The New Punitive Regulation
| Author | Robert Baldwin |
| Date | 01 May 2004 |
| DOI | http://doi.org/10.1111/j.1468-2230.2004.00491.x |
| Published date | 01 May 2004 |
THE
MODERN LAW REVIEW
Volume 67 May 2004 No 3
The New Punitive Regulation
Rob e rt Ba ldw i n
n
There is now some evidence of a potential drift towards ‘punitive’ approaches to regulation in
which greater emphasis is placed on criminal sanctions. This new enthusiasm for puni shment
can be seen in government policy, legislation and some regulators’public stances. There is evi-
dence, however, thatcompanies (even top ones) deal with punitive regulatory risks in a confused
manner and that evenwhen they do act rationally, this may not lead to compliance.One response
to punitive approaches and their limitations is to move towards greater reliance on stimulating
the self-regulatory capacities of corporations. Such stimulation, however, has to be carried out
with an awareness of the dangersof s elf-regulation^ notably that it maylead to controls that lack
legitimacy, prove unfair and are exclusiveand i ne⁄cient.
United Kingdom companies andtheir senior sta¡ havebeen controlled by means
of criminal and quasi-criminal laws for more than a century. At the start of the
third millennium, however, there is in some quarters an apparent new zest for
‘punitive’ approaches to regulation.
1
This article reviews the evidence that points
to this development, looks at corporate experience and perceptions of regulatory
risks and examineshow major UK companiesdeal with‘punitiveregulatory risks’^
the possibilities that they will face criminal or quasi-criminal sanctions for regu-
latorybreaches.
2
It then considers the broaderlessons to be drawn from an analysis
of corporate performance in managing punitive regulatory risks. In particular, it
explores the implications of such an analysis for debateson the criminal controlof
corporate behaviour and assesses some of the central challenges faced by‘proac-
tive’ approaches to regulation.
It will be argued that analysing corporate responses to punitive regulatory
risks not only exposes the limitationsof ‘punitive’ (or‘command’ or‘deterrence’)
n
The London School of Economics.
1 The second section of this paper builds on R. Baldwin and R. Anderson, Rethinking Regulatory
Risk (London: DLA, 2002).The author is grateful to the law ¢rm DLA for sponsoring that re-
search, to Richard Anderson of Corporate Risk Group forhi s assistance throughouta ndto Ai -
leen Gillan for help with ¢eldwork.Particular thanks go toVanessa Finch forcomments on drafts
as well as to the MLRreferees. Attendees of the LSE Law Departmentseminar also made a num-
ber of helpful suggestions for which I am grateful.
2Seegenerally,C.Wells,Corporations and Criminal Responsibility (Oxford:OUP,1993); L. H. Leigh,
The CriminalLiability ofCorporations in EnglishLaw (London:Weidenfeld,1969); L. H. Leigh,‘The
Criminal Liability of Corporationsand other Groups: A ComparativeV|ew’(1982)80 Michigan L
R 1508; J.G oberta ndM. Punch, Rethinking CorporateCrime, (London: Butterworths,20 03).
rThe Modern LawReview Limited 2004
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2004) 67(3) MLR 351^383
regulatory strategies ^ it also highlights some of the di⁄culties involved in
moving to the alternative, more ‘proactive’, regulatory stances that have been
strongly advocated in recent writings on regulation.The contention here is that
there are serious £aws in the‘punitive’ approach but that reliance on proactivity
and stimulating the self-regulatory capacities of corporations provides no easy
solution to the di⁄culties of regulating.The way forward, it will be suggested,
is to encourage self-regulatory capacities but, at the same time, to develop strate-
gies that explicitly take on board the di⁄culties of aligning the perspectives and
control systems of regulators and corporations. As for the Government’s appar-
ent espousal of punitive approaches, this, it will be cautioned, assumes a model
of corporate behaviour that is unrealistic and, as a result, brings a number of
dangers. It may fail to make best use of self-regulatory capacities, it may chill
healthy risk-taking and itmay make successful regulationmore, rather than less,
di⁄cult to achieve.
THE MOVEMENT TOWARDS PUNITIVE REGULATION
There is evidence that the seeds of a new strand of punitive regulation are to
be encountered across government policy, legislative developments and the
enforcement stances being adopted by some regulators. In talking of a possible
movement towards ‘punitive’regulation the suggestion is of a change in regula-
tory style in which the use or threat of criminal or other potentially severe
sanctions (eg disquali¢cations) plays a greater role. It can, accordingly, be seen
as involving a n increasing resort to ‘punishment’ rather than ‘persuasion’ in
regulatory philosophy and practice as well as a greater emphasis on deterrence
and adversarial ism as opposed to negotiation a nd co-operation.
3
The evidence
for such a change of style cannot be wholly provided by pointing to the intro-
duction of new criminal sanctions and powers ^ much depends on how those
sanctions and powers are deployed and enforced. (It is indeed conceivable that
bigger sticks could allow regulators to speak more softly
4
). Nor does tough talk
by politicians or regulators necessarily equate with tougher policies and actions
on the ground.
