STIGMA: A MORE EFFICIENT ALTERNATIVE TO FINES
IN DETERRING CORPORATE MISCONDUCT 

Darlene. R. Wong*

[cite as “3 CAL. CRIM. L. REV. 3 (Oct. 2000), available at http://www.boalt.org/CCLR/v3/v3wongnf.htm”;
pincite using paragraph numbers]

 

I. Introduction

 

¶1 Sanctions that focus on fines or imprisonment as efficient deterrence measures for corporate misconduct generally neglect the more efficient policy of sanctioning through stigma.  Unlike sanctions that fine or imprison corporate offenders, a policy that formally imposes stigma upon corporate processes and products adequately accounts for the true social costs¹ of inefficiency that result when a pricing system of fines accommodates corporate “pay to pollute” behavior.  “Pay to pollute” describes a corporate response to fines and damage awards that treats them as predictable business expenses that can be weighed against the cost of changing a product or process to make it safer.²  Recent proposals to revise the Sentencing Reform Act,³ scholarship by norms theorists such as Dan Kahan,⁴ Lawrence Lessig,⁵ and Richard McAdams,⁶ and courts that increasingly impose creative criminal sanctions that invoke public condemnation⁷ suggest that to widely implement a formal policy of stigma in cases of intolerable corporate misconduct is timely and appropriate. 

¶2 Law and economics theorists have established that fines are optimal criminal sanctions for those who can afford them, in comparison to imprisonment, which does not create revenue for society.⁸  Yet further quantitative research shows that liability reforms that enlarge monetary judgments slow productivity growth and restrict employment while reforms that decrease fines encourage employment and worker output.⁹  This point of view suggests support for a policy that places caps on the amount of damages and criminal fines that may be recovered in cases of corporate misconduct.¹⁰  Public advocacy groups, on the other hand, argue that a policy that limits punitive damage awards discriminates against lower-income people.¹¹  The combination of these findings indicates that fines are limited in their applicability as an economically fair and efficient deterrence measure.  Additionally, there are some types of undesirable social conduct that remain undeterred under a system that depends upon fines to penalize corporate misconduct.¹²  “Pay to pollute” dynamics result when predictable fines allow corporations to consider even punitive damages as fixed costs, thereby rendering the fining system ineffective.¹³

¶3 This paper attempts to reconcile the concern for an economically efficient penal system as demonstrated by proponents of a fine-implementing system, with the concern for a broader definition of social well-being as demonstrated by public advocates.  Here, social well-being is a goal that includes factors of economic analysis not traditionally included in equations of efficiency, yet which do not exclude the possibility of economic efficiency.  This paper proposes a model policy of uniform product labeling that deliberately imposes stigma as an alternative sanction in cases of corporate misconduct.  Product labels that stigmatize provide a consumer-oriented, information-rich vehicle that enables consumers to accurately assess product price, including social cost.  Product warning labels are an effective stigma sanction that is economically preferable to fines, especially where both fines and imprisonment decrease society’s productivity so that the economic advantages of fines over imprisonment no longer exist.  

¶4 Currently, the Clinton administration has proposed legislation that would reaffirm, in more precise terms, the federal government’s duty to decline to contract with businesses that repeatedly or seriously transgress worker rights, health, safety, environmental, tax, or anti-trust laws.¹⁴  The proposed legislation that opponents call “blacklisting legislation” is evidence that there currently exists an opinion at the federal level that some costs of corporate misconduct are intolerable and therefore society would benefit by a policy of deterring corporate misconduct through market exclusion that has effects similar to stigma, as the legislation’s “blacklisting” label suggests. 

¶5 The apparently non-violent and less harmful misconduct of a white-collar criminal can on surface actually appear to support society’s shared goal of economic productivity.  However, there remains a sense of unfairness underlying the belief that white collar criminals can easily afford to “pay off” their debt to society through money rather than imprisonment.  This sense of unfairness stems from contexts in which courts subscribing to the theory of economic productivity use fines,¹⁵ and in the process communicate greater leniency in contrast to imprisonment.¹⁶  This discomfort stems from the dissonance that results when a fining (i.e. “pricing”) system accommodates corporations’ undesirable social behavior by expressing a message of permissiveness that conflicts with the message of disapproval that society instead desires to express and that imprisonment more accurately represents.¹⁷

¶6 When courts use fines in lieu of imprisonment in cases of corporate misconduct, those courts invoke inaccurate representations that fail to express society’s condemnation of an intolerable corporate behavior, instead cloaking the corporate misdeed in a socially accommodating pricing system.  By proposing a model of labeling to implement a policy of stigma as a deterrence measure, this paper attempts to resolve the tension that results when courts’ imposition of fines on corporate criminals in “pay to pollute” contexts inappropriately conveys messages of public accommodation of corporations’ intolerable social conduct when instead communicating public intolerance is more accurate, effective, and efficient a deterrent.  The proposed model that labels intolerable corporate behavior with stigma addresses social costs that are otherwise unaccounted for in a fine-implementing system.  Labeling intolerable corporate behavior with stigma also substitutes as an effective sanction when imprisonment is not an economically feasible punishment.

