The judge and spectators in court at St Albans last week all recognised the strangeness of the proceedings. Network Rail was fined £3m ($5m) for faults leading to a rail crash in 2002. But Network Rail wasn’t responsible for rail infrastructure at that time. Network Rail is, in effect, the government agency that took over responsibility for rail infrastructure after a series of failures which included that accident. The fine will transfer back to the Treasury money the Treasury had given to improve that infrastructure.
The legal doctrine of corporate personality was devised in the 19th century. The purpose was to allow businesses as well as individuals to make binding contracts. A development of the doctrine asserted that since companies could be liable for their debts, the individuals who ran the company were not. These institutional innovations made large-scale economic organisation possible.
But does a corporation then possess all the attributes of a human personality? In Citizens United, the US Supreme Court ruled that companies enjoyed First Amendment rights to free speech. On this side of the Atlantic, corporations have been encouraged to assert the human rights conferred on individuals by the European Convention. Recent legislation in Britain created the new crime of corporate manslaughter.
Crime often depends on a state of mind. An individual can be dishonest, or intend to kill. But to attribute these characteristics to a business, as distinct from the individuals in a business, is a metaphor too far. As some of the relatives of the victims of the Potters Bar accident observed, to punish individuals would be more just, appropriate, and a more effective deterrent to future misconduct.
But identifying personal responsibility is difficult. Senior people will pin the blame on those lower down. The train driver is severely punished while the directors, pointing to the corporate policy statement that safety is an absolute priority, enjoy their bonuses from a safe distance. The corporate prosecution gives the authorities an easy way out. Network Rail had probably been sensibly advised by its lawyers and public relations consultants that the wise course was to express contrition and pay an inconsequential fine.
But the larger issue – as expounded by management scholars such as Wally Olins – is that corporate personality is a reality, not just a legal construct. When people talk about the distinctive personality of Procter & Gamble or John Lewis we know immediately what is meant. Sometimes personalities, corporate or individual, are unfitted for their task. Railtrack was misconceived in structure and badly run in practice. Enron was rotten at its core.
Yet individuals are responsible for these dysfunctional cultures: Railtrack was managed by people whose egos exceeded their talent, Enron executives committed fraud, and the result was environments in which decent people did bad things.
So the right response is not to “punish” the organisation – whatever that means. It is to require reform and, in extreme cases, to wind up the organisation. We should not respect the human rights of a failing business: we may want to torture it or impose capital punishment. As was in fact done for the two organisations in the present case – Jarvis, the contractor Railtrack employed, is also in administration.
We should re-emphasise personal responsibility for behaviour in business contexts. The person who destroys a great organisation in the course of filling his own pockets or indulging his own vanity commits a crime similar to that of the dangerous driver or drunken lout, and often with more serious consequences. “I was only doing my job” or “I was obeying orders” are not acceptable defences.
Free speech is damaged, not protected, when the dominant voices in public debate are not those of people expressing views they sincerely hold, but those who are repeating things they have been paid to say. We might think it is better that a hundred guilty go free than that one innocent is punished, but to apply the same rigour to regulatory intervention paralyses it with legal process. Stale metaphor is a poor basis for public policy.