Profitable Misconduct, Corporate Governance, and Law Enforcement
Working Paper Author/Authors
Key Finding
Relying on inducements for cooperation with corporations when enforcement is weak might appear beneficial but may make matters worse
Abstract
This paper analyzes interactions between corporate governance and law enforcement practices, focusing on cases where deterrence is weak and harmful misconduct is profitable. We show that managerial compensation contracts often undermine enforcement efforts aimed both at the corporation and at managers, and that common enforcement policies such as discounting penalties when corporations self-report or implement compliance programs can lead to more social harm by increasing the profitability of misconduct. Our results suggest that policies designed to deter corporate misconduct must account for interactions between external governance, including laws and their enforcement, and internal governance mechanisms such as managerial compensation.
© Anat Admati, Nathan Atkinson, Paul Pfleiderer, 2025
All rights reserved. Distributed for discussion purposes only; not to be reproduced without permission.
The views expressed are those of the author(s) and do not necessarily reflect those of ECGI or its members.
For copyright queries or takedown requests, contact wp@ecgi.org.