 

II. Literature Review

 

A. Posner on Optimal Sentencing for Corporate Crime

 

¶7 Richard Posner’s view on deterring corporate crime can be summed in his statement, “For every prison sentence there is some fine equivalent; if the fine is so large that it cannot be collected, then the offender should be imprisoned.”¹⁸  Posner finds that when there are equatable deterrence effects, the disutility of imprisoning a corporate offender is equivalent to the disutility of fines.¹⁹  He further finds that the disutility of fines can be equivalent to the disutility of alternative sanctions, offering as an example a SEC violator whose punishment is his being permanently barred from practice.  According to Posner, in this example, the amount of the “fine” equals the difference between the SEC violator’s income in his best substitute occupation and the violator’s expected future income were he allowed to continue his practice.²⁰  Therefore, though Posner advocates a fines-implementing system of penalties, he acknowledges the possibility of efficient alternative sanctions.

¶8 Regarding the alternative sanction of stigma as a deterrent measure, however, Posner is skeptical, stating:

The economic objection to relying on stigma for deterrence is that, like imprisonment, it is more costly to society than the pure fine (or civil penalty) because it does not yield any revenue.  (Stigma, unlike a fine, imposes costs on the criminal with no corresponding gain to society.)  Hence, it would seem more efficient to drop the criminal label, and any stigma attached to it, and offset any loss in disutility to the criminal by increasing the size of the civil penalty.  In that way, the social revenue can be increased with no loss of deterrence.²¹

 

B. Campbell, Kessler, and Shepherd Find that Fines Restrict a State’s Overall Productivity

 

¶9 Researchers conducting an empirical study of the general economic influence of liability reforms²² across 50 states over 21 years found that states adopting additional “decrease reforms”²³ experienced increased productivity in terms of worker output and employment, and states adopting additional “increase reforms”²⁴ experienced less productivity and reduced employment.²⁵  Therefore a relatively inexpensive policy of stigma seems preferable to fines when increased massive fines restrict states’ economic growth. 

 

C. Dan Kahan and Social Meaning of Penalties: A Stigmatizing System Adequately Expresses Condemnation Where a Fining System Fails

 

¶10 Non-monetary sanctions are significantly distinct from fines in that they express prohibition while a pricing system of fines expresses permission.²⁶  Kahan explains this dynamic, stating:

Fines condemn much more ambivalently.  When combined with a term of imprisonment, no one doubts that fines convey moral disapproval.  But when fines are used as a substitute for imprisonment, the message is likely to be that the offenders’ conduct is being priced rather than sanctioned.  And while we might believe that charging a high price for a good makes the purchaser suffer, we do not condemn someone for buying what we are willing to sell.²⁷ 

The result is that fines are inherently inadequate as social penalties where society would rather express condemnation.

¶11 In light of Kahan’s idea that prison expresses stigma through condemnation and fines express permissiveness, I define the problem with a fining system in a public interest capacity as the following: in the specific context of corporations that inefficiently externalize the true cost of a corporate process or product upon unknowing consumers, a social policy that imposes fines as penalties upon corporate offenders in effect accepts inefficient corporate behavior at an underestimated price.  Such inaccurate pricing fails to communicate the true cost of the corporate product or process, undermining the free market principle of voluntary transactions that accurate information would otherwise enable.  A pricing system of fines inappropriately expresses social accommodation by hiding non-monetary costs.  The non-monetary costs to society can be so high that interests of achieving efficiency demand a policy that accurately communicates²⁸ to involved parties the socially prohibitive nature of the corporate behavior. 

¶12 In other words, because social costs in a fining system are inaccurately priced, hidden, and high, a more emphatic communication between parties that establishes a message of intolerance and subsequent remedy is necessary and preferable.  In a fining system, a socially undesirable behavior loses the sense of social stigma that prison is capable of imparting, because fines express a willingness to accommodate that behavior.  Condemnation may inappropriately express accommodation where society’s objective is to communicate intolerance as a means to stimulate social change.²⁹  A deterrence system capable of communicating intolerance is what is necessary.

