Guilt by Acquisition, Should today's stockholders pay the price of a corporation's past sins? By Steven E. Landsburg, Posted Friday, Jan. 8, 1999, at 12:30 AM PT
When the German car maker Daimler-Benz announced plans to acquire a controlling share of Chrysler Corp., Jewish novelist Cynthia Ozick announced in the Wall Street Journal that she would never buy a Chrysler. Other Jews (some of whom would never buy a Chrysler because they'd only ever buy a Mercedes) saw the issue very differently. Last May, shortly after the merger was announced, the Jewish Bulletin carried an article by Natalie Weinstein surveying the range of opinion, particularly among Holocaust survivors. The responses ran the predictable gamut. Some agreed with Ozick. But others, such as Rabbi Ted Alexander, took their cues from Deuteronomy, which admonishes that "Fathers shall not be put to death for children, neither shall children be put to death for fathers." "Going by that verse of the Torah," said the rabbi, "I cannot blame this generation."
The rabbi's analogy treats the Daimler-Benz of 1998 as the "child" of the Daimler-Benz that employed slave laborers in 1943. From a strictly legal perspective, the analogy is inaccurate: Under the law, a corporation lives forever. The entity that controls Chrysler is exactly the same entity that collaborated with the Nazis, not a descendant.
But it would be wrong to view an essentially moral question from a strictly legal perspective. A corporation is not a moral entity; it's the corporation's flesh and blood owners who are moral entities. From that perspective, the rabbi's analogy fails in a different way: The current owners of Daimler-Benz are not, by and large, the children of previous owners from half a century ago. Stocks trade hands every day.
That observation seems to strengthen Alexander's position. If we should not punish children for the sins of their fathers, then surely we should not punish children for the sins of their fathers' countrymen. But that analysis can be definitive only to those who believe that nothing can be added to the words of Deuteronomy; otherwise there's more to be said.
When is it permissible to punish one person for the wrongs of another? The question is a tangle of moral and economic issues. Morally, we're concerned with things such as justice, fairness, and individual rights. Economically, we're concerned with creating good incentives.
To see how uncomfortable it can be when economic and moral issues brush up against each other, consider the revision of accident law that's been proposed by the economist-iconoclast-law professor David Friedman. Friedman suggests that when two cars collide causing a total of, say, $10,000 worth of damage, everyone who was within a mile of the accident should be required to pay a fine of $10,000. That way, anyone who sees an accident about to happen will take all cost-justified measures to prevent it (perhaps by honking furiously to warn of impending danger). To my knowledge, Friedman's proposal has never struck anyone as fair, but at least it gets the incentives right.
Or does it? My own view is that the Friedman plan fails even by its own strictly economic criteria, because it creates an incentive for people to avoid high-accident areas and take inefficiently long routes to wherever they're going--or to cancel their trips entirely. In principle, it could even increase the accident rate by scaring potential good Samaritans off the roads. Enforcement, of course, would be a nightmare.
Those objections aside, Friedman's proposal does illustrate the tension between economic and moral considerations. And Friedman's innocent bystanders are at least partly analogous to Daimler-Benz's innocent stockholders. Let's keep those lessons in the back of our minds as we revisit the DaimlerChrysler controversy.
Corporations can be punished for misdeeds in at least two ways. One is a consumer boycott and another is a (voluntary or involuntary) fine. Both kinds of punishment have been visited on Daimler-Benz (though arguably at levels that are small compared with the underlying offenses). In the 1980s, the corporation paid about $11 million to the descendants of its slave laborers.
Who exactly suffers from those punishments? You might think the $11 million came from the pockets of those who owned Daimler-Benz stock in the 1980s, but that's not necessarily the case. Suppose, for the sake of argument, that in 1950 it becomes foreseeable that Daimler-Benz will eventually make reparations. Then every share of Daimler-Benz stock sold between 1950 and 1980 sells at a discount reflecting that expectation. Without the discount, nobody would buy the stock. So given sufficient foresight, the prospect of a 1980 punishment hurts the 1950 owners, even if they sell in the interim. And those who buy stocks after 1950 are not punished at all, because the discount compensates them for the fine.
Therefore, if all companies are permanently on notice that bad behavior will eventually be punished, they have an incentive to behave well at all times. That's an outcome that seems both fair and economically efficient: The punishment falls on the sinners and thereby deters the sin. But here are two caveats:
First, even if punishment is inevitable, it falls not on the owners at the time when the sin is committed, but on the owners at the time when the sin is discovered. After all, it's not till the discovery that the stock price falls. So punishing past corporate sins is not like fining everyone who was present when an accident occurred, but when it was reported, which seems both unfair and pointless. But this caveat has a countercaveat: The prospect of future punishments gives you an incentive to investigate the corporation's history before you buy, which improves the chance that bad behavior can be uncovered while the actual perpetrators can still be punished.
