When Corporations Get Stung, They Listen Up


Philip Morris is spending $100 million to revamp its image, launching a television and web campaign that surprise -- cigarettes do kill after all. What is driving the company's effort to "educate" the public about the dangers of smoking? A sudden burst of concern about the millions of lives devastated by the tobacco industry's years of outright deceit? Hardly. Rather, it is the sting of successful lawsuits already brought against the cigarette makers and the fear of the ones pending.

In another about-face, State Farm has announced that it will temporarily halt the use of replacement parts that had not been approved by manufacturers. This reversal comes after years of stonewalling and after a Consumer Report study found that these generic parts often fit poorly and could pose a threat to passenger safety. They were hit with a record $1.2 billion award in a case filed by five plaintiffs accusing the nation's largest insurer of fraud and breaching its contract with policyholders, because State Farm was not living up to its promise to restore damaged vehicles to their pre-loss condition, but instead was substituting generic parts that were inferior and therefore failed to honor their obligation to policyholders.

Corporate Conscience?

The corporations did not suddenly acquire a conscience. Instead, a "conscience" had been forced upon them.

The awakening public has begun to express, convincingly, through jury verdicts a simple proportion: there is absolutely no way to punish and deter the kind of greed that cases corporations to put profits over people, other than punitive damages.

Corporations, after all, are the only entities under the law unburdened with a conscience. People have a conscience, feel guilt, experience compassion and ultimately must live with themselves. Not so with corporations. Although there are exceptions, the "goodness" of a corporation is usually defined by its bottom line.

Despite Philip Morris' image makeover, where is the tobacco industry's conscience? Would a person knowingly and intentionally purvey misery and death for the sake of financial profit? No, except for the few who do not let conscience stand in their way, and those individuals society brands as criminals, with its own set of punishments.

Punishing Corporations

Managing the behavior of corporations is, in many ways, much more complicated than regulating the activities of individuals. Many forms of punishment that could be used to influence human behavior are simply unavailable where corporate wrongdoing is involved.

Society cannot put a corporation that decides to profit from people's misery and death in prison. Society cannot give the death penalty to businesses that choose to save money while allowing people to burn in vehicles they knew were unsafe. We cannot do much to punish or deter the amoral acts of some corporations. We have only one remedy: Hit them with punitive damages, which are defined by law as punishment of especially outrageous conduct.

The prospect of punitive damages forces a corporation to place a line-item entry on the balance sheet for protection of the public. The bottom line becomes this: Punitive damage awards are the public's only way of imposing conscience on a corporation.