76. For discussions of state versus federal regulation of corporations, see Marcel Kahan and Edward Rock, Symbiotic Federalism and the Structure of Corporate Law, 58 VAND. L. REV. 1573 (2005);
88. Roberta S. Karmel, Realizing the Dream of William O. Douglas-The Securities and Exchange Commission Takes Charge of Corporate Governance, 30 DEL. J. CORP LAW. 79 (2005) ("The SEC's new activism with respect to corporate governance can thus be analyzed as the latest maneuver in a long running battle between federal and state authorities over the regulation of public corporations.").
89. The Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745 (codified as amended in scattered sections of 11, 15, 18, 28, and 29 U. S. C.).
90. "[W]histleblower statutes, Department of Justice policies, Securities and Exchange Commission rules, U. S. Sentencing Guidelines, and American Bar Association ethical rules for attorneys... mean that more corporate wrongdoing will come to law enforcement's attention. " Pamela H. Bucy, Why Punish?: Trends in Corporate Criminal Prosecutions, 44 AM. CRIM. L. REV. 1287, 1287 (2007).
91. "[Sarbox]'s corporate governance provisions were aimed at restoring faith in the capital markets by protecting investors, primarily by improving the accuracy and reliability of financial reporting and by preventing corporate frauds." Prentice and Spence, supra note 71, at 1868.
92. See Elletta Sangrey Callahan, Terry Morehead Dworkin, Timothy L. Fort and Cindy A. Schipani, Integrating Trends in Whistleblowing and Corporate Governance: Promoting Organizational Effectiveness, Societ al. Responsibility, and Employee Empowerment, 40 AM. BUS. L. J. 177, 179 (2002).
93. Id. See also William Arthur Wines and J. Brooke Hamilton III, Observations on the Need to Redesign Organizations and to Refocus Corporation Law to Promote Ethical Behavior and Discourage Illegal Conduct, 29 DEL. J. CORP. L. 43, 78-79 ("[T]he modern publicly traded corporation cannot be explained by the classical model of property and contract. Such corporations should be treated as the distinct creatures they are.").
94. The term "norm" has been defined generally as a practice that people follow regardless of the existence of a formal rule or regulation demanding such conduct.
95. See Edward B. Rock and Michael L. Wachter, Norms and Corporate Law, 149 U. PA. L. REV. 1607 (2001) (norms "represent those behavioral rules and standards that are primarily, if not exclusively, enforced by the parties themselves"). Others have attempted to categorize norms.
96. See, e.g., Melvin A. Eisenberg, Corporate Law and Social Norms, 99 COLUM. L. REV. 1253 (1999) (describing three categories of norms: behavioral, customary and obligatory);
97. Michael P. Vandenbergh, Beyond Elegance: A Testable Typology of Social Norms in Corporate Environmental Compliance, 22 STAN. ENVTL. L. J. 55 (2003) (describing various substantive and procedural norms).
98. See Douglas M. Branson, Teaching Comparative Corporate Governance: The Significance of "Soft Law" and International Institutions, 34 GA. L. REV. 669, 670 (2000) (theorizing that "[s]elf- regulation, peer pressure from within the national or international director fraternity, and a stronger, more universal sense of what business ethics require may have the potential to become strong determinants of director and executive behavior").
99. Lynne L. Dallas, A Preliminary Inquiry into the Responsibility of Corporations and their Officers and Directors for Corporate Climate: The Psychology of Enron's Demise, 35 RUTGERS L. J. 1, 3 (2003).
100. Id.
101. For a more skeptical view of how norms function in corporate governance, see Marcel Kahan, The Limited Significance of Norms for Corporate Governance, 149 U. PA. L. REV. 1869 (2001).
102. See Milton C. Regan, Jr., Moral Intuitions and Organizational Culture, 51 ST. LOUIS U. L. J 941, 970-79 (2007) (focusing on the organization's relationship with its employees and how that relationship effects compliance). Larry Cata Backer, Surveillance and Control: Privatizing and Nationalizing Corporate Monitoring After Sarbanes-Oxley, 2004 MICH. ST. L. REV. 327, 370-71 (2004).
103. See David Hess, Robert S. McWhorter and Timothy L. Fort, The 2004 Amendments to the Federal Sentencing Guidelines and Their Implicit Call for a Symbiotic Integration of Business Ethics, 11 FORDHAM J. CORP. and FIN. L. 725, 747 (2005) (organizations seeking more ethical cultures must foster "three related but distinct kinds of trust" among employees). According to Hess et al., compliance exists when employees harbor Hard Conviction, Real Confidence, and Good faith. Id. Hard Conviction is the "trust" that results from strong laws that deter the rational employee from engaging in wrongdoing. Id. Real Confidence "is about people living up to the promises they made, being honest, treating others fairly, and producing products and services that are of high enough quality to satisfy customers." Id. at 749. Finally, Good Faith is an intrinsic "passion" to do more than is required in order to achieve a type of "moral excellence." Id. at 752. "To inspire individuals to do more than they are required by duty to do, organizations should aim to create job satisfaction for employees, to provide good leadership, and to be perceived as achieving justice within the organization. "Id.
104. Id. See also Amitai Etzioni, Social Norms: Internalization, Persuasion, and History, 34 LAW and SOC'Y REV. 157, 163 (2000) (explaining that social norms shape conduct not merely as an additional cost or benefit, but also by "ensuring that certain preferences will never be formed in the first place, while others will be strongly held"). A norm that is merely an additional external cost (reputational sanctions that accompany jail sentences, for example) is an " environmental" norm that employees will ignore when the likelihood of detection is low. "Intrinsic" norms, by contrast, create compliance regardless of the likelihood of detection because "adherence is a source of intrinsic affirmation. " Id.
105. For a discussion of the corporate lawyer's role in generating and maintaining ethical norms within the corporation, see generally Sarah Helene Duggin, The Pivotal Role of the General Counsel in Promoting Corporate Integrity and Professional Responsibility, 51 ST. LOUIS U. L. J. 989 (2007).
106. See ROBERT JACKALL, MORAL MAZES: THE WORLD OF CORPORATE MANAGERS (1988);
107. Linda Klebe Trevino, Out of Touch: The CEO's Role in Corporate Misbehavior, 70 BROOK. L. REV 1195, 1201-02 (2005).
108. See Etzioni, supra note 90, at 164 ("compliance, when based on intrinsic forces such as guilt is less costly and more stable than that based on extrinsic forces such as shame") (citing Dan M. Kalian, Social Influence, Social Meaning, and Deterrence, 83 VA. L. REV. 349 (1997)).
109. See also TOM R. TYLER, WHY PEOPLE OBEY THE LAW (1990);
110. Donald C. Langevoort, The Social Construction of Sarbanes-Oxley, 105 MICH. L. REV. 1817, 1818 (2007) (arguing that "compliance decisions are based at least as much on the perceived legitimacy of the law and prevailing norms in local context as any deliberate risk calculation").
111. Raymond Paternoster and Sally Simpson, Sanction Threats and Appeals to Morality: Testing a Rational Choice Model of Corporate Crime, 30 LAW and SOC'Y REV. 549, 554 (1996) (empirical study of social norms' deterrent effect on crime);
112. David A. Skeel, Jr., Shaming in Corporate Law, 149 U. PA. L. REV. 1811, 1862 (2001). For an argument that enforcement supplements normative appeals for compliance, see Leandra Lederman, The Interplay between Norms and Enforcement in Tax Compliance, 64 OHIO ST. L. J. 1453, 1462 (2003).
