If I asked who or what are the primary sources of corporate governance changes, I would expect the following answers: Congress, the Securities and Exchange Commission, the stock exchanges, proxy advisory firms, public pension funds, and “gadflies” (see yesterday’s post).  Some might even include the plaintiffs’ bar. I doubt that many would include federal prosecutors.  After all, their job involves dealing with corporate governance failures after they have occurred.  One doesn’t usually think of them as agents of prospective change.

Non- and Deferred Prosecution Agreements

A new article by Wulf Kaal and Timothy A. Lacine examined 271 Non- and Deferred Prosecution Agreements (N/DPAs) entered into during the last two decades (1993-2003).  They found that the use and application of N/DPAs has proliferated, a trend that they expect to continue.  They also found that that “corporate governance provisions in N/DPAs significantly increased in the last decade, boosting prosecutors’ influence over corporate governance to unprecedented levels”.  You can read the entire article here (I was pleased to see that they cited my article, The McNulty Memo-Continuing the Disappointment, 10 CHAP. L. REV. 729, 736 (2007)).

Would You Trust Corporate Governance To Federal Prosecutors?

One does have to ask whether it makes sense for federal prosecutors whose expertise is not likely to be in corporate governance to be dictating corporate governance changes.  One also asks about the power imbalance between federal prosecutors and the companies charged with wrongdoing.  See James R. Copland, The Shadow Regulatory State: The Rise of Deferred Prosecution Agreements, 14 CIV. JUST. REP. 1 (2012) (“Under the threat of prosecution but no actual criminal trials, some of the nation’s largest corporations have been pressured to pay significant fines and have removed top executives and significantly modified business practices at the insistence of officials from the Department of Justice (DOJ)”).