Second, it's hard to maintain a consumer boycott, especially when the goal is to punish the past rather than to influence the future. Consumers can quite reasonably argue that history can't be changed and so is best forgotten. As a result, corporations have little to fear from boycotts unless consumers commit themselves to maintaining the boycotts even when they serve no purpose. It's hard to imagine how such commitments might be maintained, which suggests that fines are more effective than boycotts, especially if they are written into law rather than imposed on an ad hoc basis.
If you're looking for a firm conclusion to all this, you'll have to look elsewhere; I hope I've at least illuminated some of the attendant moral and economic issues--though even these can become very different in situations that are superficially similar. (Click here for an example.)
And punishing evil corporations is very different from punishing evil governments. In the first case, we punish stockholders who invested voluntarily, while in the second we punish taxpayers who might have bitterly opposed their government's policies. But that is a topic for another column.
Man, I Throw Like a Woman, The Supreme Court explores the subtleties of sex and basketball. By DahliaLithwick, Posted Tuesday, Nov. 30, 2004, at 3:35 PM PT
Talk about taking one for the team. …
Roderick Jackson bitched to his bosses about the second-class treatment accorded the girls' basketball team he coached at EnsleyHigh School in Birmingham, Ala. Banished from the school's new gym, Jackson's team practiced in an unheated, rickety facility where its hoops literally drooped from age. When Jackson's bosses fired him, he filed suit under Title IX, a federal sex discrimination statute. The district court and then the 11th Circuit Court of Appeals rejected his claim that being fired for protesting gender discrimination itself constitutes an act of gender discrimination for which he was entitled to sue under Title IX.
Title IX of the Education Amendments of 1972 bars gender discrimination in educational and other programs receiving federal funds and permits the government to stop funding entities engaging in sex discrimination. In a 1979 case, Cannon v. University of Chicago, the Supreme Court held that victims of sex discrimination also had a private right to sue under Title IX. The question for the Supreme Court today is whether Title IX additionally created a private cause of action for people who were fired for complaining about sex discrimination against others. The court will decide whether the statute covers whistle-blowers or just victims.
Walter Dellinger (whom I know and edit) represents Jackson, and he argues this morning that it does no good to protect teenage athletes in a vacuum. "People like Coach Jackson need to come forward," he argues. "Students are minors, they don't know about budgets." Justice Antonin Scalia points out that the civil rights statutes that sought to protect against retaliatory firings "expressly provide for that." It's not logical to infer that Congress intended for the word "discrimination" to also include "retaliation" unless Congress explicitly said so. Dellinger responds that Title IX is identical to Title VI, which has long been understood to include retaliation in its definition of discrimination.
Quoting the statute, Scalia says he can't see where Coach Jackson was "on the basis of sex … excluded from participation in … denied the benefits of, or … subjected to discrimination under any education program." He asks whether that "even remotely describes" Jackson's experience.
Justice Anthony Kennedy notes that the '60s are so over: "This is not the heyday of private causes of action anymore." And Scalia objects to adding a new list of possible lawsuits to beleaguered school boards: "When the states signed on," he says, "they couldn't know this door to litigation was being opened to them." Dellinger counters that there is "no way that when the school districts accepted these [federal] funds, they thought they'd be free to retaliate."
Justice Sandra Day O'Connor, who will likely be the deciding vote in this case, asks whether Jackson availed himself of the administrative remedy available to him under Title IX before trying to sue own his own behalf. David Souter rephrases that question as: "Why do we need a private cause of action and not just this administrative remedy? Is the administrative remedy too draconian?" The justices confirm that termination of federal funding for schools based on Title IX violations are rare. At which time Scalia points out that maybe Title IX works "because the sanctions are so draconian. No one in their right minds wouldn't rehire a coach" if faced with a withdrawal of federal funds.
Irving Gornstein is an assistant to the solicitor general, and he argues for 10 minutes on Coach Jackson's side of the case. Many oral advocates have accidentally called Justice Ginsburg "O'Connor" over the years. Gornstein calls O'Connor "Justice Kennedy" this morning, thus proving that the two swing justices are merging inexorably into one great fungible Justice of Goo. Gornstein points out that in 1969 in Sullivan v. Little Hunting Park, the Supreme Court found that the statutory ban on racial discrimination encompassed retaliation and that Congress was well aware of the Sullivan rule when it passed Title IX in 1972.
Scalia asks wryly, "Do you think we take the same approach to implied causes of action today that we took in 1969?" He rejects the idea that "we'd go skipping along forever as we did in 1969." Bong in one hand, bong in the other. … And O'Connor reminds him that "Mr. Jackson was not discriminated against because of his gender." Gornstein replies that any "person who is victimized by retaliation because he complained about sex discrimination is a victim of sex discrimination."