113. Richard E. Moberly, Sarbanes-Oxley's Structural Model to Encourage Corporate Whistleblowers, 2006 BYU L. Rev. 1107, 1111 (2006).
114. See Cynthia Estlund, Rebuilding the Law of the Workplace in an Era of Self-Regulation, 105 COLUM. L. REV. 319, 374-75 (2005) (praising Sarbanes-Oxley, particularly its whistleblowing provisions, as a means of increasing "employee voice");
115. Richard C. Reuben, Democracy and Dispute Resolution: Systems Design and the New Workplace, 10 HARV. NEGOT. L. REV. 11, 14 (2005) (suggesting that the "democratic character of dispute resolution at the governance level" may help transform corporations into more democratic workplaces for rank-and-file employees).
116. Callahan et al., refer to their model as "Business as a Mediating Institution" or "BMI." Like quality management, which strives to address problems before they become unmanageable, BMI anticipates that organizations will create opportunities for employees to join structured, problem-solving groups that empower individuals to share insights to address issues or, better yet, resolve them before they become dilemmas requiring a response from upper management. Such open, participatory problem solving by those most directly affected by an issue also reduces the likelihood of crises that might lead to external whistleblowing. Callahan et al., supra note 81, at 186.
117. I use the term "compliance" because that term has become the common phrase. See Corporate Compliance Survey, supra note 6. Some scholars, most notably Lynn Sharp Paine, have criticized organizations whose self-regulatory programs seek "compliance" over "integrity" as a means of deterring wrongful conduct. See Lynn Sharp Paine, Managing for Organizational Integrity, HARV. BUS. REV, Mar.-Apr. 1994, at 106. My use of the term is broader and intended to be value-neutral.
118. Callahan et al., supra note 81, at 186.
119. Id. at 195-96. See also Dallas, supra note 85 at 33 (praising confidential employee reporting hotlines);
120. Moberly, supra note 95, at 1152 (increased opportunities for whistleblowing can improve overall decision-making).
121. See Dallas, supra note 85 at 34 (stating that "ethical behavior should be rewarded and unethical behavior punished");
122. Regan, supra note 88, at 974 ("Virtually any program, of course, needs to have sanctions available to penalize wrongdoers.").
123. "[In a values-based compliance program] sanctions are likely to be regarded as a means of reinforcing a cooperative scheme by ensuring that individuals do not exploit the willingness of others to cooperate." Regan, supra note 88, at 974. "Leaders should model ethical behavior. They should, for example, be truthful with the organization's stakeholders." Dallas, supra note 85, at 56.
124. See Regan, supra note 88, at 975 (citing Tom R. Tyler, Promoting Employee Policy Adherence and Rule Following in Work Settings: The Value of Self-Regulatory Approaches, 70 BROOK. L. REV. 1287, 1291-92 (2005)) (arguing that procedural-justice judgments are central to shaping employee cooperative behavior).
125. "Perhaps surprisingly, the two literatures have coexisted up to this point with few attempts made to combine their insights." N. Craig Smith, Sally S. Simpson and Chun-Yao Huang, Why Managers Fail to Do the Right Thing:
126. See Gary S. Becker, Crime and Punishment: An Economic Approach, 76 J. POL. ECON. 169 (1968). "Deterrence theory assumes that human behavior is reasoned and governed by free will and that persons will choose to be lawful if the pain associated with offending is greater than the pleasure it may bring." Smith et al., supra note 104, at 635 (citing CESARE BECCARIA, ON CRIMES AND PUNISHMENTS (Henry Paolucci trans., Macmillan 1963) (1764).
127. John T. Scholz, Voluntary Compliance and Regulatory Enforcement, 6 LAW and POL'Y 385, 395-96 (1984).
128. Regan, supra note 88, at 970-71 (distinguishing between compliance programs "based solely on promulgation and enforcement of rules and those that include what has been described as a values- based component").
129. Id. at 944 ("A growing body of research suggests that a large portion of this process involves automatic non-conscious cognitive and emotional reactions rather than conscious deliberation. ").
130. Smith et al., supra note 104, at 637 ("The limited evidence from the corporate crime literature indicates that formal legal sanctions may deter offending, but not for everyone.").
131. Paine, supra note 98, at 110-11; Regan, supra note 88, at 972 (arguing that effective compliance programs will combine aspects of both "values- and deterrence-based" approaches).
132. See, e.g., ROBERT C. ELLICKSON, ORDER WITHOUT LAW (2005);
133. TOM TYLER, WHY PEOPLE OBEY THE LAW (1990).
134. ERIC a. POSNER, LAW AND SOCIAL NORMS (2000).
135. See Dan M. Kahan, The Logic of Reciprocity: Trust, Collective Action, and Law, 102 MICH. L. REV. 71 (2003);
136. Dan M. Kahan, Reciprocity, Collective Action, and Community Policing, 90 CAL. L. REV. 1513 (2002).
137. See supra note 113. See also Regan, supra note 88 at 972-73 (arguing that an organization stressing values inspires greater sense of identification and cooperation from its employees).
138. Kahan's theory presumes, nevertheless, a rational cost-benefit calculus, albeit over a period of time. The individual in Kahan's world cooperates because he presumes others will cooperate and that he will be enriched by mutual cooperation. See Kahan, The Logic of Reciprocity: Trust, Collective Action, and Law, supra note 113, at 72. Kahan's notion of reciprocity is therefore different from other normative theories, wherein individuals engage or forbear in specified conduct regardless of perceived collective or individual benefits.
139. Indeed, Paternoster and Simpson's 1996 experimental study of corporate crime suggests that norms matter in restraining corporate crime at least as much as pure deterrence strategies. See Paternoster and Simpson, supra note 94, at 571 (finding that informal sanctions were likely to deter misconduct in corporate settings).
140. See Regan, supra note 88, at 975 (citing Tyler, supra note 103, at 1304).
141. The checks and balances that we thought would be provided by independent directors, independent auditors, securities analysts, investment bankers, and... lawyers, too often failed. The regulatory checks represented by the SEC and federal and state legal constraints also proved inadequate, in meaningful part... because of scarce resources and overly protective case law and legislation. Harvey J. Goldschmid, SEC Commissioner, Keynote Address at Fordham University School of Law A. A. Sommer, Jr. Annual Lecture on Corporate Securities and Financial Law: Post-Enron America: An SEC Perspective (Dec. 2, 2002), in 8 FORDHAM J. CORP. and FIN. L. 335, 343 (2003).
142. See John C. Coffee, Jr., Gatekeeper Failure and Reform: The Challenge of Fashioning Relevant Reforms, 84 B. U. L. REV. 301, 302 (2004) ("[D]uring the late 1990s, [gatekeeping] protections seemingly failed, and a unique concentration of financial scandals followed, all involving the common denominator of accounting irregularities." (citations omitted)).
