Credit Suisse First Boston got fined $100 million by the National Association of Securities Dealers and the Securities and Exchange Commission for allegedly shady practices involved in its underwriting of initial public offerings during the dot-com boom. But, as usual, although agreeing to pay the fine, the company neither admitted nor denied any wrongdoing.
This is common in most governmental or quasi-governmental actions against companies alleged to have engaged in unsavory, even unlawful, practices. The question is whether a fine alone, no matter how big, serves to deter executives of the penalized company, or any other company, from engaging in sleazy practices in the future.
Attorney H. Rodgin Cohen, chairman of Sullivan & Cromwell, says the problem is that if a company admits to wrongdoing, it becomes a target for huge lawsuits from law firms that specialize in class actions. Cohen says the impact of such lawsuits could be devastating. He points to the asbestos industry, which has been practically destroyed by a slew of lawsuits by such firms.
Cohen argues that the fines imposed, such as the $100 million on Credit Suisse First Boston, create quite a warning, adding, I dont think people take a lot of comfort in this.
It appears that the SEC and other agencies take a similar view.
But were not sure that fines that fail to directly touch senior management have much impact. The behavior of many CEOs in all sorts of companies Enron Corp. being the epitome has created deep cynicism about executives of all big corporations. Such cynicism has been heightened by the widening gap between executive compensation and what they deliver. Unless penalties either force wrongdoing managements out of their jobs, or hurt them financially, it is unlikely that penalties will make much of a difference.
It is true that the total undoing of a company would be overkill, but the undoing of its top executives would be appropriate. A way should be found in which that could be accomplished.
