Jail Time – Introducing Downside in an Upside Only World

Nicolas Robinson made a mistake. The 23-year old from Borough, south-east London stole a £3.50 pack of water bottles from a Lidl store during the UK riot.

Matt and Adam made a mistake. They were running a bank that required a massive billion pound bailout. The Northern Rock bail-out added £100 billion to the National Debt, an effective £1,500 per person for every citizen in Britain.

Nicholas went to jail for six months. His life changed forever. His career as an engineer destroyed. Matt and Adam? They kept their salary and bonuses from the good years, spent creating the pyramid-scheme business that was bailed out. And they went on holiday.

So the lesson learned for the bankers? You can do anything. The worst that happens is you keep all your money, go on holiday, and then re-enter the industry and do the same again Only this time, be bigger than before, because, now we know, you have no downside.

Goldman Sachs and other banks pay millions in fine for SEC actions, often based on defrauding investors, or a class of customers. Who pays? The shareholders, faceless and blameless. The lesson for the executives and oversight committees? Fraud can be expensive (for someone else), but highly lucrative with no downside.

Barclays Bank is just the most recent firm to be caught and fined for fraud, £290 million.

The real problem in the financial system, and in some cases the political and corporate system, is the total absence of actual accountability for the individuals and teams involved in making decisions, providing oversight, and executing plans. These systems are not populated by robots, they are full of individuals. With faces, with families, with social security numbers, e-mail accounts, and Blackberrys.

Any system needs balancing elements to ensure they work. This is especially true of a system like the financial system where negligence, incompetence, and greed can destroy the future savings and prospects of millions. Millions who do not get to share in any of the upside benefits.

An absence in the debate on the financial system is the discussion on personal responsibility, and what should be done to hold the individuals accountable. Any argument suggesting jail time is quickly quashed and ridiculed.

The corporate structure itself is largely accountable. It separates responsibility from the individual, allowing the employees and directors to behave in any way they see fit with the only downside being unemployment (or a short holiday and re-employment elsewhere).

This is totally insufficient and unfair in today’s world. And, since 2008, the absence of personal accountability has shown that banks and other financial institutions will continue to behave in exactly the same way. They continue to effectively defraud the taxpayers, just over 18 month timescales. Bankia in Spain is just the latest example, merging seven regional savings banks into one, raising money from the public, then a few months later uncovering a 19 billion euro gap.

The problem is that our legal and criminal justice system is not equipped to deal with wealth companies and the individuals hired in their name. The system is not equipped to identify and prosecute the cases. White collar criminal convictions is practically non-existent.

Rape used to be legal, a husband against his wife. It was legal to have sex with under-age children. There are many things that used to be legal, that became illegal due to social pressure. Homosexuality was illegal. Mixed-race marriage was illegal. Debtors could be jailed for failure to pay debt.

There are many things that were illegal that became legal. And vica versa. The political, legal and justice systems, slow though they may be, have a useful habit of bowing to fairness and public opinion and making changes in the status quo.

We have reached the point where we need to urgently and publicly debate a new crime, that of corporate negligence. Failure to operate a business effectively. Failure to make good decisions. Failure to stop what is known to be wrong. Yes, being in the right job at the wrong time. And the penalty? Depriving people of their liberty. A month. A year. Five years. Twenty years.

These systems are just made up of people. Good people going about their work. But, their individual behaviors and roles in the system have lead them to impose massive hardship on millions of people, while they personally have no downside, and a perverse incentive to do exactly the same thing again and again, a role model for yet more irresponsible behavior, the incentives all skewed.

By introducing a new crime, we introduce personal responsibility into parts of the human system that are least connected to the people they are ultimately meant to serve and support. We may recoil today at the thought of a job offer, paying 200,000 Euro for a banker, with the knowledge that failure in the bank, maybe not even your fault, could lead to six months in prison.

But, as poor Nicholas discovered, this can happen for one moment of weakness walking past a shop. Why does Nicholas deserve worse treatment than the people who have forced out children’s children to pay for the incompetence of a tiny number of namable individuals. It is time to criminalize corporate negligence and totally rethink personal accountability in corporate structures.

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