143. See Elizabeth F. Brown, E Pluribus Unum-Out of Many, One: Why the United States Needs a Single Financial Services Agency, 14 U. MIAMI BUS. L. REV. 1, 51-52 (2005) ("Congress used its control over the SEC's budget in the 1990s to hinder the agency's efforts to enforce the existing securities regulations and to discourage the agency from proposing new, more stringent regulations to protect investors. In response to the public outcry over the Enron and WorldCom scandals, Congress reversed itself and increased the SEC's budget almost 33 percent to $716 million in 2003, from the $540 million that it received in 2002.") (citing Stephan Taub, SEC Boosting Big-Company Caseload, CFO. COM, Mar. 9, 2004, http://www.cfo.com/article.cfm/3012481?f=advancesearch);
144. Karmel, supra note 77, at 99 (describing Congress' denial of the SEC's budget request in the 1990's).
145. Richard W. Stevenson and Richard A. Oppel, Jr., Corporate Conduct: The Overview: Fed Chief Blames Corporate Greed; House Revises Bill, N. Y. TIMES, July 17, 2002, at A1.
146. President George W. Bush, Remarks on Corporate Crime (July 9, 2002) (transcript available at http://www.cbsnews.com/stories/2002/07/09/ national/main514592.shtml).
147. See Stephen M. Bainbridge and Christina J. Johnson, Managerialism, Legal Ethics, and Sarbanes-Oxley Section 307, 2004 MICH. ST. L. REV. 299, 304-06 (2004) (describing provisions in the Act designed to shift power from management to independent directors).
148. Bucy, supra note 79, at 1291 ("[Sarbanes-Oxley] affected corporate culture by requiring public companies to review their internal controls and disclose all material weaknesses in their financial reporting systems.").
149. Sarbanes-Oxley Act of 2002 § 406, 15 U. S. C. § 7264 (2006). Given the fact that Enron, Tyco, and WorldCom all maintained codes of conduct prior to the disclosure of their respective scandals, one might reasonably wonder as to Section 406's value in reducing fraud.
150. Sarbanes-Oxley Act of 2002 §302, 15 U. S. C. § 78j-l (2006) (requiring establishment of "procedures for... the confidential, anonymous submission by employees... of concerns regarding questionable accounting or auditing matters"). Section 806 protects any employee who assists in an internal or external investigation from adverse action. Sarbanes-Oxley Act of 2002 § 806, 18 U. S. C. 1514A (2006) (providing civil liability for employers who ret al.iate against whistleblower employees)
151. U. S. C. A. 1513 (e) (2008) (criminalizing ret al.iation against whistleblowers, explicitly including termination of employment).
152. Sarbanes-Oxley Act of 2002 § 404, 15 U. S. C. § 7262 (2000).
153. One might argue that the 1977 Foreign Corrupt Practices Act ("FCPA"), which required public corporations to maintain a set of internal accounting controls, gave birth to the modern corporate compliance industry. See 15 U. S. C. § 78m (b) (2) (A) - (B) (2006) (requiring companies registered with SEC to keep records and system of internal accounting controls). Corporate Compliance Survey, supra note 6, at 1760 (citing insider trading and defense contractor scandals along with FCPA).
154. Although the Delaware Supreme Court initially resisted a requirement that directors "install and operate a corporate system of espionage to ferret out wrongdoing which they have no reason to suspect exists, " Graham v. Allis-Chalmers Manufacturing Company, 188 A.2d 125, 130 (Del. 1963), the compliance language contained in the Organizational Sentencing Guidelines and the increasing risk of entity-level prosecutions eventually brought about a change of heart. See In re Caremark Int'l Inc. Derivative Litig., 698 A.2d 959, 971 (Del. Ch. 1996) (directors acting "in good faith" ought to at least ensure that a system of internal controls "exists");
155. Stone ex rel. AmSouth Bancorp, v. Ritter, 911 A.2d 362, 370 (Del. 2006) (confirming that boards retain an obligation to oversee the company's compliance with the law).
156. "Sarbanes-Oxley attempts to improve organizational ethics by defining a code of ethics as including the promotion of 'honest and ethical conduct, ' requiring disclosure on the codes that apply to senior financial officers, and including provisions to encourage whistleblowing." David Hess, A Business Ethics Perspective on Sarbanes-Oxley and the Organizational Sentencing Guidelines, 105 MICH. L. REV. 1781, 1782-83 (2007) (citations omitted).
157. The DOJ has since superseded the Thompson Memorandum with the McNulty Memorandum. See McNulty Memorandum, supra note 8.
158. See, e.g., Callahan et al., supra note 81 at 191 (praising Sentencing Guidelines' "carrot and stick" approach toward corporate compliance);
159. Hess, supra note 130, at 1816 (arguing that as a result of Sarbox and the Sentencing Guidelines, "we are moving in the direction of improving corporate compliance programs and encouraging the managerial commitment necessary for firms to develop ethical corporate cultures");
160. Hess et al., supra note 89, at 764 ("We believe that the Guidelines can serve an additional, broader purpose-that is, supporting the components of trust we identified as Hard Conviction, Real Confidence, and Good Faith.").
161. Langevoort, supra note 93, at 1831.
162. Board members, typified by Enron's lackadaisical board, were key among those whom lawmakers presumed needed stronger incentives to prevent wrongdoing. See Troy A. Paredes, Enron: The Board, Corporate Governance and Some Thoughts on the Role of Congress, in ENRON: CORPORATE FIASCOS and THEIR IMPLICATIONS 504 (Nancy B. Rappaport and Bala G. Dharan eds., 2004) ("Whether or not any Enron director violated his or her fiduciary duties or engaged in fraud, the board's conduct fell far short of what is expected and what is required for good corporate governance.").
163. See ETHICS RESOURCE CENTER, NATIONAL BUSINESS ETHICS SURVEY 25 (2007), http://www.corporatecompliance.org/Content/NavigationMenu/Resources/Surveys/ 2007NationalBusine ssEthicsSurvey.pdf ("Despite remedies available, businesses in the U. S. face an ethics risk at pre-Enron levels.");
164. PRICEWATERHOUSECOOPERS, GLOBAL ECONOMIC CRIME SURVEY 15 (2007), http://www.pwc.com/extweb/ pwcpublications.nsf/docid/lE0890149345149E8525737000705AFl/$file /PwC-2007GECS.pdf ("Fraud remains an intractable problem.... The results of this research have shown that the controls that have been implemented will not be sufficient to mitigate the risk of economic crime on their own. "). Despite the survey evidence that fraud persists, the Corporate Fraud Task Force's prosecutions have decreased in recent years.
165. See Daphne Eviatar, Case Closed?, AM. LAW. COM, Nov. 1, 2007, http://www.law.com/jsp/tal/PubArticleTAL.jsp?hubtype= Inside&id= 11937350 22055. The DOJ's explanation for the decrease is that "fraud is being detected by corporations themselves." Id. This seems quite unlikely; if corporations were "themselves" detecting fraud, they presumably would be reporting such fraud to government regulators and prosecutors. The more likely explanation is that the government has, after a period of intense media interest, turned its resources elsewhere.
166. See Backer, supra note 88. One might argue that this increase was merely one aspect of the Bush administration's general approach to increasing executive power. See John S. Baker, Jr., Reforming Corporations Through Threats of Federal Prosecution, 89 CORNELL L. REV. 310, 348 (2004) (noting that the DOJ's response to corporate crime emerged at the same time as the Bush administration's response to terrorism).
167. The panopticon was Jeremy Bentham's idea of a circular prison whose prisoners know they are surveilled at all times. JEREMY BENTHAM, THE PANOPTICON WRITINGS 29-95 (Miran Bozovic ed., Verso, 1995), available at http://cartome.org/ panopticon2.htm.
