Nuts and Beatles
My object all sublime,
I shall achieve in time-
To let the punishment fit the crime.
—Sir William Schwenk Gilbert, The Mikado
Although I have never met Martin Winterkorn, the purpose of this column is to offer him the reassurance I am sure he badly needs. The news about his company’s misfortune came out at almost exactly the same time we learned of the sentencing of Stewart Parnell. News of that sentencing has probably given Mr. Winterkorn considerable concern. It needn’t. That’s because there is a difference between how the U.S. Justice system deals with criminal conduct involving cars and criminal conduct involving peanuts.
Stewart Parnell is the 61-year-old millionaire owner of the now defunct Peanut Corporation of America who was just sentenced to 28 years in prison. It all happened because of peanuts. In 2008 there was a salmonella outbreak that killed 9 people and sickened 714 others. The outbreak was traced back to peanut butter paste that Mr. Parnell’s company shipped to its customers. At the time of the shipments the company knew the shipments were contaminated with salmonella. At his criminal trial in 2014, Mr. Parnell was convicted of 72 counts of fraud, conspiracy and the introduction of adulterated food into interstate commerce. The sentence was a good news-bad news scenario for Mr. Parnell. The bad news was that he was the first corporate executive of a food company to be convicted of felony charges arising out of food poisoning caused by the company’s product. The good news was that he was only sentenced to 26 years in prison. The conviction could have resulted in a sentence of 803 years in prison but the judge decided Mr. Parnell was entitled to leniency and imposed a shorter sentence than the maximum allowed by law. Bill Marler who represented some of the victims of Mr. Parnell’s criminal conduct said: “Although his sentence is less than the maximum, it is the longest sentence ever in a food poisoning case. This sentence is going to send a stiff, cold wind through board rooms across the U.S.” Although not in the U.S., a boardroom in Wolfsburg, Germany may be feeling the chill and one of the occupants feeling the stiff cold wind may be Mr. Winterkorn. If recent events are a guide, however, he doesn’t need a sweater to protect him from the cold. The American justice system will do the trick.
At almost the same time that Mr. Parnell was sentenced, we learned that Volkswagen, a pillar of the automobile industry, had engaged in a different kind of corporate misbehavior from the peanut folk. It didn’t kill anyone outright. It just contributed more pollution to our world than anyone except a few people at Volkswagen, realized. Volkswagen’s transgressions are well known by now and need no reiteration here. Mr. Winterkorn and other Volkswagen executives who read about Mr. Parnell’s sentence may be worried that notwithstanding the absence of deaths as a result of their misconduct, they may nonetheless be facing long jail terms if found guilty of criminal conduct. They needn’t be concerned. That is because peanuts are different from cars,
There are two recent examples of corporate misbehavior by executives of car companies that have resulted in multiple deaths. General Motors executives, for example, knew that the company was installing faulty ignition switches in several models of cars it made. These switches caused the deaths of 124 people and severe injuries to another 275. Readers skilled in numbers will immediately note that the faulty ignition switch had much more serious consequences than the bad batches of peanut butter. Nonetheless, shortly before Mr. Parnell got his 28 years, General Motors agreed to pay a $900 million fine and entered into a deferred prosecution agreement with the government. No executive in that company will face criminal charges.
In 2014 Toyota agreed to pay a $1.2 billion penalty to settle the criminal probe into how it dealt with the consequences of the unintended acceleration problems that not only resulted in the deaths of a California Highway Patrol officer and three of his family members but the recall of 8.1 million vehicles. In announcing the Toyota settlement, then attorney general, Eric Holder, said: “Put simply, Toyota’s conduct was shameful.” At the time of the settlement of the criminal probe there were 400 wrongful death and personal injury lawsuits still pending because of the defect in Toyota’s vehicles. As a result of the settlement of the criminal probe, no one at Toyota needs to worry about facing any time in prison.
The foregoing is simply historical. All it is intended to do is to show Mr. Winterkorn and his colleagues that, although the Volkswagen Company may end up paying billions in fines and penalties, if history is a guide, no one in the company will go to prison, irrespective of what criminal investigations may disclose. And there is even a bright side to the fines that the company will have to pay. Although they will reduce the profitability of the company for the years in which the fines are paid that simply reduces the amount of money available to pay dividends to shareholders. It is a win-win situation. No one goes to jail and shareholders, rather than the executives, suffer the financial losses. That’s a great example of good old American know how