 

D. McAdams on Status and Esteem as Non-Material Individual Incentives to Cooperate for Group Welfare

 

¶13 Richard McAdams suggests that individuals’ pursuit of social status is the reason “excess cooperation” exists despite the cost to the individuals’ solitary self-interest.³⁰  Therefore, because individuals seek non-monetary rewards of esteem, esteem can function as a currency and leverage that induces individuals to take action that contributes to group welfare.³¹

¶14 McAdams builds upon Robert Ellickson’s idea of third-party enforcers³² by providing the necessary context of individual desire for esteem³³ in which Ellickson’s theory must operate. Socially connected groups provide individuals with the sought-for esteem.³⁴  McAdams finds support for this in experimental data³⁵ that shows individuals will act on the incentive for esteem by incurring personal costs in order to gain intra-group status.³⁶  In addition, the group itself, motivated by similar incentives,³⁷ will likewise seek status within its larger community.  The group will utilize “status payments” to group members to create additional incentives for individuals to contribute to achieving intra-group status.³⁸

¶15 Extending McAdams’ dynamic of individual and group esteem-seeking to corporate behavior, I apply the notion that corporations seek esteem through good reputation.  Good reputation can be considered a value that has utility to a corporation that can be compromised by the threat of stigma.³⁹  Corporate reactions in the world demonstrate that stigma is an effective measure of deterrence when it threatens a corporation’s reputation.⁴⁰ 

 

E. Lawrence Lessig:  Tools for Regulating Social Meaning

 

¶16 In offering an approach to regulate social meaning, Lessig divides normative judgement into two categories: efficiency norms and distributional norms.⁴¹ Efficiency norms approach policy decisions where changing the social meaning has a goal of increasing total wealth.⁴²  A distributional norms approach to decision-making centers around concern over who is benefited and who is burdened.⁴³

¶17 Illustrating concepts within the context of an anti-smoking norm example, Lessig offers four methods to reconstruct, change, or maintain social meaning by changing their “meaning costs:”⁴⁴ tying,⁴⁵ ambiguation,⁴⁶ inhibition,⁴⁷ and ritual.⁴⁸  Tying and ambiguation are semiotic techniques.⁴⁹  Inhibition and ritual are behavioral techniques.⁵⁰

¶18 Tying is essentially creating an associated meaning that connects an idea to both a behavior and the costs of that behavior.  For example, Lessig offers the example of warning labels on cigarettes.  Labels on cigarettes serve to tie or associate negative health effects with the behavior of smoking.⁵¹ 

¶19 Ambiguation is a technique to reduce the clear meaning of an act or expression in order to manipulate the social costs of manifesting that behavior or expression.⁵²  For example, a cigarette label normally warns smokers of the detriment to their personal health, but when in addition the label indicates that the personal choice to smoke can cause detrimental health effects to other persons in the environment, the cost of smoking has increased a private decision to a wider social sphere that extends costs beyond personal harm to wider social effects.⁵³  A person asking another to put out a cigarette could justify the request as a benefit to everyone in the vicinity, rather than merely a personal preference for a smoke-free environment.

¶20 Inhibition is a technique that weakens support for a behavior by reducing its incidence.⁵⁴  The result is that inhibition increases the costs of performing that behavior.  For example, countries that prohibit youth from smoking in essence attempt to weaken social support for smoking by instilling a social message that smoking among the young is intolerable.⁵⁵ 

¶21 Lessig describes ritual as “extremely rare, existing only when there is a long-standing tradition that supports the ritualistic practice.”⁵⁶  The example of ritual that Lessig offers is the historical ban on smoking in the first minutes of airplane flights during the years spanning 1979 to 1987.  The significance of this prohibition, when couched in a litany of other safety instructions such as how to find life-jackets, was that the individual’s responsibility to refrain from smoking became larger and more significant in the context of the entire group’s interest of general air safety.⁵⁷  Therefore, through ritual, the costs and benefits that the individual smoker associated with his or her own health and well-being had to be adjusted in light of group safety concerns.  The concerns of the group outweighed and illuminated the individual’s behavior as being too great a risk for the individual, as a member of the group, to bear.

¶22 In effect, Lessig provides “techniques for changing context that might change the cost of behaviors, within that context.”⁵⁸  In this paper, I will use Lessig’s tools of manipulating meaning costs of sanctions within an efficiency or distributional framework of normative judgement to examine the economic and social efficiencies of the proposed labeling model of stigma. 

¶23 In short, building upon the literature, in this paper I propose in “pay to pollute” contexts where true social cost is hidden, effective sanctions must contain truthful information that reveals the injury, thus creating a new public context for future action and present reparation.⁵⁹ More specifically, I apply a labeling model of stigma to accomplish these ends.

