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UNIT 8
BUSINESS ORGANIZATIONS
ANSWERS TO DISCUSSION QUESTIONS
1. No, these developments do not mean that corporations are more criminal than in the
past. It is more likely that crime is perpetually ongoing. But every now and then, scandals in the business
world rock the nation. This has been the situation in recent years. And, as noted in several chapters in
this unit, Congress responded to public outcry by passing the Sarbanes-Oxley Act in 2002, imposing
stricter requirements on corporations with respect to accounting practices and statements made in
documents filed with the Securities and Exchange Commission (SEC).
The lesson that Congress intended for the business world is, of course, that if business leaders do
not behave ethically (and legally), the government will create new laws and regulations that force them
to do so. It is always the hope that stricter laws will be effective in deterring criminal activity. Whether
this occurs in the corporate context as a consequence of the enactment of new laws with stricter
penalties remains to be seen. In other contexts, reductions in crime have been brought about through a
variety of means—punishing the smallest infractions, for example, has sometimes deterred more serious
2. The answer to this question, according to some courts, is yes. In a leading case on this
issue, discussed in the text, one state court noted that “the possibility of insolvency can do curious
things to incentives, exposing creditors to risks of opportunistic behavior and creating complexities for
directors.” The court held that when a corporation is on the brink of insolvency, the directors assume a
3. Corporations that use the Internet to distribute information about the company to
investors, however, need to make sure that they comply with the regulations issued by the SEC. The SEC
treats statements by employees on online media, such as blogs and Twitter, the same as any other
company statements for purposes of federal securities laws.
In favor of this enforcement, one might point to the SEC release outlined in the text. The SEC
4. Like the rest of us, attorneys are required to follow the law. In the case of attorneys, the
expectation is that they will do more than follow the letter of the law and adhere to its spirit as well. But
the law is not always more clear to attorneys than it is to laypersons. And the course that an attorney
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