168. Backer, supra note 88, at 345.
169. See id. ("With [Sarbox], the SEC can more effectively control and process information through its web of deputies, especially whistle-blowing employees, officers faced with certification requirements, outside directors with fiduciary duties, auditor and outside counsel with detect and report obligations.").
170. McNulty Memorandum, supra note 8, at 2.
171. See Arlen and Kraakman, supra note 65, at 708. See also Jennifer Arlen, The Potentially Perverse Effects of Corporate Criminal Liability, 23 J. LEGAL STUD. 833 (1994).
172. Arlen and Kraakman, supra note 65, at 694.
173. See Christopher A. Wray and Robert K. Hur, The Power of the Corporate Charging Decision Over Corporate Conduct, 116 YALE L. J. POCKET PART 306 (Mar. 20, 2007) ("[T]he initial threat of corporate criminal charges has far broader and deeper effects on American businesses' behavior than does the prospect of sentencing itself.").
174. See Miriam Hechler Baer, Insuring Corporate Crime, 83 Ind. L. J. 1035 (2008).
175. Thompson Memorandum, supra note 8, at ¶ 3.
176. The Filip Memorandum states that the Department has no "formulaic requirements" for corporate compliance programs. Filip Memorandum, supra note 8, at 15. The previous iteration of the memorandum stated that the DOJ had no "formal guidelines" for such programs. McNulty Memorandum, supra note 8, at 14.
177. Superiors do not like to give detailed instructions to subordinates. The official reason for this is to maximize subordinates' autonomy. The underlying reason is, first, to get rid of tedious details.... Perhaps more important, pushing details down protects the privilege of authority to declare that a mistake has been made. JACKALL, supra note 92, at 20.
178. See Backer, supra note 88, at 345 ("[T]he state maintains a great capacity for surveillance through the use of its power to extract 'cooperation' from the 'observed' corporation. ");
179. Michael A. Simons, Vicarious Snitching: Crime, Cooperation and "Good Corporate Citizenship, " 76 ST. JOHN'S L. REV. 979, 980 (2002) (observing that prosecutors define "good corporate citizens" as "cooperating fully in any investigation").
180. During the investigation of KPMG's employees, prosecutors urged KPMG's lawyers to tell their employees to be completely "open" during interviews with government agents because these statements would provide "good material for cross-examination, " United States v. Stein, 440 F. Supp. 2d 315, 321 (S. D. N. Y. 2006) (Stein II), and to de-emphasize, in company communications, the employees' right to counsel "to increase the chances that KPMG employees would agree to interviews without consulting or being represented by counsel." United States v. Stein, 435 F. Supp. 2d 330, 347 (S. D. N. Y. 2006) (Stein I).
181. In the wake of the KPMG debacle, the McNulty Memorandum attempted to place internal controls over the manner by which prosecutors could request waivers by corporations.
182. See McNulty Memorandum, supra note 8, at 8-11. It was superseded in August 2008 by the Filip Memorandum, which discarded the McNulty framework in favor of an inquiry as to whether the corporation has provided "relevant facts" to the government in the course of its investigation. See Filip Memorandum, supra note 8, at 9-12. The waiver of the corporation's attorney-client privilege in corporate investigations and its chilling effect on employee communication has been discussed at length. See, e.g., Griffin, supra note 7, at 347 (arguing that corporate waiver of privilege has placed corporate counsel in "an untenable position" with employees);
183. David M. Zornow and Keith D. Krakaur, On the Brink of a Brave New World: The Death of Privilege in Corporate Criminal Investigations, 37 AM. CRIM. L. REV. 147, 153-55 (2000).
184. Stein I, 435 F. Supp. 2d at 344.
185. Stein II, 440 F. Supp. 2d at 318. Deputy Attorney General Filip has since stated that prosecutors "will no longer consider whether the corporation has retained or sanctioned employees in evaluating [the defendant corporation's] cooperation" but that the government will continue to consider retention of such employees in evaluating the corporation's compliance program. See Letter from Deputy Attorney General Mark Filip to Senators Patrick J. Leahy and Arlen Specter, July 9, 2008, available at https://www.abanet.org/litigation/committees/criminal/docs/0708-filipletter.pdf.
186. Bristol Myer Squibb's agreement, for example, explicitly discusses the role of its monitor as a conduit to the United States Attorneys' Office. See Richard S. Gruner, Three Painful Lessons: Corporate Experience with Deferred Prosecution Agreements, 1623 Prac. L. Inst./Corp. 51, 66 (2007).
187. For example, AOL's deferred prosecution agreement promises that none of AOL's agents or employees will make, [A]ny public statement... contradicting any statement of fact set forth in the Statement of Facts [in this agreement]. Any such willful, knowing and material contradictory public statement... shall constitute a breach of this Agreement, and AOL thereafter would be subject to prosecution as set forth in paragraph 17 of this Agreement. The decision of whether any public statement by any such person... has breached this Agreement shall be at the sole reasonable discretion of the Department of Justice. Id.
188. See Stein I, 435 F. Supp. 2d at 362-65 (criticizing the Thompson Memorandum);
189. Stein II, 440 F. Supp. 2d at 319 (suppressing statements by KPMG employees because they believed they would be fired by KPMG unless they spoke with government agents);
190. United States v. Stein, 488 F. Supp. 2d 350 (S. D. N. Y 2007) (Stein III) (finding that the government's conduct as a whole violated the KMPG defendants' 5th and 6th Amendment rights).
191. As one of the former prosecutors of Bernie Ebbers explained, "[W]hether the company really intends it or not, in the government's view, the ultimate purpose of its role is to help the government convict its former employees." David Anders, Criminalization of Corporate Law, 2 J. BUS. and TECH. L. 71, 72 (2006).
192. Hess et al., supra note 89, at 750.
193. See Regan, supra note 88, at 974 (contending that a combination of value-based and deterrence-based programs best achieve overall compliance goals, although deterrence should not predominate).
194. "Too much control through monitoring and punishment can lead to distrust... as well as to a reduction in intrinsic motivations (and the notion of Good Faith)." Hess et al., supra note 89, at 757.
195. See, e.g., Roberta Romano, The Sarbanes-Oxley Act and the Making of Quack Corporate Governance, 114 YALE L. J. 1521 (2005). See also Lawrence A. Cunningham, The Sarbanes-Oxley Yawn: Heavy Rhetoric, Light Reform (And it Just Might Work), 35 CONN. L. REV. 915 (2003) (agreeing that Sarbox is an unruly combo of multiple policies and requirements).
196. See, e.g., William W. Bratton, Enron, Sarbanes-Oxley and Accounting: Rules Versus Principles Versus Rents, 48 VILL. L. REV. 1023 (2003);
197. John C. Coffee, Jr., Understanding Enron: "It's About the Gatekeepers, Stupid, " 57 BUS. LAW. 1403 (2002);
198. Jeffrey N. Gordon, Governance Failures of the Enron Board and the New Information Order of Sarbanes-Oxley, 35 CONN. L. REV. 1125 (2003).
199. See Hess, supra note 130, at 1782.
200. Daniel T. Otsas, When Fraud Pays: Executive Self-Dealing and the Failure of Self-Restraint, 44 AM. BUS. L. J. 571 (2007).
