21 October 2015

What crime did GM commit?

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)

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