¶24 In light of Kahan’s notion that effective penalties are those which accurately express societal condemnation rather than permissiveness;⁶⁰ the notion that esteem that has value and utility to individuals and groups that therefore implies a corporate incentive to protect corporate reputation within the market community;⁶¹ and also the notion that effective judgment must be an act of the community that establishes a new public context for future actions,⁶² I will use Lessig’s tools to attempt to demonstrate that a policy of stigmatizing though labeling can accurately communicate a communal judgement of intolerance that establishes a new public context and therefore effectively deters corporate misconduct by threatening corporate reputation.  I propose that in sanctioning socially inefficient corporate practices where “pay to pollute dynamics” exist, a policy that communicates intolerance is preferable over a policy that expresses accommodation.  Additionally, in the specific context where “pay to pollute” behavior exists, yet where Posner finds that a sanction of imprisonment is costly to society⁶³ and Campbell, et al. find that massive fines as deterrence measures may be similarly costly,⁶⁴ I will try to show that a model of stigmatizing labels provides an economically efficient sanction preferable to both fines or imprisonment that can also adequately deter socially intolerable corporate behavior.

 

F. What constitutes stigma?

 

¶25 Stigma, as referred to in this paper, draws upon its definitions in economic, social, and legal contexts.  In economics, stigma is the decreased earning potential for someone with a criminal record because the employer is less willing to pay as much as previously.⁶⁵  In a social context, stigma means reduced influence among family and friends.⁶⁶  In a legal context, stigma includes reluctance to interact with someone with a criminal record.⁶⁷  In addition, stigma in this paper will refer to a vehicle for a legally imposed campaign of public information.  The legal vehicle of a stigma sanction has an inherent ability to communicate a true, accurate, and effective message to the marketplace that establishes a “new public context for future actions.”⁶⁸  I define “proportionality” of a stigma sanction as a measurement defined and also effectuated by community norms and standards.  Proportionality results when there is a truly accurate and informed market response to stigma and where stigma is achieved by referring to accurately communicated social norms.

 

G. What constitutes intolerable corporate behavior?

 

¶26 I characterize “intolerable” corporate behavior as economically inefficient behavior, defined by its inability to internalize costs to society in the process of creating irreparable, ongoing social harm.  Further, intolerable conduct includes corporate behavior that social policy or law prohibits but which offenders may routinely violate because a current pricing system of fining misconduct inadequately deters when fines express social accommodation for the prohibited behavior instead of communicating intolerance that stimulates behavioral change. 

¶27 “Pay to pollute” behavior in emissions trading⁶⁹ is an example of socially intolerable behavior.  In light of public health, safety, and environmental concerns, governments have prohibited corporations from emitting more than a given level of pollution.⁷⁰  Even though emissions trading policies may induce a corporation to reduce its own pollution levels by creating a financial incentive, because emissions trading is based upon a pricing system, it communicates a message that society will accommodate the social cost of environmental degradation.  The company that redistributes its pollution quota to another party may profit by selling the remaining allotment, but the social cost of pollution, no matter that it comes from company A or company B, will always be borne by society.  Governments’ pricing policies that allow corporations to sell the common, public good of a clean environment might be viewed as something akin to a taking, without the justification of public interest to support it.  In effect, emissions trading is an example of “pay to pollute” behavior that although legal, as a social policy is intolerable because it allows corporations to continue socially inefficient behavior by profiting through imposing social costs that the corporation is not obligated to repay.⁷¹

 

III. Models of stigma

 

¶28 A basic model of an economically efficient stigma sanction that also effectively deters corporate misconduct is one in which courts purposefully, rather than unintentionally or fortuitously, produce stigma.  In light of corporations’ concern over preserving their good reputations, court-ordered measures would create economic incentives for corporate defendants to change their irresponsible behavior.  More specifically, courts can create stigma by leveraging corporations’ concern with retaining a marketable brand and reputation.⁷²  Models of stigma sanctions⁷³ could include advertising and adverse publicity,⁷⁴ community service,⁷⁵ self-debasement or public apology,⁷⁶ a label that invokes a symbolic scarlet letter,⁷⁷ or a warning label.  In each of these models, creating stigma would be the goal, rather than a mere by-product of the court-ordered sanction. 

