Faculty of law blogs / UNIVERSITY OF OXFORD

Corruption and Controlling Shareholders


Kevin E. Davis
Beller Family Professor of Business Law at New York University School of Law.
Mariana Pargendler
Professor of Law at Fundação Getulio Vargas School of Law in São Paulo; Research Member of the European Corporate Governance Institute (ECGI)


Time to read

2 Minutes

The international debate about combatting corporate bribery has been implicitly or explicitly dominated by the assumption that bribes are paid by companies’ employees or agents. Our recent paper argues that this is a mistake. Over the course of the last decade, controlling shareholders have been directly involved in some of the largest and most consequential bribery scandals in the world, including the Odebrecht scandal in Brazil and the Samsung scandal in South Korea. We argue that the dominant international model of anticorruption policy is ill-suited to address cases of bribery led by controlling shareholders (CS-led bribery), which warrant a distinct set of legal responses.

It is worth recalling that most companies around the world have controlling shareholders. Controlling shareholders not only have relatively strong incentives to pay bribes but may also be more effective than agents at reducing the transaction costs of bribery. To begin, controlling shareholders may find it relatively easy to conceal bribe payments, by paying them out of personal resources or other controlled entities. Moreover, controlling families, as canonical examples of long-term shareholders, may have a reputational advantage in making corrupt commitments credible. This suggests that in most countries, when corporate bribery happens, it will happen in controlled companies and, at least in family-controlled companies, it will often be CS-led.

The prevalence and significance of CS-led bribery may be obscured by the fact that the United States, the world leader in the prosecution of corporate bribery, has an unusually low number of controlled companies. Over the past five years, most—though by no means all—Foreign Corrupt Practices Act (FCPA) enforcement actions involved agent-led bribery in companies with no controlling shareholders. By contrast, most of the enforcement actions under Brazil’s Operation Car Wash (Lava Jato) involved controlled companies whose controlling shareholders were directly involved in the bribery payments. Even so, enforcement agencies in both jurisdictions encountered examples of CS-led bribery involving substantial sums of money and dramatic consequences.

Agent-led bribery and CS-led bribery are best addressed by different legal responses. To control agent-led bribery, it is logical to use the threat of organizational liability combined with promises of leniency for companies that self-report and cooperate to mobilize the corporate apparatus to prevent, monitor and sanction corrupt managers and employees. That is a less effective response to CS-led bribery, because there is typically little hope of inducing a company to devote meaningful resources to regulating misconduct that directly implicates a controlling shareholder. Controlling shareholders are also unlikely to be affected by other employees’ efforts at prevention, policing, and sanctioning, given their dominance in corporations’ internal hierarchies. The bottom line is that in the case of CS-led bribery organizational liability risks causing substantial harm to corporate stakeholders with few offsetting benefits.

The key to deterring CS-led bribery is to impose sanctions on individual controlling shareholders. The standard objection to relying primarily on individual liability in organizational settings is that it is too difficult to assign responsibility to specific individuals. However, individuation and proof of wrongdoing may not be so problematic with respect to controlling shareholders who take matters into their own hands.

The perennial challenge of detecting bribery can be addressed by encouraging whistleblowers to report information about CS-led bribery to enforcement authorities. It also will be helpful to encourage investors in the company to initiate litigation against controlling shareholders.

No one should be under any illusion that it will be easy to combat CS-led bribery. Controlling shareholders typically have both the economic resources and political clout to resist efforts either to thwart their plans or to hold them legally responsible for their actions. Still, CS-led bribery now accounts for a non-trivial minority of recent FCPA enforcement actions and for most investigations of corporate corruption under Brazil’s Car Wash operation. This article argues that a dedicated focus on controlling shareholders as participants in bribery offers greater deterrence benefits and lower social costs compared to standard prescriptions of organizational liability, even if there are significant political obstacles.


Kevin Davis is the Beller Family Professor of Business Law at New York University.

Mariana Pargendler is a Full Professor of Law at Fundação Getulio Vargas School of Law in São Paulo, Global Professor of Law at New York University, and a Research Member of the European Corporate Governance Institute (ECGI).


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