From the June 2001 issue of Entrepreneur

Congress took action last fall when the public learned about the deaths and injuries attributed to faulty Firestone tires on Ford Explorer SUVs. And it didn't hurt that the election was not far away. Republicans and Democrats alike called for new laws to promote product safety and punish executives and owners who willfully ignore safety warnings.

In September, Sen. Arlen Specter (R-PA) proposed brief but sweeping legislation that would have imposed a prison term of up to 15 years on anyone who knowingly allowed a defective product that later killed someone to enter interstate commerce. The law would have held responsible anyone who manufactured, assembled, imported, sold or otherwise produced or transferred the product.

That bill didn't get very far, but a more narrowly focused one quickly passed both houses of Congress, and former President Clinton signed it into law. The TREAD (Transportation Recall Enhancement Accountability and Documentation) Act applies only to tire and auto executives, authorizing prison terms of up to 15 years for execs who knowingly withhold information about safety defects in products that cause injury or death.

This is only the latest in a string of laws, regulations and court decisions that turn certain immoral business decisions into criminal acts. Fueling the fire of those arguing for increased accountability is the principle held by some owners and execs that fines, even very big ones, are simply a cost of doing business. What's likely to deter those scoundrels, the argument goes, is the threat of criminal sanctions-not just giving them criminal fines, but actually locking them in jail.

Guilty As Charged

A landmark court ruling in 1985 launched the trend. Prosecutors in Cook County, Illinois, brought murder charges against three corporate executives of Film Recovery Systems Inc., a firm that recovered silver from used photographic film. The company's employees worked around large vats of bubbling cyanide-but their foreman didn't tell them what it was. Indeed, employers had scraped off the warning labels, reassured the workers it was harmless and provided no protective gear. After a 61-year-old Polish immigrant succumbed to the hydrogen cyanide fumes and died, the ensuing investigation led to the murder charges. The executives were convicted and sentenced to 25 years in prison. Since that time, lawmakers have passed numerous laws that threaten jail time for decisions that result in injury to employees.

States have also spoken up. The California Corporate Criminal Liability Act of 1989 makes it a crime for a corporation or manager to have "actual knowledge" of a serious concealed danger associated with a product or business practice and yet fail to notify Cal-OSHA and affected employees within 15 days. Maximum penalties for managers are $25,000 and three years in prison. Under OSHA, an employer who willfully violates one of its health or safety standards, causing the death of an employee, is subject to a criminal sentence of six months in jail. (Angry labor advocates are chafing about the regulations that make the penalty for environmental harm so much stiffer than those for harm to workers.)


Steven C. Bahls, dean of Capitol University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.