 

A. Advertising and adverse publicity

 

¶29 In stating that advertising and negative publicity are more effective deterrents than money, Executive Director of the U.S. Consumer Product Safety Commission (CPSC) Pamela Gilbert points to CPSC’s administrative complaint against Black & Decker Corporation as an example.  CPSC’s complaint alleged that Black & Decker’s unilateral recall announcement of October 27, 1997, did not adequately notify the public of either the recall or the fire danger associated with Black & Decker’s Spacemaker Optima Model T1000 Type 1 Horizontal Toasters.⁷⁸  Of 234,000 units sold, only 19,000 or approximately eight percent of consumers responded to the recall in the six months that followed the announcement.  CPSC’s complaint also alleged that Black & Decker’s offering discount coupons for future Black & Decker purchases as a remedy was not adequate.  In its answer, Black & Decker denied the allegations, but after both complaint and answer were filed, Black & Decker began to cooperate with CPSC by offering a free replacement product instead of a coupon.  Gilbert believes that Black & Decker’s initial resistance, followed by eventual compliance, was a reaction to the threat of litigation with CPSC that would result in adverse publicity, something corporations typically seek to avoid.

¶30 For a sanction of stigma that includes adverse publicity to be effective, it would need to be capable of notifying the perhaps widespread, far-flung public, and also it would need to motivate people to act accordingly.⁷⁹  Adverse publicity could be effectively carried out by consumer advocates already involved in the case and it could be government funded.  Adverse publicity could also indirectly be funded by the corporate offender itself, as happened in the case of states suing the tobacco industry.⁸⁰

¶31 A problem with the adverse publicity model, when used as a sanction rather than a threat to induce settlement before litigation, is that widespread advertising and discussion may actually increase social acceptance of the normally undesirable social behavior.⁸¹

 

B. Community Service

 

¶32 In United States v. Danilow Pastry Co., ⁸² six bakeries pleaded nolo contendere to a charge that they had violated the Sherman Act, and the District Court ordered the bakeries to provide community services by donating baked goods to the needy.⁸³  The purpose of the sanction was to call the wrongdoings of the defendants to public attention so that the public would be aware of both the “symbolic restitution”⁸⁴ the court was imposing on the defendants, as well as the benefits of the service that served the needs of the community.  The court in Danilow noted that there was evidence from criminologist literature that “symbolic restitution that reaffirms the community standards is an important element of general criminal deterrence.”⁸⁵

¶33 The Danilow court chose alternative sanctions in light of the economic consideration that fines large enough to deter would bankrupt the defendants.⁸⁶  Similarly, given a case where optimal fines are unaffordable for the defendant and the defendant’s offense violates community standards, the courts’ imposition of stigma through community service is preferable, as the sanction serves to inform the public through a mechanism similar to adverse publicity.⁸⁷

¶34 A problem with the community service model is that this sanction may result in the reverse of the intent of stigma where the defendant receives admiration rather than shame.⁸⁸  For example, it could be unclear that the defendants in Danilow are distributing bread to the needy as a sort of penance for a wrong.  Instead, a misinformed community could view the bakery’s action as evidence of altruistic virtue and so the deterrent effect of the stigma is lost.  A sanction of stigma successfully implemented necessarily affects reputation negatively.  If a sanction instead increases the good reputation of the corporate defendant, it is unsuccessfully implemented.

 

C. Self-abasement/public apology

 

¶35 Applying stigma through self-abasement involves public disgrace through rituals analogous to the public spectacle of the stocks.⁸⁹  A more recent example of this vehicle for stigma is seen in an Arkansas municipality that requires parents to be put on public display if they have curfew-violating children.⁹⁰  The public apology is also a ritual of public humiliation as in Maryland where juvenile offenders are only released after apologizing to their victims, sincerely and with hands and knees on the ground.⁹¹

¶36 Because stigmas of self-abasement and public apology seem to be based upon a desire to create an emotional remorse or humiliation, they would be difficult to apply to a corporate, non-person entity.  If the sanction contemplated targeting organizations’ individual leaders, however, such a sanction might be possible.  Deterrence and punishment would be served through evoking those undesirable emotional states, but there could be constitutional issues raised by the targeted individuals.⁹²

 

D. Warning Labels and Symbolic Scarlet Letters

 

¶37 Not only is direct labeling an information carrier to society, but it can be another form of adverse publicity.  CPSC Executive Director Gilbert states that there is a direct and proven correlation between the government’s counter-advertising and consumer behavior in declining to smoke.  The government’s anti-smoking ads of the 1960s and 1970s successfully reduced the number of smokers, saving costs to society in terms of health care, even while tobacco companies continued their own positive advertising of cigarettes. 

¶38 Direct labeling that effectively communicates a social harm may be the best vehicle for implementing stigma as a sanction, considering the effectiveness of cigarette warnings that emphasized the societal harm of second hand smoke.⁹³  Direct labeling may serve both capacities of a warning label and a symbolic scarlet letter simultaneously.  One example of the interaction of the scarlet letter and warning label model are instances in which courts order drunk drivers to adhere labels to their cars that communicate their conviction.