201. Prosecutors routinely issue subpoenas on behalf of the grand juries and direct the course of the "grand jury's" investigation. "As a practical matter, grand jury subpoenas are almost universally issued by and through federal prosecutors." Stern v. U. S. Dist. Court, 214 F.3d 4, 16 n. 4 (1st Cir. 2000) (citation omitted).
202. Alan Feuer and Al Baker, Officers' Arrests Put Spotlight on Police Use of Informants, N. Y. TIMES, Jan. 27, 2008, at A25 (FBI maintains 15, 000 informants and DEA maintains approximately 4, 000).
203. Id.
204. Stephanos Bibas, Transparency and Participation in Criminal Procedure, 81 N. Y. U. L. REV. 911, 932 (2006).
205. Professor Katyal has explained in detail how the broad doctrine of conspiracy aids law enforcement in extracting information from defendants seeking to reduce potential prison sentences. See Neal Kumar Katyal, Conspiracy Theory, 112 YALE L. J. 1307, 1328 (2003).
206. The Sixth Circuit reinstated the conviction of a defendant whose confession was obtained during a police interrogation in which the police falsely informed a defendant accused of kidnapping and robbery that the defendant's fingerprints had been found on the victim's van, that she had identified him from a photographic array, and that she was waiting outside the interrogation room, "prepared to identify the assailant." Ledbetter v. Edwards, 35 F.3d 1062, 1070 (6th Cir. 1994) ("[the defendant's] confession was obtained by means of legitimate law-enforcement methods that withstand constitutional scrutiny").
207. Once the target has become a criminal defendant whose Sixth Amendment right has attached, the government must tread more carefully with its use of co-conspirators and undercover agents. See generally Maine v. Moulton, 474 U. S. 159, 178-80 (1985) (government cannot exploit co-conspirator's meetings with indicted defendant, but may use evidence collected in undercover capacity in prosecution for crimes not the subject of indictment).
208. "The use of undercover techniques... is essential to the detection, prevention, and prosecution of white collar crimes, public corruption, terrorism, organized crime, offenses involving controlled substances, and other priority areas of investigation. " John Ashcroft, Attorney General, The Attorney General's Guidelines on Federal Bureau of Investigation Undercover Operations (May 30, 2002), available at http://www.justice.gov/olp/ fbiundercover.pdf [hereinafter Attorney General's Guidelines]. "In most democracies, political elites, legal actors, and critics agree that undercover investigations are in some sense a necessary evil." Jacqueline E. Ross, The Place of Covert Surveillance in Democratic Societies: A Comparative Study of the United States and Germany, 55 AM. J. COMP. L. 493, 493 (2007). "This technique is a critically effective means of investigating organized, clandestine, sophisticated criminal activity which is not readily susceptible to detection by traditional investigative techniques." Jay B. Stephens, Setting the Sting, Minimizing the Risk. The Government's Case for an Effective Undercover Investigative Technique, 1 CRIM. JUST. 14 (1986-87). See also Saros, supra note 14, at 28 ("[N]o comprehensive law enforcement program could succeed without the effective use of undercover investigations.").
209. See Ross, supra note 171, at 494 (observing that training for federal prosecutors in Illinois includes the following instruction: "Before you subpoena documents; before you call witnesses to the grand jury; before you consider conventional sources of evidence; make sure to exhaust all undercover options first. This should become your mantra."). "The use of undercover techniques is ubiquitous." Bernard W. Bell, Theatrical Investigation: White-Collar Crime, Undercover Operations, and Privacy, 11 WM. and MARY BILL RTS. J. 151, 151 (2002). See also Bennett L. Gershman, The New Prosecutors, 53 U. PITT. L. REV. 393, 396 (1992) ("[O]ver the last twenty years, the scope and variety of undercover activity has surged.").
210. For a discussion of the historical use of undercover agents and informants by police departments and public law enforcement agencies, see John Ortiz Smykla and Henry Hamilton, Guidelines for Police Undercover Work: New Questions About Accreditation and the Emphasis on Procedure over Authorization, 11 JUST. Q. 135, 136-38 (1994).
211. See United States v. White, 401 U. S. 745 (1971). Federal courts consider the telephone or video surveillance conducted in the presence of an undercover agent or informant to be "consensual." Some state laws, however, restrict the ability of law enforcement agents to engage in such recordings. See generally Melanie L. Black Dubis, The Consensual Electronic Surveillance Experiment: State Courts React to United States v. White, 47 VAND. L. REV. 857 (1994).
212. Ross, supra note 171, at 511.
213. Id. at 511. See also Goldwasser, supra note 3.
214. See, e.g., 15 U. S. C. 6821 (c) (2006) (law enforcement agencies excluded from prohibiting deceptive measures used to obtain information from financial institutions).
215. Gershman, supra note 172, at 395-96.
216. See, e.g., Jacobson v. United States, 503 U. S. 540 (1992);
217. United States v. Russell, 411 U. S. 423 (1973).
218. See Attorney General's Guidelines, supra note 171. See also Smykla and Hamilton, supra note 173, at 136-38 (observing deficient and in some cases, nonexistent, guidelines for undercover investigations within local police departments).
219. Although the DOJ previously took the position that federal prosecutors were not subject to state professional rules of responsibility, Congress overturned this judgment with its passage of the McDade Amendment, which prohibits prosecutors and agents from contacting represented defendants, with certain exceptions. See generally Gregory B. LeDonne, Recent Development, Revisiting the McDade Amendment: Finding the Appropriate Solution for the Federal Government Lawyer, 44 HARV. J. ON LEGIS. 232 (2007). For a more general discussion of state law constraints, see Dubis, supra note 174.
220. See Chris William Sanchirico, Detection Avoidance, 81 N. Y. U. L. REV. 1331, 1333 (2006).
221. See Ross, supra note 171, at 510 (citing Heymann's testimony in 1981).
222. See generally Deborah Young, Unnecessary Evil: Police Lying in Interrogations, 28 CONN. L. REV. 425 (1996).
223. Texas Tech Law Review's 2007 Symposium issue contains a number of thoughtful articles addressing the topic of police deception during interrogations. See Symposium, Citizen Ignorance, Police Deception, and the Constitution: A Symposium, 39 TEX. TECH L. REV. 1077 (2007).
224. George C. Thomas III, Regulating Police Deception During Interrogation, 39 TEX. TECH. L. REV. 1293, 1318 (2007) ("Police deception that would leave a suspect feeling hopeless about his chance of avoiding a conviction creates an atmosphere in which a sufficiently attractive offer of leniency can induce an innocent suspect to confess.").
225. See, e.g., Bruce D. Johnson and Mangai Natarajan, Strategies to Avoid Arrest: Crack Sellers' Response to Intensified Policing, 14 AM. J. POLICE 49 (1995).
226. Alternately, he may simply pass those costs onto his customers.
227. See generally Daniel S. Nagin, Criminal Deterrence Research at the Outset of the Twenty- First Century, 23 CRIME and JUST. 1, 5 (1998) ("deterrence is ultimately a perceptual phenomenon").
228. Hay, supra note 15, at 395 (arguing that government uses undercover sting operations "to sow distrust among crooks so that (ideally) every crook is afraid that his confederates or victims are [government] agents"). See also Katyal, supra note 168.
229. See Lawrence E. Mitchell, Structural Holes, CEOs, and Informational Monopolies: The Missing Link in Corporate Governance, 70 BROOK. L. REV. 1313 (2005).
230. See ETHICS RESOURCE CENTER, supra note 135, at 6 (citing the "disconnect" between fear and actual incidence of employer ret al.iation).
