It Takes a Village to Hold Big Business Accountable
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Over the past year we have witnessed unprecedented attempts to regulate bigness. In the US, a sweeping executive order committed the entire federal government to reining in big business. In the EU, the proposed Digital Market Acts (DMA) will ban prevalent practices of the big tech platforms. Whereas past size-based regulations tended to focus on relieving smaller companies from regulatory burdens, this new type of proposals are not size-based but rather BIG-based: the DMA, for example, applies only to companies valued at over €75 billion. Further, past attempts at BIG-based regulation usually focused on traditional antitrust tools and thinking, namely, the notion that bigness and market power lead to lower outputs and higher prices (harming consumer welfare). Today’s BIG-based regulation, by contrast, emphasizes impact on society at large (harming user privacy, public discourse, and so on).
But why should the need to regulate content moderation, for example, hinge on the bigness of the company in question? Here the anti-bigness proponents emphasize the ‘big-is-ungovernable’ claim: giant corporations with market power treat legal requirements as mere recommendations, and routinely engage in behavior that harms others as long as it maximizes their own bottom line. Accordingly, we need to break them up or regulate them more intensely, or so the argument goes. But the big-is-ungovernable claim as currently construed is underdeveloped. In fact, many existing law-and-economics analyses suggest that big is more governable. Larger corporations are more publicly visible, increasing the probability that any misconduct would be detected. And they have more to lose from being caught misbehaving: from higher punitive damages in court to greater reputational fallout in the marketplace. To what extent, then, is big truly ungovernable?
My new article, titled ‘The Challenge of Holding Big Business Accountable’, offers an intellectual framework to address this question. The article identifies four unique institutional features of big business that can affect the effectiveness of deterrence across all systems of control—not just legal, but also non-legal controls such as reputation concerns or moral constraints. The first two were already mentioned: (1) bigger visibility (having more sets of eyes on them: more consumers, workers, journalists, and stock analysts), and (2) deeper pockets. But there exist two additional factors that push in the opposite direction (less governability): (3) power to shape the regulatory framework that governs these corporations, and (4) a fragmentation of knowledge within them that makes it harder to detect and stop transgressions of the framework.
Which of these vectors dominate is a context-specific question, and the bulk of my article examines how big business can be more governable in some contexts, and less governable in others. For example, big corporations seem to fare better (worse) on issues with high (low) saliency and low (high) complexity. When the lines are clear, they are better at staying within them. By contrast, when the lines are blurred, they are better at exploiting loopholes and pushing the envelope in ways that benefit them but harm society. Identifying these areas allows policymakers to focus on the more worrisome and fixable issues.
From this vantage point, the most important point when building an intellectual framework for controlling bigness is the need to think of all systems of control holistically. Even if each system—laws, markets, and morals—is malleable, the combination of all three systems could provide a check on big business, as long as each system’s flaws are imperfectly correlated with the other systems’ flaws. To illustrate, in a previous project I showed that the majority of impactful investigative reporting relies on ‘legal sources’, such as documents that were produced during litigation and regulatory investigations. In that way, law enforcement and media scrutiny complement each other nicely to bring the powerful (in both public and private sectors) to account.
The problem is that big corporations often use the flaws of one system to influence the other systems, such as using their clout over the regulator to win also in the court of public opinion.
Wells Fargo’s phony-accounts scandal illustrates. Investigative reporters at the LA Times were the ones breaking the story in 2013, detailing how pressures to meet performance yardsticks led to massive consumer fraud. What allowed the reporters to come out with the story are court documents from wage-and-hours lawsuits filed by disgruntled Wells Fargo employees. The court documents provided readymade, libel-proof testimonies by former employees, which detailed the pervasive lawlessness. But following a string of recent US Supreme Court decisions, such workplace disputes are less likely to be aired in court going forward. The Court ruled that mandatory arbitration provisions with class action waivers are enforceable. America’s biggest corporations did not waste time in forcing their consumers, workers, and suppliers to sign such provisions. As a result, the next time a journalist attempts to expose shenanigans by giant companies, damning inside information is more likely to remain out of her reach. This is a live example of using market power to dilute the effectiveness of legal deterrence.
Policymakers should therefore strive to make the different systems interact with each other positively, such that one system’s advantages check and balance the other systems’ flaws. This necessitates looking at seemingly disparate areas such as civil procedure doctrines on approving protective orders and confidential settlements, or corporate law doctrines on directors’ oversight duties.
Roy Shapira is Associate Professor of Law at Reichman University (IDC).
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