¶39 One problem with a labeling model may be that space to communicate the social harm is limited.  A second problem may be that labels or symbolic scarlet letters may not be effective where the communication is unclear so that the consumer is not empowered to make an informed decision.

 

IV. Approach and Predicted Effects of Warning Labels for “Pay to Pollute” Behavior

 

¶40 The proposed model to label inefficient or intolerable corporate  conduct has a basic goal of more accurately communicating hidden social cost to the consumer.  It must therefore identify (1) the basic nature of the social harm and (2) the serious social cost that accompanies the harm.⁹⁴  In light of the idea that it is social and group esteem that motivates individuals to incur personal costs to achieve societal status, a label that identifies cost and harm that a product’s production imposes upon the wider society will influence consumer choice.

¶41 Because consumers may find it difficult to absorb the level of detailed information that can be essential to communicating complex calculations of social harm and social cost, a warning label could contain a symbolic scarlet letter.  In addition, incorporating a symbolic message into the label may be necessary because a product may offer limited surface to attach a verbose label to.  The scarlet letter might include a uniform sign, analogous to a stamp of disapproval, which quickly conveys to the consumer a general societal disposition or government policy and attitude toward a corporation and its services, products, or processes.  The stamps may contain quick, visual cues of distinction to convey different information in the least costly manner in terms of transaction costs of gathering product information and time costs to the consumer.  For example, a square symbol may quickly convey Violation A, while a round symbol conveys Violation B.  The color red conveys a high level of misconduct, and the color yellow conveys a lower level of misconduct.  Therefore a red square label placed on a product quickly conveys that Violation A occurred and the level of misconduct was high.  A yellow square conveys Violation A occurred at a lower level of misconduct.

¶42 Beyond the basic goal of the direct labeling model is the goal of creating a new public context that creates opportunity for social choice and possible change as necessary.⁹⁵  Therefore, the context of the labeling should be one in which warning labels are likely to reduce the extent, frequency, or severity of social harm and social costs.⁹⁶  The degree that the model can achieve these goals indicates the model’s level effectiveness.⁹⁷

¶43 To achieve the goals of communicating the social harm and social costs along with creating a new public context for adjusting socially intolerable and inefficient behavior, an effective model of warning labels must influence the consumer’s behavior at the point of purchase.⁹⁸  To influence the consumer’s behavior at the point of purchase, the warning label must clearly communicate a social message that changes the cost of the normal behavior.  Applying Lessig’s tools of regulating social meaning could achieve this end.  Assuming that the consumer is motivated to act under economic reasoning that takes into account cost-benefit outcomes of the consumer’s behavior, the consumer will make both purchasing and other behavioral adjustments.  Socially pervasive behavioral changes will therefore create a new meaning context for individuals, who will then interact with corporate products and processes based upon the new norm and cost-benefit context that the stigma label will suggest.

¶44 For example, in John Doe v. Unocal,⁹⁹ a landmark suit of alleged corporate misconduct that constituted intolerable social behavior,¹⁰⁰  Burmese plaintiffs sued California-based Unocal, in a United States federal court.  The plaintiffs, represented by the Centre for Constitutional Rights and Earthrights International, alleged that Unocal acted through the Burmese army to physically force local Burmese to aid the company, with little or no pay, to construct the Yadana natural gas pipeline.¹⁰¹  Although the court acknowledged that violence perpetrated against the plaintiffs was well documented and that Unocal most likely knew that its project was benefiting from forced labor,¹⁰² the court held that under the Alien Tort Claims Act, such knowledge does not meet the standard for liability of participation or cooperation in forced labor practices.¹⁰³ The court also held that the alleged “preparatory activities”¹⁰⁴ that Unocal undertook was conduct that was too remote or indirect to the abuses in Burma, for subject matter jurisdiction under RICO to attach.¹⁰⁵  Although had plaintiffs successfully demonstrated that a credible threat of human rights violations to their persons existed in furtherance of the Unocal pipeline project, the court denied the plaintiffs standing for purposes of a class action suit.  The court believed enjoining Unocal from paying the Burmese government involved in the pipeline project would not achieve redress for plaintiffs’ injuries where the actions of independent third parties involved in the pipeline project were unpredictable.¹⁰⁶  In other words, the court recognized that an injunction issued in the context of a pricing system would fail to deter third parties.

¶45 It may be that lawyers for the plaintiffs would have been more successful had they framed their argument in terms of restitution, where a claim could be asserted that Unocal was unjustly enriched at the plaintiffs’ expense, even absent a tort.¹⁰⁷  What could have happened in this case, if the federal court had found Unocal guilty?  The court, acting under a labeling model of stigma, could have employed techniques of tying, ambiguation, inhibition or ritual as a sanction to deter further such misconduct. 