231. Id.
232. I am excluding for now those instances in which private law enforcement acts under the control, or at the direct request, of the government.
233. See generally Reginald C. Govan, Workplace Privacy, 729 Prac. L. Inst./Lit. 273 (2005) (describing federal and state limitations on workplace surveillance and searches of employee computers, email, and telephone calls). The common way in which employers avoid the reach of state privacy statutes and common law claims is by expressly warning employees in advance that their computers and email are subject to monitoring. See, e.g., Campbell v. Woodward Photographic, Inc., 433 F. Supp. 2d. 857, 861 n. 4 (N. D. Ohio 2006) (collecting cases).
234. For example, from 1999 through 2003, if a corporation conducted an investigation of an employee with the assistance of an outside firm or investigator, the FTC treated the resulting investigative material as consumer reports under the Federal Credit Reporting Act (FCRA), thereby entitling the companies' employees to advance warning of the investigation and the opportunity to thwart it by "destroy[ing] incriminating evidence and conspir[ing] with coworkers who might also be involved in the fraud or theft to collaborate on their cover stories." Bruce H. Hulme, The FCRA and Corporate Investigations, in CORPORATE INVESTIGATIONS 11 (Reginald J. Montgomery and William J. Majeski eds., 2d ed. 2005).
235. See. e.g., Gibson v. Philip Morris, Inc., 685 N. E.2d 638 (111. App. Ct. 1997) (statements in corporate investigative memorandum sufficiently "published" for purposes of defamation claim). See also Devin M. Ehrlich, Aurora Cassirer and Scott B. Feldman, Truth and Consequences: How to Avoid Employee Claims of Defamation, 24 No. 8 ACC Doc. 36 (2006) (describing conflicting approaches to employee defamation claims over statements made in intracorporate documents created during investigations).
236. Companies who do business outside the United States face even greater uncertainty, for even when their compliance programs follow domestic laws, they still may violate privacy and labor laws in foreign jurisdictions. See generally Marisa Anne Pagnattaro and Ellen R. Peirce, Between a Rock and a Hard Place: The Conflict Between U. S. Corporate Codes of Conduct and European Privacy and Work Laws, 28 BERKELEY J. EMP. and LAB. L. 375 (2007) (detailing instances in which the EU, France and Germany rejected corporate whistleblower provisions on privacy or labor law grounds).
237. Similar observations have been made about corporate accountants: "An accountant does not have subpoena power, nor does an accountant understand how to conduct an investigation.... Unlike the SEC or the Justice Department, accountants cannot compel testimony or offer plea bargains to uncover wrongdoing. Rather, accountants are limited to a few cursory tests for verifying data." Jerry W. Markham, Accountants Make Miserable Policemen: Rethinking the Federal Securities Laws, 28 N. C. J. INT'L L. and COM. REG. 725, 798 (2003).
238. See supra notes 21-22 and accompanying text.
239. "[A] corporation's cooperation may be critical in identifying potentially relevant actors and locating relevant evidence... and in doing so expeditiously." Filip Memorandum, supra note 8, at 7. In a separate section, the Filip Memorandum directs prosecutors to consider if corporations have "appropriately disciplined wrongdoers, once those employees are identified by the corporation as culpable for the misconduct." Id. at 17.
240. Although Filip contended in a letter to Congress that a determination of whether the corporation cooperated in the investigation would no longer be contingent on the corporation's sanction of employees. See Filip Memorandum, supra note 8. Other portions of the Filip Memorandum have kept intact the corporation's incentive to err on the side of employee discipline: In determining whether or not to prosecute a corporation, the government may consider whether the corporation has taken meaningful remedial measures. A corporation's response to misconduct says much about its willingness to ensure that such misconduct does not recur. Thus, corporations that fully recognize the seriousness of their misconduct and accept responsibility for it should be taking steps to implement the personnel, operational, and organizational changes necessary to establish an awareness among employees that criminal conduct will not be tolerated. Filip Memorandum, supra note 8, at 16-17. After conceding that employee discipline may be "difficult" due to the involvement of "the human element, " the Memorandum concludes: Although corporations need to be fair to their employees, they must also be unequivocally committed, at all levels of the corporation, to the highest standards of legal and ethical behavior. Effective internal discipline can be a powerful deterrent against improper behavior by a corporation's employees. Prosecutors should be satisfied that the corporation's focus is on the integrity and credibility of its remedial and disciplinary measures rather than on the protection of the wrongdoers. Id. at 17.
241. See John E. Calfee and Richard Craswell, Some Effects of Uncertainty on Compliance with Legal Standards, 70 VA. L. REV. 965 (1984).
242. In some limited circumstances, after the corporation has disclosed wrongdoing to the government, the government might prefer the corporation to retain the employee while the government conducts its own investigation.
243. Ironically, draconian sanctions may spur more serious crimes because employees have little reason to cease wrongdoing once their conduct is sufficient to trigger their termination. The lack of gradation in sanctions therefore eliminates marginal deterrence. Steven Shavell, Criminal Law and the Optimal Use of Nonmonetary Sanctions as a Deterrent, 85 COLUM. L. REV. 1232, 1245 (1985) (discussing benefits of marginal deterrence).
244. Many have discussed this issue with regard to the corporate attorney-client privilege. See, e.g., Griffin, supra note 7, at 347 ("How does counsel conduct an honest investigation knowing that all uncovered material will likely be ceded to the government?"). Similar information flow problems exist, however, if the corporation is permitted to keep its privilege but required to discipline all wrongdoers.
245. Moreover, the corporation has even fewer carrots or sticks to offer former employees.
246. Of course, innocent "bystander" employees also may come forward and report wrongdoing, particularly with the benefit of an anonymous reporting system. To the extent these employees are "innocent" as defined by law or by the corporation's internal code of ethics, they may lack understanding or knowledge of the material components of an illegal scheme. The corporate investigator therefore may find himself the repository of bits of information that hints at illicit conduct, but without the benefit of an insider's overview.
247. Scholz, supra note 106, at 388.
248. Samuel W. Buell, Criminal Procedure within the Firm, 59 STAN. L. REV. 1613, 1625-26 (2007) (citing Arlen and Kraakman, supra note 65, at 691, 699).
249. Id. at 1626 (footnotes omitted).
250. This indeed is the argument for entity level liability for unintentional wrongs.
251. Buell, supra note 210, at 1625.
252. Sanchirico, supra note 182, at 1337 ("Sanctioning a given species of violation not only discourages that violation, it also encourages those who still commit the violation to expend additional resources avoiding detection. ").
253. Undercover operations and surveillance are widely accepted techniques for investigating clandestine terrorism conspiracies. See Dru Stevenson, Entrapment and Terrorism, 49 B. C. L. REV. 125 (2008).
254. EUOENE FERRARO, UNDERCOVER INVESTIGATIONS IN THE WORKPLACE xiii (2000) (describing justifications and methods for numerous types of undercover investigations).
255. Id. at 27-80 (explaining how to place undercover operative within the corporate organization).
256. See supra notes 195-200 and accompanying text (discussing state and workplace laws that limit incursions on employee privacy).
257. See, e.g., Kevin Brass, Agencies Booming: Firms Hire Detectives to Stem Drug Abuse, L. A. TIMES, Sept. 8, 1987, at 8 (describing rise of undercover workplace investigations to combat suspected drug use among employees).