5
What does suggest, however, that a more punitive strand has
the potential to develop in modern British regulation, is the conjunction of
new governmental statements of philosophy; the introduction of sets of newly
severe powers; and a number of newly aggressive or adversarial stances being
set forward by some regulators. It is not contended here that all regulators share
3 On such contrasting regulatory approaches see eg J. Braithwaite,To Punish or Persuade (Albany:
StateUniversity of NewYorkPress,1985);F.Haines, CorporateRegulation: Beyond‘Punishor Persuade’
(Oxford: Clarendon Press, 1997); I. Ayres and J. Braithwaite, Responsive Regulation (New York:
OUP,1992); B.M. Hutter, Compliance: Regulation and Environment(Oxford: OUP, 1997); K.Haw-
kins, Environment and Enforcement (Oxford: Clarendon Press,1984); A.Reiss,‘Selecting Strategies of
Social Control Over Organis ational Life’ in K. Hawkins and J.Thomas (eds ), Enforcing Regulation
(Boston: Kluwer-Nijho¡,1984).
4 On ‘the benign big gun syndrome whereby regulatorswith big sticks can spe ak softly’ see Ayres
and Braithwaite,ibid 40^41.
5 On the tendency of regulators to treat prosecution as a ¢nal option s ee K. Hawkins, Lawas Last
Resort (Oxford: OUP, 2002).
The New Punitive Regulation
352 rThe Modern LawReview Limited 2004
in the new punitive regulation, rather that there is a potentialdevelopment that
merits discussion.
Government policy
The broad thrust of the Blair administrations has been to encourage good entre-
preneurial risktaking, but to take a hard line on individuals and companies who
breach the law.
6
This hard line has been reinforced in recent years by a number of
corporate disasters whichhave added urgency to calls for morecorporateaccount-
ability, more holding individuals to account, and more punitive approaches.
Names such as Maxwell, Polly Peck, BCCI, Marconi, Equitable Life, Enron and
WorldCom are now familiar and rail disasters at Southall, Paddington, Hat¢eld
and Potters Bar have only increased appetites forblame and punishment.
7
A look at competition law, the Enterprise Act and the Company Law reform
proposals of 2002 reveals the Blair Government’s commitment to corporate
accountability and to punitivestrategies of control.The CompetitionWhite Paper
of 2001, for instance, made it clear that the Government would deploy a‘strong
deterrent-e¡ect’in seeking to root out anti-competitive behaviour.
8
Participation
in certain types of cartel was made a criminal o¡ence in the Enterprise Act 2002
and became punishable by up to ¢ve years in prison and an unlimited ¢ne.
9
The
Act also provided for directors to be disquali¢ed for breaching competition law.
10
In July 2002 Melanie Johnson, Competition Minister, unveiled the Govern-
ment’sWhite Paper, Modernising Company Law
11
and announc ed post-Enron pro-
posals to get tough on directors.
12
Under the Companies (Audit, Investigations
and Community Enterprise) Bill, introduced into the Lords in December 2003,
a person will face up to twoyears in jail or an un limited ¢ne if they are asked bya n
auditorfor i nformation and they knowingly or recklesslygive informationthat is
misleading, false or materially deceptive.
13
6 Peter Mandelson evidenced this approachwhen Trade and Industry Secretary in 1998. He pro-
mised that honest directors whose businesses failed would be looked on more kindly by govern-
ment, but that those who were reckless or dishonest would be cracked down on: see V. Finch,
Corporate Insolvency Law (Cambridge:Cambridge University Press, 2002) ch 15.
7 On 9 July 2003, Network Rail, Balfour Beatty and six individual managers were charged with
manslaughter overtheir alleged role in the Hat¢eld rail crash. Six further managers were charged
with lesser health and safety o¡ences.
8SeeProductivityand Enterprise:A World Class CompetitionRegime Cm 5233 (London: HMSO, 2001).
9 Enterprise Act 2002, ss 188,190.
10 Enterprise Act 2002, s 204.
11 Modernising CompanyLaw Cm5553-1 (London: HMSO,20 02).
12 Se e DTI Press Release P/2002/457 of16 July 2002. Melanie Johnson stated that: ‘This is the ¢rst
time that failure to o¡er information will be a criminal o¡ence.’ She pointed to recent losses in
investor con¢dence and stressed that an improved quality of information was needed to create
that con¢dence.Twoyears imprisonment, she said, was a substantial deterrent againstconceali ng
the true state of the companyaccounts.
13 Companies (Audit, Investigations and Community Enterprise) Bill, cl 8; see also cl 9 which
makes it an o¡ence knowingly or recklessly to i ssue a statement falsely declaring that no informa-
tion relevant to the auditors’function has not been disclosed to the auditors (the new s 234ZA
statement).
RobertBaldwin
353rThe Modern LawReview Limited 2004
To continue reading
Request your trial