¶46 If the court had found Unocal guilty, a court operating under a labeling model of stigma could order the company to advertise its conviction on fliers that it must post on its property in public view in order to tie Unocal’s name to the alleged intolerable behavior.  The negative association would deter managers of other companies from endorsing similar corporate policies, and also deter the guilty corporation from repeating any such crime.  Tying would therefore deter the misconduct and inefficient behavior through individual and group esteem-seeking dynamics where publicity that reveals a corporation's civil rights abuses increases the costs to corporate reputation.¹⁰⁸

¶47 A court order implementing a stigmatizing warning label could also introduce ambiguation into the meaning of consumer choice to affect the cost-benefit incentives of the decision-making process.  After being exposed to the social harm and social costs of the corporate policy indicated by informative labels adhered to corporate advertisements, the public could perceive that the true cost of blindly selecting a gas provider has increased from a personal choice to a wider social sphere.  When a court sends an information-rich message through the vehicle of stigmatizing warning labels attached to public relations literature, the result is a more balanced corporate image.  A court-imposed warning label gives rise to a more accurate accounting of true costs when the information that appears alongside a corporate logo illuminates the social costs.  The overall message serves to act as an information vehicle to the consumer regarding the company’s corporate policy.  Because individuals are more likely to be motivated to act in the interests of a group to which they perceive themselves as belonging,¹⁰⁹ ambiguation would effectively influence consumer behavior.  The result would be that consumers might select a natural gas provider which they do not perceive to exact as high a true cost as Unocal might impose.  When consumer market choice changes, by the law of supply and demand, the defendant corporation will change its costly behavior to less costly behavior that can reclaim market share.¹¹⁰  Therefore, a stigmatizing warning label will achieve deterrence of the misconduct at issue.

¶48 The same court order could also encourage inhibition of intolerable corporate policy.  The type of corporate misconduct that Unocal was accused of would eventually cease to manifest when the increased costs to corporate esteem cause the behavior to decrease in pervasiveness and ultimately cease.  Increased social condemnation would increase the esteem costs of Unocal’s alleged behavior so that it would no longer be affordable to engage in even preparatory conduct to finance a project that the company strongly suspected would thereby be accompanied by the Burmese military’s imposition of forced labor.¹¹¹  The communication of social intolerance would prevent a guilty company from continuing to adhere to a “pay to pollute” mentality.

¶49 Also, over time, a ritual might develop when the ceremony of a court applying the labeling model of sanctions to a guilty corporation attains an almost ceremonial meaning of social condemnation.  Over time, the tools of tying, ambiguation, and inhibition will change the meaning costs of a court conviction for behavior such as that alleged in the Unocal case.  As in the inhibition example, the result will be that such corporate misconduct will become rare when social costs to corporate esteem are too high.  Therefore, when a conviction actually takes place, it assumes the meaning of a condemnation ritual, consisting of court proceedings followed by the ceremonial, uniform posting of information in public view and subsequent public reaction.  The posting itself, in order to communicate the social harm and costs more effectively than words, may become something of a symbolic scarlet letter.  The posted literature in public view might always be on red paper, and it might always be of a certain weight and shape, so that words may not even be needed or become supplementary to the message of the posted symbol itself.

¶50 One question that arises is who determines what the stigma should be and who should administer it?  It has been proposed that stigma should be privately imposed so that it does not cost the government, which also will not then be predisposed to implement sanctions based upon financial factors.¹¹²  This model uses courts as an example of possible administrators of the stigmatizing warning label sanction.  However, this model does not exclude the possibility that society and private entities might effectively implement a stigma sanction.

¶51 The problem with societal, un-institutionalized enforcement may be lack of uniform application.  A policy of stigma labeling that allows random, un-institutionalized implementation of stigma sanctions may open the door to segments of society practicing forms of outright discrimination.  On the other hand, even though courts that purposefully implement stigma sanctions on a case-by-case basis may be vulnerable to accusations of unfairness, judges are bound to precedent.  Courts’ legal obligation to follow precedent may help address the uniformity of application and fairness issues.  Private institutions that enforce stigma may likewise offer a greater possibility of uniform application of penalties, but similarly to the problems of un-institutionalized enforcement, private entities may also be less likely to implement a stigma sanction that reflects society-wide norms.  The decisions and actions of a private entity may be less accountable to social interests and more committed to the pricing system that has been shown to inaccurately assess social costs.  It may be that courts can find principles of social norms more easily, being bound to both law that is developed by precedent and the society that courts serve.

