On
September 17 the government and General Motors Corporation announced a $900
million settlement of criminal charges stemming from a defective ignition
switch installed in many GM cars. The switch could be easily jarred into the
off position, disabling the airbag system and causing a number deaths.
The
GM and other recent large-dollar settlements with corporations represent a
disturbing trend in federal criminal prosecutions. Until recently, it was
believed that a corporation could not commit a crime. A corporation lacks
beliefs or desires and is incapable of taking any action, lawful or criminal;
it is just a set of legal relationships among individuals—directors,
stockholders, officers, and employees—who act in the corporation’s name. So when
we say that a corporation does something, we should understand that it is the humans
who do those things.
Just
as corporations can’t commit crimes, they can’t pay settlements. Saying that GM
paid $900 million just means that GM’s stockholders paid the $900 million. No
one has suggested that the stockholders committed any criminal act, yet they
end up paying the penalty. So the first problem with the GM settlement is that
it punishes the innocent.
It
also fails to punish the guilty. In almost all the recent corporate
settlements, no individuals were charged. One can understand why prosecutors
are reluctant to go after individuals; if the case goes to trial, the
government may face substantial difficulties convincing a jury that a crime was
committed.
Far
better to reach a settlement that will give the prosecutors their headlines
while avoiding the messiness of having to prove the charges. The corporation
also benefits—the fine is set so as to cramp, not cripple, the company. No
individuals are prosecuted, and there is no chance of a guilty verdict that might
amount to a corporate death-sentence. (The preceding argument tracks a more
detailed presentation I made here.)
There’s
a particular problem with the GM settlement: It doesn’t appear that any
individual committed a criminal act. After the story broke, GM commissioned a
team of outside lawyers to prepare a detailed report as to why GM’s engineers
failed to understand the role of the faulty ignition switch in the fatal
crashes. While the report was commissioned by GM, I am not aware that anyone
has seriously questioned its narrative of what went wrong. The report is
consistent with other accounts of engineering disasters, such as the cases
recounted by Henry Petroski, or the sociologist Diane Vaughan’s account of the loss of the space
shuttle Challenger.
If
the report is accurate, then it does not seem that anyone at GM did anything
criminal. GM’s engineers had a lot of information to process, and not all of it
pointed to the defective switch. It was only in November 2013 that they finally
came up with a theory that could explain most of the airbag non-deployments. The
engineers may have been stupid, but no one seems to have papered over a safety
problem, or lied to regulators or the public.
With
one possible exception: In 2007, Raymond DeGiorgio, the engineer in charge of
the switch’s development, acting against instructions from his superiors, had an
improved switch substituted for the faulty switch on the assembly line. (Neither
DeGiorgio nor his superiors seem to have been aware at the time that the old switch
was implicated in the airbag non-deployments.)
Possibly
to cover his tracks for disobeying orders, and contrary to GM policy, DeGiorgio
didn’t change the switch’s part number. When GM engineers trying to explain the
airbag non-deployments realized that the problem did not affect cars
manufactured after 2007, DeGiorgio’s failure to change the part number led them
to conclude that the switch couldn’t be the cause. Later, DeGiorgio, who by this
point may have realized that there was a safety issue, assured the engineers that
the switch had not been changed. (DeGiorgio claims not to remember these
incidents, so I can only speculate as to his knowledge or motives.) But it’s
not clear that misinforming co-workers can be spun into a crime, and in any
case, DeGiorgio’s statements don’t seem to figure in the government’s charges
against GM.
(I’ve
written a 7,500 word account of the press coverage of the ignition switch
problem, which I am trying to publish; if that doesn’t pan out, I’ll post it
here.)
The
final problem with the GM settlement is that it does nothing to help the
victims; all of the $900 million penalty will be retained by the government. Of
course, the victims are not without a remedy: They can follow the normal process
of bringing product liability suits against GM. This would normally entail substantial
legal costs, but GM—to try and salvage its reputation, and to avoid endless
litigation—has provided an easier path for claimants by setting up an
independently-administered compensation fund, initially funded at $400 million.
The fund ended up making settlement offers, each for $1 million or more, in
some 124 fatal accident claims.
The
media have seized upon the 124 figure as the number of deaths caused by the
faulty switch, but the fund’s administrators never attempted to determine
whether the faulty switch caused the deaths. All they required was that the car
had the faulty switch and that the airbags did not deploy. Accordingly, settlement
offers were made in cases that did not fit the engineers’ theory of why the
airbags failed; offers were even made where the victim was in the back seat,
where there were no airbags.
We
will probably never know how many deaths were caused by the faulty switch, but
it is likely far less than 124. Airbags fail to deploy in about 9% of all fatal
crashes. Even if
airbags deploy, people may not survive: Since 1998 all new cars have had front
seat airbags, yet in 2013 over 22,000 drivers and passengers died on the
nation’s roads, the vast majority protected—inadequately—by airbags.
The papers are now full of
stories about Volkswagen’s scheme to defeat U.S. emissions testing; VW can look
forward to an expensive encounter with the Justice Department. It remains to be
seen if the Department will continue to punish the innocent, let the guilty
walk (unlike GM, it seems that individuals at VW may have committed crimes), and
do nothing for the victims.
—Howard
Darmstadter (f/k/a Stan Laurel)
