Document Type

Article

Abstract

The fines and penalties assessed against corporations are running into the billions of dollars each year. Part of the reason is that the managers and employees of entrepreneurial organizations have inherent incentives to engage in conduct that exposes the entity to fines and penalties. This article considers the legal bases for shifting these law-enforcement losses back to directors who are actively involved in creating them, either because they approved or they deliberately ignored the corporation’s legal or regulatory violations (Part II). It then examines bases for shifting these losses back to directors even when their involvement in the non-compliance is only passive, consisting of a mere failure to provide legally mandated oversight (Part III). Finally, with respect to both the cases of active and of passive involvement, we see how the use of lawyers can provide the directors with a safe haven.

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