 

V. Results and Analysis

 

A. Traditional Economics Theory Supports Stigma as Preferable to Fines

 

¶52 Posner’s theory that stigma imposes costs on the criminal with no corresponding gain to society is inapplicable to most real world situations if social “gain” goes beyond monetary definitions and includes the utility that is gained by creating a culture that encourages a preferred social behavior.¹¹³  For example, deterrence of homicide is an example of a social gain that appears to be created at least in part by a policy of capital punishment.¹¹⁴  Some studies indicate that capital punishment creates a culture that encourages social behavior where would-be murderers refrain from killing.¹¹⁵ 

¶53 These findings illustrate the fact that policies can shape a culture by keeping criminal action from taking place.  Therefore, by extension, because culture is malleable, it is possible to use a policy of stigma warning labels to create a culture that encourages behavior supporting social well-being, where the “gain” is non-monetary behavioral change and where would-be corporate offenders refrain from the “pay to pollute” conduct that is a problem in a fining system.

¶54 Posner’s economic view also neglects to take note of the inherent inadequacy of necessarily quantifiable fines.  Because some costs to society are permanent with the result that succeeding generations suffer the harm in perpetuity, finite monetary fines are inadequate restitution.  For example, some environmental costs that corporations create are impossible to internalize.  They are irreparable costs that society must pay inevitably as well as indefinitely.  Fines that encourage “pay to pollute” policies contribute to growing social costs of depleted ozone and increased smog that industry creates.  All of society must shoulder the cost when monetary fines do not adequately address corporate-induced costs to quality of life:  loss of health, air quality, toxic water, and degradation of an aesthetic experience in a clean environment.  In addition, unrestrained and unsustainable logging activities that destroy the possibility of preserving a diversity of species¹¹⁶ cost the public in that such activity inhibits medical advancements¹¹⁷ and creates future health costs.  Not only does industry-induced environmental degradation diminish natural resources’ psychic utility in terms of providing people with pleasure, but “pay-to-pollute” dynamics also compromise the ability of future generations to utilize those natural resources for society’s material well-being when fines fail to deter resource depletion and degradation.  Therefore, short-term monetary compensation may sometimes come at the cost of long-term social well-being. 

¶55 Also, because some costs to society are externalities that aren’t readily discernable, it may be impractical to attach a price as Posner would suggest.  When a worker is seriously injured on the job due to corporate misconduct,¹¹⁸ there are ripple effects to the injured worker’s family.  It may be that both the worker’s family and community will bear not only the monetary costs of medical care, but the emotional and opportunity costs of the injured worker, as well as the cost of the labor the worker would have performed.  These ripple effects that travel from the injured worker to surrounding people, are externalities that are not compensated because emotional and opportunity costs are hard to put a finger on, may be hard to litigate, and may be unfairly priced for both the plaintiff and defendant.  Effects are wide spread, and though causal, may be indirect.  Further, disease or health problems due to health and safety violations might only manifest after the applicable statute of limitations has run, preventing victims of corporate misconduct from receiving compensation. 

¶56 Moreover, the cautions that Campbell, Kessler, and Shepherd raise in interpreting their tort reform data point to implementing a policy of stigma over fines.  First, in addition to the conclusion that large fines restrict productivity growth, the authors caution that the effects of liability reform within states may be due to a reallocation of costs among the industries or states studied, signifying that national productivity may not necessarily show the same effects as those in the states studied.¹¹⁹  Further, decrease liability reforms that reallocate costs between industries within a state may actually lead to greater overall costs to social well-being¹²⁰ where costs are externalized when the reforms compromise product quality and leave consumer injuries uncompensated.¹²¹  If true, these possibilities also point to a situation in which states should apply a labeling model of stigma sanctions rather than a pricing system of fines.  Where decrease reforms that reduce fines allow defective, harmful corporate practices and products to continue, a policy that imposes a label of stigma upon defective processes or products will be more likely to motivate corporations to internalize costs. 

¶57 The significance of a stigmatizing label is that the label identifies the social harm and holds the offending corporation accountable through its concerns for maintaining reputation and through information that is readily available to the consumer, independent of the corporation’s location.¹²²  Therefore, one strength of a stigmatizing label is its ability to decrease the value of the offending corporation’s brand and reputation.  The other element that makes a stigmatizing label effective is its information carrying capacity.  Consumers who have access to the information that a product carries on its attached stigma label can hold the offending corporation accountable for irresponsible behavior, regardless of whether the corporation has relocated.  Because a stigmatizing label’s impact on corporate reputation is therefore likely to have widespread effects,¹²³ corporations will be deterred from conduct that would warrant society’s application a stigmatizing label.  A policy that creates the threat of a court-imposed stigma label can therefore decrease harm to consumers and the market.

 

1. Deterrence through a stigma label is more efficient than imprisonment

 

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