From Bell to VW, shareholders pay for executive sins: Don Pittis

MartinWinterkornstepped down from his job as CEO followingthe Volkswagenemissions scandal last month andwill get a golden goodbye worth as much as $90 million. The figure was calculated by the Wall Street Journal from information in the company's annual report.

While Winterkorn and other departingexecutives enjoy their perks, shareholdersfaceup to$18 billion US in fines in the United States alone after VWcheatedthe U.S. Environmental Protection Agency, plus the cost of lawsuits and fixing millions of affected cars.

• Michael Horn says he was told in 2014 of 'possible emissions non-compliance"
• Bell hit with $1.25 M fine for planting 4-star reviews for phone apps

Experts say the actual fine will be a fraction of the maximum, but shareholders, who cheated no one and knew nothing of the scheme to defeatthe EPA test, will footthe bill.

It's still not clear which executives knew about the emissions riggingand when they knew it, butVolkswagen's U.S. CEO testified last week that he learnedabout the "non-compliance" in 2014. Other employees knew it long before that.

Volkswagen shareholders aren't alone in taking the rap for executive mistakes.

Last week, in a much less significantflouting of the rules, Bell Canada faced a $1.25 million fine after it was revealed its employees were writing glowing reviews aboutBell's telephone apps. Once again. it was the company, and thereforethe shareholders, who will pay the fine.

The contradiction here is that the corporation is legally structured to make profit.It's not a charity."- Steven Bittle, author Still Dying for a Living

In cases like Bell, Volkswagen and SNC Lavalin the Canadian infrastructure firm that has beenfingered for paying officials to get contracts there is a good reason to charge the companyrather than just the guilty employees, says Neil Sargent, a law professor who teaches regulation of corporate crime at Carleton University in Ottawa.

Pointing fingers

"If the company has actually benefited from the illegal activity," says Sargent, "they basically get to hive off the consequences by targeting individuals while still retaining the benefits."

He says that for regulators and prosecutors, itcan also be a matter of practicality.When corporate decisions are made as a collective, it is almost impossible for outside investigators to point a finger at the individual or individuals who led the way.

It's true that, similar to ministerial responsibility in government,senior executives in charge of the affected division could be declared responsible because theyshould have known, even if they didn't.

"It's like having a vice-president responsible for going to jail," says Sargent.

At the same time, there are strong arguments for going after individuals directly. Former U.S. central banker Ben Bernankesaid that in the financial meltdown of 2008,a bit of jail time might not have been a bad thing.

'It would have been my preference to have more investigation of individual action, since obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm,' said the former Fed chairman in an interview withU.S.A. Today. "You can't put a financial firm in jail."

Certainly in previous financial crimes, such as the scandal that brought down the giant natural gas trading firm Enron in 2001, individualsdid face jail time. Enron CEO Kenneth Lay was expected to serve 20 to 30 years in prison but he died before sentencing. EnronCOO Jeffrey Skilling is still in prison.

Criminal intent

"The contradiction here is that the corporation is legally structured to make profit," says StevenBittle, a professor of criminology at the University of Ottawa who specializes in workplace health and safety. "It's not a charity."

Bittleis theauthor of the award-winning bookStill Dying for a Livingabout Nova Scotia'sWestraymine disaster in 1992 where 26 underground workers died in a methane explosion.He says that in the case of corporations,it is difficult to provemensrea or criminal intent.

"I tell my students that nobody's sitting around a boardroom table saying 'How many workers are we going to kill today,' " says Bittle, addingthat too often incollective decision-making, profits begin to dwarf other responsibilities.

"At times, and quite often as we've seen, companies can and do make decisions that are not in line with environmental standards, health and safety standards or financial accounting standards."

Bittle still believes it is important that companies and their shareholders pay the price for irresponsible profits, but hethinks the thought of jail time couldhave its own effect, counter-balancingthe corporatepressure on executives to focus exclusively onprofit.

"If they were in a position where they genuinely believed they would be held to account, they would certainly watch over things with much more vigilance," he says.

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