Corporate Crimes and Penalties

It has become clear in recent days that car drivers have more than ample reason for concern about whether large companies entrusted to ensure the safety and efficiency of their vehicles can be trusted in that mission.

Last week, Japanese auto supplier Takata agreed to accept penalties for failures involving exploding air bags that have killed at least eight people and injured at least 98. And Honda, asserting that Takata had “misrepresented and manipulated test data” on air bag inflators, announced that it is discontinuing its relationship with the other Japanese company.

According to the National Highway Traffic Safety Administration (NHTSA), Takata has acknowledged “that it was aware of a defect but failed to issue a timely recall.”

Stating the obvious, Transportation Secretary Anthony Foxx commented that “American drivers should not have to worry that a device designed to save their life might actually take it.”

Then there was Volkswagen. Back in September, the U.S. Environmental Protection Agency revealed that the German automaker installed software on 482,000 cars that enabled them to cheat on emissions tests. The software reduced nitrogen oxide emissions when the cars were placed on a test stand but then allowed higher emissions and improved engine performance during normal driving.

Volkswagen admitted its culpability and the fact that about 11 million diesel vehicles worldwide were fitted with the deceptive software. Then the company announced that it had also understated emissions of another pollutant, carbon dioxide, for 800,000 of its cars.  Several days later, Germany’s Transport Minister, Alexander Dobrindt, told the nation’s  parliament: “Today we were told that among the affected vehicles are 98,000 petrol [non-diesel gasoline] vehicles.”

For its part, and although Volkswagen rejects this allegation, the Environmental Protection Agency and the California Air Resources Board say Volkswagen also installed the cheating software on thousands of Audi, Porsche and Volkswagen cars with six-cylinder diesel engines. (The previous revelations of cheating involved four-cylinder diesels in smaller cars.)

Meanwhile, Volkswagen is also recalling 92,000 cars in the U.S. over a mechanical problem that could affect vehicles’ brakes.

The repercussions of all the scandals have been considerable.

The NHTSA ordered a recall of 19 million vehicles with Takata airbags — of which 14 million are from BMW, Fiat Chrysler, Ford, Honda and Mazda. The rest are from General Motors, Mitsubishi, Nissan, Subaru, Toyota and Daimler. And Takata was also fined $70 million for failing to promptly disclose defects in its airbags — a penalty that could grow to $200 million if Takata does not live up to the terms of a consent order, part of the penalty settlement.

Volkswagen CEO Martin Winterkorn resigned in the wake of the software scandal at his company, and Germany ordered recall of all Volkswagen cars with the test-cheating software. Volkswagen has set aside 6.5 billion euros ($7.3 billion) to deal with the costs of the scandal, including expected recalls. The company reported a loss of 1.67 billion euros ($1.83 billion) in the third quarter. And it dropped one shift a week at one of its engine factories and imposed a temporary hiring freeze at its financial services division.

The bond credit rating service Moody’s downgraded Volkswagen’s rating and assigned it a “negative outlook.”

Shares in Volkswagen closed down 9.5 percent, wiping more than another 3 billion euros ($3.3 billion) off its market value. It has lost almost a third of its value or 24 billion euros since the scandal broke.

When violations of the public trust affect environmental or minor regulatory concerns, financial penalties make sense. But they must have sufficient “bite” to act as a true deterrent for the future.

Senators Richard Blumenthal (D-Conn.) and Edward Markey (D-Fla.) made that point, in a joint statement. “Meager fines,” they wrote, “do nothing more than change the costs of doing business and provide no meaningful deterrence for continuing reprehensible and irresponsible behavior that costs countless preventable injuries and lives.” The lawmakers demanded that limits on civil penalties levied by NHTSA must be eliminated.

More important still was what they then addressed. There should be, they contended, “criminal penalties associated with concealing life-saving information about defects from the public.”

That may seem harsh, but it’s not. A “company,” after all, doesn’t make decisions; people within it do. And when decisions rise to criminality, the decision-makers are criminals, and deserve to be treated as precisely that.