Mary Jo White, the new chair of the Securities and Exchange Commission, is urging an end to the practice of settlements with businesses where they admit no wrongdoing. I agree with Matt Yglesias that this is a good change. For too long we’ve allowed companies to avoid any reputational stain for their misbehavior. The fines they paid were just seen as the cost of doing business. And given that the fines are never substantial relative to the size of the businesses, the SEC settlements don’t even amount to a slap on the wrist.
Where I part with Yglesias is in his belief that it really will matter. He says symbols matter and I agree. And it will be a very big deal when the first big company reaches a settlement with the SEC that includes an admission of wrongdoing. There will be a lot of pundit chatter about how important it is. But then it won’t make any real difference to the public. The company will launch a PR campaign and everything will be forgotten. And “admission of wrongdoing” will become the new normal. Business schools will teach classes on how to handle potential fallout from such deals.
What might actually help is holding top executives criminally liable for the wrongdoing of their businesses. But we’re not going to see that. Just like everywhere in the modern world, those at the top get all of the benefits from their position but absolutely none of the responsibilities. All of us scratch our heads when CEOs who have done great damage to their companies are given generous compensation when they are thrown out. This is the same thing. The theory is that the power elite are better than the rest of us and therefore cannot be made to suffer in the slightest. It is our version of aristocracy but without the noblesse oblige.
This decision by White may, however, be a good sign about her. She may be prepared to really face off with these companies. But it is impossible to say. As Yglesias wrote, “In brass tacks terms, one might wonder how much this matters. Is a fine plus an admission of guilt really so much worse than a fine plus a ‘neither admit nor deny’ wrongdoing?” He thinks it is. But to me, this could just be White’s way of mollifying the masses without doing anything that would make the business community unhappy.
Time will tell how good a job Mary Jo White does. I started out being very skeptical of her. This announcement doesn’t really change my position. But if she goes on to make the SEC into an institution that really does the people’s work, we will probably look back at this decision as the start of it all. With all my skepticism, I really do hope that turns out to be true.