The Birmingham Board of Education is represented by Kenneth Thomas, whose accent makes Dellinger's soft Carolina drawl sound Brooklynesque. Thomas opens with the claim that when there's a Title IX complaint, the Office for Civil Rights swoops in, and then there's hell to pay at school. "We know about OCR. They're in Atlanta, 167 miles away," he says. "And when they come, they come. …"Thomas goes on to argue that a private cause of action under Title IX offers no benefits to the team itself: "With a private suit, the award goes only to the coach," he says. "Nothing would go to benefit the girls' basketball team."
Souter asks what Thomas makes of the fact that Title IX's administrative remedies are almost never deployed. How can it possibly be working? "On my watch," drawls Thomas, "the No. 1 priority is to keep OCR out."
Souter persists. "Unless we allow whistle-blowers to bring a private right of action, this whole statute is a dead letter." Thomas replies that in Birmingham "we are very conscientious about the administration of our programs." " 'Trust me' is not an answer," snaps Ginsburg, "when you are telling a sixth-grader she can't play on a team."
In perhaps the single greatest moment of the 2005 term, Justice Stephen Breyer then interrupts Thomas to inquire: "Can I ask you a legal question?"
He goes on to offer a vintage Breyeresque three-part hypothetical, devoting at least five minutes to getting Thomas to concede that he must inevitably lose this case. To which Thomas finally responds with, "Justice Breyer, on the face of the statute, I just can't get there. I apologize."
In response to a question from O'Connor, Thomas begins to cite a case that the Supreme Court declined to hear. O'Connor interrupts him: "You don't base your argument on giving some legal effect to a denial of certiorari?" she asks.
And Ginsburg sums up Dellinger's side of the case again by urging that "[i]f we are talking about a sixth-grade soccer team, the only person who knows enough and is brave enough to complain is the teacher.… [I]f you cut the teacher out, forget it. [Title IX] is just nice words on paper." Thomas replies, "The teacher can call OCR."
Ginsburg says, "And OCR says we're too busy." Scalia asks whether we know OCR is routinely too busy to intervene. Thomas says, "I have firsthand knowledge." Ginsburg snaps again, "Is that your personal testimony?"
"Yes," says Thomas. Ginsburg then asks how many Title IX complaints he has fielded over the years. "Two," says Thomas. "In 20 years." Then he adds, "But they were all memorable."
State Solicitor General Kevin Newsom gets 10 more minutes to speak in support of the Board of Education. He immediately sets out to correct the justices' assumption that "without a private right of action, whistle-blowers are left out in the cold." He urges that OCR has a lot of remedies beyond just yanking funding, and it's precisely this threat of yanking that can result in "individualized relief." He adds the "threat" of denying funds "is where the heavy lifting is done."
This will be a close case, turning on whether the judges can know the unknowable: whether the vast sucking noise behind Title IX in this case is the result of its utter uselessness or its function as the perfect deterrent. Since the court can't precisely answer that question, it may be forced to answer the next best one: whether the only man truly able to stand up for womankind is always going to be a woman.
How not to stifle a racist. The California Supreme Court may have been well-meaning when it banned racial slurs in a hostile workplace, but in the process it damaged the Bill of Rights. By Debra Dickerson
Aug. 16, 1999 | If you happen to be an employer, a First Amendment absolutist or a trash-talking loser, life became a bit more difficult last week.
That's because the California Supreme Court forbade the future use of racial slurs in a workplace that has already been found by a court to be a hostile environment and likely to remain so.
While the decision is not binding outside of California, or on the federal courts, it is extremely significant nonetheless. Until now, a racist's worst nightmare was being penalized for his past behavior, but now he can be legally muzzled to prevent his invective from spewing forth in the first place.
As early as 1991, Avis service agent John Lawrence allegedly began informing his Latino subordinates that they were "wetbacks," "motherfuckers" and "crooks" and routinely demeaning their English language skills, among his many other insults.
Seventeen of them took Avis and Lawrence, who denies the allegations, to court. In 1995, a jury found in the workers' favor, awarding eight of them a total of $150,000 in damages. In addition, Judge Carlos Bea enjoined Lawrence (who still has his job) from engaging in further such speech, and enjoined Avis from allowing him to.
Avis appealed its injunction, citing the First Amendment and both the U.S. and California constitutions' prohibitions against prior restraint on speech. The 4-3 decision last week, which generated five separate opinions (the plurality decision written by Chief Justice Ronald George, a separate, more radical concurrence and one from each of the dissenters), is controversial, to put it mildly.
While courts have addressed the issue of workplace harassment many times and assessed damages after the fact, this is the first time one has taken the logical next step and enjoined the future use of offensive language.