258. "Companies... keep an eye on e-mail, with 55% retaining and reviewing messages." AM. MGMT. ASS'N and EPOLICY INST., 2005 ELECTRONIC MONITORING and SURVEILLANCE SURVEY 1 (2005), available at http://www.amanet.org/research/pdfs/EMS-sutnmary05.pdf [hereinafter 2005 ELECTRONIC MONITORING SURVEY], Employers may review and intercept emails maintained on the company's server. See Govan, supra note 195, at 336 (citing Eraser v. Nationwide Mut. Ins. Co., 352 F.3d 107 (3d Cir. 2003)). See also Smyth v. Pillsbury Co., 914 F. Supp. 97, 101 (E. D. Pa. 1996) ("[T]he company's interest in preventing inappropriate and unprofessional comments or even illegal activity over its e-mail system outweighs any privacy interest the employee may have in those comments."). See also Ray Lewis, Employee E-Mail Privacy Still Unemployed: What the United States Can Learn from the United Kingdom, 67 LA. L. REV. 959, 965-67 (2007).
259. "When it comes to workplace computer use, employers are primarily concerned about inappropriate Web surfing, with 76% monitoring workers' Website connections." 2005 ELECTRONIC MONITORING SURVEY 1, supra note 220, at 1. See, e.g., United States v. Simons, 206 F.3d 392, 398 (4th Cir. 2000) (holding that employee had no reasonable expectation of privacy in files transferred from Internet on work computer).
260. Martha Neil, New "Big Brother" Software Will Monitor Workers' Facial Expressions, A. B. A. J. L. NEWS NOW, Jan 16, 2008, www.abajournal.com/news/new-big-brother-software-will-mo nitor-workers-facial-expressions.
261. "Employers who use Assisted Global Positioning or Global Positioning Systems satellite technology are in the minority, with only 5% using GPS to monitor cell phones; 8% using GPS to track company vehicles; and 8% using GSP to monitor employee ID/Smartcards." 2005 ELECTRONIC MONITORING SURVEY, supra note 220, at 2. See also Richard Mullins, Tracking Employees, KNIGHT RIDDER TRIB. BUS. NEWS, Jan. 17, 2007, at 1.
262. See AM. MGMT. ASS'N, AMA 2004 WORKPLACE TESTING SURVEY: MEDICAL TESTING 1 (2004), available at http://www.amanet.org/research/ pdfs/Medical-testing-04.pdf ("Nearly 63% of U. S. companies surveyed require medical testing of current employees or new hires."). See, e.g., Slaughter v. John Elway Dodge Southwest/AutoNation, 107 P.3d 1165, 1169 (Colo. App. 2005) (Dismissing suit by individual who was fired for refusing a drug test: "[Plaintiff] has cited, and we are aware of, no federal or Colorado case that has held that the Fourth Amendment gives rise to a public policy regarding the [drug testing] of private individuals and entities.").
263. See, e.g., http://www.google.com / (enter "undercover corporate investigation" in search box; then click "Google Search") (last visited Apr. 10, 2008); http://www.google.com / (enter "undercover workplace investigation" in search box; then click "Google Search") (last visited Apr. 10, 2008).
264. See, e.g., Parrent Smith Investigations, http://www. psinvestigates.com/index.htm (last visited Jan. 22, 2008) (Offering a workshop on "How to Legally and Effectively Use Private Investigators-In the wake of the HP and Pellicano scandals, how to determine if an investigator is using legal and ethical means to handle your case.");
265. American Corporate Security Investigations, Inc., http://acsii.net / (last visited Jan. 22, 2008) (Offering Corporate Investigation and Presentation services);
266. Fraud Resource Group, http://www.fraudresourcegroup. com/Business.html (last visited Jan. 22, 2008) (Offering "Fraud Education and Employee Training" and "General Business Fraud Investigation"). See also Michael Orey, Corporate Snoops, BUSINESS WEEK, Oct. 9, 2006, at 46.
267. The same arguments are often raised in the context of terrorism investigations. See Stevenson, supra note 215, at 126.
268. Emma Schwartz, From Public to Private Employment: Companies Seek Exiting Government Lawyers for Hire, LEGAL TIMES, Aug. 25, 2005 (corporations attempting to demonstrate commitment to compliance by hiring former regulators and government attorneys).
269. See GARY T. MARX, POLICE SURVEILLANCE (1988);
270. George I. Miller, Observations on Police Undercover Work, 25 CRIMINOLOGY 27 (1987).
271. Alexandra Natapoff, Snitching: The Institutional and Communal Consequences, 73 U. CIN. L. REV. 645, 652 (2004).
272. The mutual distrust between African Americans and law enforcement officers makes it less likely that African Americans will report crimes to the police, assist the police in criminal investigations, and participate in community policing programs that lead to greater social control of neighborhoods.... Neighborly distrust leads to greater atomization of African Americans in poor communities, which leads, in turn, to a breakdown in social cohesion in the places where the need for social cohesion is the greatest. Individuals who keep to themselves reduce opportunities for enforcement of law-abiding norms in the community. Tracy L. Meares, It's a Question of Connections, 31 VAL. U. L. REV. 579, 590-91 (1997) (citation omitted) (criticizing police departments' approach to teenage violence and drug use).
273. See generally Natapoff, supra note 230.
274. Jacqueline E. Ross, Tradeoffs in Undercover Investigations: A Comparative Perspective, 69 U. CHI. L. REV. 1501, 1527 (2002) (undercover investigations create "risks of misuse and political targeting"), reviewing UNDERCOVER: POLICE SURVEILLANCE IN COMPARATIVE PERSPECTIVE (Cyrille Fijnaut and Gary T. Marx eds., 1995). "State-sponsored deception... raises all the ethical issues generally associated with deception. " Gary T. Marx, Under-the-Covers Undercover Investigations: Some Reflections on the State's Use of Sex and Deception in Law Enforcement, 11 CRIM. JUST. ETHICS 13, 13 (1992).
275. "When police are permitted to lie in the interrogation context, why should they refrain from lying to judges when applying for warrants, from violating internal police organization rules against lying, or from lying in the courtroom?" Jerome H. Skolnick and Richard A. Leo, The Ethics of Deceptive Interrogation, 11 CRIM JUST. ETHICS 3, 9 (1992).
276. Hay, supra note 15, at 397 (explaining the relationship between undercover agents and targets, "[I]n which the police befriend and employ people who belong behind bars, invites corruption and blackmail, depletes the symbolic value of the law, and sullies the courts who are asked to put their stamp of approval on it" (footnotes omitted)).
277. For a discussion of internal guidelines, see Smykla and Hamilton, supra note 173 (following survey of 100 largest police departments, authors conclude that departmental guidelines tend to stress "procedures" for conducting investigations at the expense of discussing "when" such investigations are appropriate).
278. "[T]he law... gives insufficient incentive to government agents to limit undercover encouragement of crime; the entrapment defense improves matters by removing the law enforcement gain from overzealous or wasteful sting operations." Richard H. McAdams, The Political Economy of Entrapment, 96 J. CRIM. L. and CRIMINOLOGY 107, 165 (2005).
