Jail Sentences for Company Directors? Put on Your Hard Hat and Read On.

Jail Sentences for Company Directors? Put on Your Hard Hat and Read On.

In recent times Companies could be forgiven for thinking that the so-called ”compensation culture” in Britain is getting vindictive, and that they are being singled out to carry the can and provide compensation for injuries which are absolutely none of their doing.

I have blogged about Wm Morrison Supermarkets plc being held responsible to compensate for injuries suffered by an innocent customer who was brutally attacked by their petrol station cashier in a completely unprovoked attack. – Link Here –

And a second blog, – Link Here – when coincidentally Wm Morrison Supermarkets plc were yet again held liable to provide compensation for perhaps millions of customers and suppliers and contacts whose private data was published on the internet by an employee in its IT department

That person had nursed a grievance which appears to have become an obsession and deliberately released the private information specifically to hurt the Company.

The thinking seems to be that if a link however tenuous between the criminal and the company can be established, then the company must pay – is in legal speak “vicariously liable”.

In the first case, if the petrol station attendant have finished his shift and then attacked someone on the bus home, there would have been no such link. The link was because he was at work (BUT! – his work and training did not include bashing the customers – never mind).

In the second case, it is not so clear. What if that criminal had nursed his grievance, had stolen the files and loaded them onto his private computer and then released them later, perhaps a year or five after leaving work with Morrison. Probably no different outcome there since the causal link was, according to the court, the failure of the business to ensure that the data theft could not have occurred. (How exactly, one wonders? Perhaps by having computers which could only be operated by two people together, like having two people flying a plane. Is that how IT Departments must work now?)

The thinking behind it is clearly that the Court and behind it the Government thinks, that by and large people should receive compensation for being hurt, physically or financially and so someone or something has to pay.

But in those cases, the losses will be borne by the Company. Which means, by the shareholders, the private investors who own the shares. Many might be owned by pension funds, so the value of pensions is reduced, but the losses are spread between many and no single person or fund has to pay the full amount.

That is all by way of preamble and scene-setting. It relates to “Civil Law”.

But if a company turns out knowingly and deliberately to have employed criminals, of course, there can be “Criminal Law” consequences.

I think that no fair-minded person would think that any particular Director of Wm Morrison Supermarkets plc should be charged by the police with any crime in respect of the petrol station attack or in respect of the actions of the man from the IT Dept. who seems to have suffered a breakdown.

But there is no real reason to think that our Government or any previous one is “fair-minded”. And fairness is a moveable feast.

All of us in this country are invested in the financial success of UK. If UK is seen in the world to be a trustworthy place of business, with courts of justice which are unbiased and predictable in the application of justice and resolution of disputes, then the world will trade here. And there is a correlation between worldwide perception of trustworthiness and financial health.

Will you base your investment strategy upon putting your money predominantly into Venezuela and Nigeria or the Central African Republic? They are all way down the bottom of the list of Corruption Perception globally – Link here –

Any coincidence? –  They are some of the poorest countries of the world -Link here –

If you compare the two charts you will not be surprised to see that [arguably, oil wealth excepted] there is a link between a Country being considered to be a place where trade and commerce is honestly conducted being also a wealthy country. And a dishonest one, is poor.

So it would seem that if we are all invested in UK being a wealthy place, we need UK to be perceived to be an honest place. No corruption, no bribery.

So, the Government seems to be thinking, how can we reduce corruption in England in our commercial dealings? Clearly most commercial dealings are undertaken by Limited or Public Limited Companies and they all have directors steering the ship.

The trouble has been, Directors get their rewards from boosting the bottom line of the company that employs them. They don’t earn another penny, quite the opposite, for putting a stop to bribery that might win a contract.

And also, at present it is a difficult job to prosecute a director in the Criminal courts. All he has to say really is “I didn’t know this was happening, I certainly did not order it” and he won’t have to go to jail.

And the law tells Directors what to do and how to behave. So if your Company is doing business with somewhere low on the CPI list, you are dealing with a place where you might be asked for bribes for contracts. Or you might see that the price of goods there can only be achieved by child labour or even slavery.

At present, a Company Director might be tempted to say to his representatives in the foreign Country – just get the contract. Don’t tell me too much about it; I don’t want to know. Thinking, close my eyes to any illegalities, then if I don’t know about them I can’t get into trouble.

That has for years been the deciding principle in relation to the criminal status of company’s actions. Did the Company [its Directors] actually want the bad stuff to happen? It is not enough for the Criminal court to find that in order to achieve good stuff the Directors had closed their eyes to bad stuff.

News for you Mr Company Director. It is reported here— Link Here – in a blog from the multinational lawyers WilmerHale.

In summary, it won’t be long before individual directors are charged not with “intentionally committing crime” but with “failing to prevent crime”.  And of course, if crime happened, that there must have been a failure to prevent it nesspa?

The new burden of proof is already in force in relation to Bribery as I blogged in 2015 – Link Here –

The rising tide in the law is a drive to change where ultimate responsibility lies when crimes are committed in the name of a UK Company.

Needs a bit more thought in my view. When a subsidiary is revealed to have systematically paid bribes for contracts to benefit a UK holding company, demonstrably crime has not been prevented.

If the UK Company has 20 directors, clearly not one of them has prevented the crime that has not been prevented. So do they all go to jail, leaving no captain at work to drive the Company and save it from bankruptcy? Or is one Director more guilty than the others and if so why?

Lots of scope [money?] for lawyers to argue the ins and outs of that. Lots of scope for sleepless nights for Directors.

The lesson that I would suggest that all Company Directors should urgently take on board, is that it may not be long before the first Directors are sentenced to a jail term, for failing to [… take adequate steps …]  to prevent crimes being committed by others, perhaps by others many thousands of miles away, in the name of the Company.

In future a prosecutor may only have to prove that something illegal was happening and that the systems for which a Director is responsible were inadequate to prevent the illegality, and the judge can send the Director to jail. Say it again – Send You To Jail. I know.

So, new laws, and in consequence there will be directors in jail.

Is that a good thing? Will it change behaviours and help to push UK up the perceived Corruption list to help it catch Denmark as the country most widely considered trustworthy.

Let’s hope so

Sweet Honesty – A Song. –Link Here –

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