"Too Big to Jail"

Lawrence Summers' review in the FT of Brandon Garrett's book "Too Big to Jail" caught my eye this weekend. Summers makes the important observation that the work of legal scholars is often "prescriptive but without a strong empirical foundation". This has been true of much of the literature I've read by US authors, less so of those from the UK, but it is changing. I remember being delighted to find a paper by US legal scholars on board gender diversity which was based on interviews with those involved, very unusual within that stream of literature.

I have yet to read the book but Summers uses the Arthur Andersen/ Enron example to illustrate the inadequacies of punishment of corporate fraud. The impact on those employed by AA and completely unconnected with the Enron relationship was huge and unfair (see here, here and here ) and punishment of the individuals whose dereliction could be proved might have paralleled that suffered by the Enron executives but I am not sure that this is a good example and oddly Summers does not mention that the firm's conviction was later overturned.

Summers suggests that a different structural approach to accountability might improve policy in this area. He uses the dreaded term "nexus of contracts" which, to me, conjures up agency theory and all that is wrong with that approach but, language aside, he may have a good idea. I have been impressed by the paper by Kelli Alces which proposes that boards of directors are no longer fit for purpose. It is surely time for a substantial review of the fundamentals of corporate accountability and our consequential legislative arrangements.

The comments on Summers' review largely focus on whether he should be given a platform in the FT at all, given his controversial past. More importantly, in my view, it should be recognised that he writes from a  US perspective. He acknowledges this, somewhat tangentially, in the penultimate paragraph but we should always remember that the US legislative and regulatory structure is predicated on very different historical and economic assumptions to that of the UK, and policy making in approaches to corporate crime should reflect this.