279. See, e.g., MODEL RULES OF PROF'L CONDUCT R. 8.4 (c) (2002) (professional misconduct for an attorney to engage in "dishonesty, fraud, deceit or misrepresentation");
280. MODEL RULES OF PROF'L CONDUCT R. 8.4 (a) (attorney may not violate Professional Rules through another person);
281. MODEL CODE OF PROF'L RESPONSIBILITY DR 1-102 (A) (4) (1980) (a lawyer "shall not" engage in conduct involving "dishonesty, fraud, deceit, or misrepresentation");
282. MODEL CODE OF PROF'L RESPONSIBILITY DR 1-102 (A) (2) (lawyer may not violate rules through "actions of another"). For a discussion of how different jurisdictions have inconsistently applied these rules to private attorneys who supervise covert investigations, see Douglas R. Richmond, Deceptive Lawyering,
283. U. CIN. L. REV. 577, 583-98 (2005) ("lines cannot be confidently drawn in this area; at best, lawyers must evaluate associated risks on a continuum"). By contrast, the law has given prosecutors more leeway in supervising government- initiated covert investigations, although they must avoid contacting represented parties and may not misrepresent their identities "when acting in representational roles." Id. at 593.
284. See also Fred C. Zacharias and Bruce A. Green, The Uniqueness of Federal Prosecutors, 88 GEO. L. J. 207, 232 (2000) ("[C]ountless reported decisions acknowledge the occurrence of surreptitious recording in criminal investigations without questioning its propriety. No disciplinary body has ever sanctioned prosecutors for authorizing undercover officers and informants to gather evidence in this manner." (footnotes omitted)).
285. See Neil Gunningham, Private Ordering, Self-Regulation and Futures Markets: A Comparative Study of Informal Social Control, 13 LAW and POL'Y 297, 297-98 (1991) (describing "potentially crucial role that informal mechanisms of social control... can play in constraining deviance" among futures traders).
286. FERRARO, supra note 216, at 28, 30.
287. Law enforcers have expressed similar notions in the context of criminal investigations. See Ledbetter v. Edwards, 35 F.3d 1062, 1066 (6th Cir. 1994) ("What you try to do is establish a bond of trust between you and the offender.").
288. FERRARO, supra note 216, at 23 (emphasis added).
289. Posner has argued that social norms are reflections of an individual's discount rate. See supra Part II. A.2.
290. "[I]f an individual perceives a rule to be unnecessarily restrictive or perceives that she has been treated unfairly in an enforcement proceeding, the norms of autonomy or fair process may counteract the effects of the norm of law compliance." Michael P. Vandenbergh, Beyond Elegance: A Testable Typology of Social Norms in Corporate Environmental Compliance, 22 STAN. ENVTL. L. J. 55, 82 (2003).
291. Cunningham, supra note 239, at 300.
292. See generally Kahan, Reciprocity, Collective Action, and Community Policing, supra note 113.
293. Dan M. Kahan, Signaling or Reciprocating? A Response to Eric Posner 's Law and Social Norms, 36 U. RICH. L. REV. 367, 379 (2002).
294. See Christopher Heredia, T-Shirts Illustrate Divide: 'Stop Snitchin' Stymies Police Trying to Cut Crime, SAN. FRAN. CHRON., Jan. 28, 2006, at B8; David Kocieniewski, Scared Silent: So Many Crimes, and Reasons not to Cooperate, N. Y. TIMES, Dec. 30, 2007, at 121; Meares, supra note 231, at 590 ("The mutual distrust between African Americans and law enforcement officers makes it less likely that African Americans will report crimes to the police.").
295. "Citizens are more disposed to cooperate with police when institutions enjoy a high level of legitimacy. The perceived legitimacy of an institution, it has been shown, depends largely on whether citizens perceive that they are receiving fair and respectful treatment by police and other decision makers." Kahan, Reciprocity, Collective Action, and Community Policing, supra note 113, at 1525.
296. "When the labor in criminality is divided, criminality is likely to be more effective and to cause greater harm. A crime in an organization therefore may present a greater threat to society than a similar crime committed by an individual outside the organizational setting." Buell, supra note 210, at 1624. See also Katyal, supra note 168 (conspiracy provides both economic and psychological benefits to members of the group, thereby increasing risks of harm to community).
297. Katyal, supra note 168, at 1397.
298. Cf. Dru Stevenson, Entrapment and the Problem of Deterring Police Misconduct, 37 CONN L. REV. 67, 84-85 (2004) (explaining rise of group-oriented crime and consequent need for undercover police operations to counteract power of criminal groups).
299. "Would-be culprits are less likely to break the law when they know that an apparently genuine criminal opportunity may be a police trap. Potential confederates become less trustworthy." Hay, supra note 15, at 394.
300. This is not to say that all group conduct is wonderful. Overly cohesive groups may suffer from "groupthink" and other pathologies. See James Fanto, Whistleblowing and the Public Director: Countering Corporate Inner Circles, 83 OR. L. REV. 435, 446 (2004) (observing that "a cohesive group" can convince itself that its actions are "disinterested even if in reality they are designed to perpetuate the group and enrich its members");
301. Katyal, supra note 168, at 1315-25 (cataloging dangers of group identity).
302. The law protects shareholder investment interests against the uneconomic consequences that the presence of such second-guessing risk would have on director action and shareholder wealth in a number of ways. It authorizes corporations to pay for director and officer liability insurance and authorizes corporate indemnification in a broad range of cases, for example. But the first protection against a threat of sub-optimal risk acceptance is the so-called business judgment rule. Gagliardi v. TriFoods Int'l, Inc., 683 A.2d 1049, 1052 (Del. Ch. 1996).
303. Langevoort, supra note 13, at 309 ("Accountability has its downside: the familiar problems of risk aversion and frustration that stem from the fear that one will be incorrectly second-guessed."). See also Renier H. Kraakman, Corporate Liability Strategies and the Costs of Legal Controls, 93 YALE L. J. 857, 884 n. 78 (1984) (citing overdeterrence costs when managers forego legally risky but beneficial activity due to fear of increased penalties).
304. Langevoort, supra note 93, at 1832.
305. See FERRARO, supra note 216, at 1-16 (describing use of undercover investigations to eliminate drug and alcohol use in workplace settings).
306. See Wray and Hur, supra note 143. Prior to the federal government's response to Enron and related scandals, the Delaware Chancery Court had already signaled the importance of corporate compliance in In Re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996). H. Lowell Brown, The Corporate Director's Compliance Oversight Responsibility in the Post Caremark Era, 26 DEL. J. CORP. L. 1 (2001).
307. Corporate Compliance Survey, supra note 6, at 1787.
308. Id.
309. Part of HP's settlement with the California Attorney General required it to obtain the assistance of Bart Schwartz, a well-known former prosecutor, in redesigning its compliance and ethics program. See News Release, Hewlett-Packard Co., HP Reaches Resolution with California Attorney General of Claims Arising from Board Leak Investigation (Dec. 7, 2006), http://www.hp. com/hpinfo/ne wsroom/press/2006/061207a.html.
310. See, e.g., ETHICS RESOURCE CENTER, supra note 135, at 1 ("More than five years after Enron and other corporate ethics debacles, businesses of all size, type, and ownership show little-if any- meaningful reduction in their enterprise-wide risk of unethical behavior.").
311. Krawiec, supra note 11 (criticizing compliance programs that are cosmetic and erected as a means of evading legal requirements).
312. This of course is a simplification; apart from money, prosecutors and agents receive different forms of compensation for their zeal, such as promotions and increased political power.
313. Regan, supra note 88, at 971.