A. Introduction
Large corporations exercise significant economic and social power. Legal systems must therefore ensure that profit-seeking corporate activity remains compatible with the protection of societal interests. In contemporary market economies, this compatibility is commonly justified through a conditional premise: shareholder-oriented governance is considered legitimate on the assumption that corporate profit-seeking contributes to overall social welfare,Footnote 1 provided that firms operate within effective legal constraints. This equilibrium was famously articulated by Milton Friedman as the requirement that business pursue profits “within the rules of the game.”Footnote 2 It rests on the existence of regulatory frameworks capable of preventing the externalization of harm.
While extensive scholarship has debated the proper purpose of the corporation—often framed as a conflict between shareholder and stakeholder approaches—far less attention has been devoted to the institutional design of the sanctioning regimes that are meant to sustain those legal boundaries in practice.Footnote 3 Shareholderist accounts typically prioritize shareholder value maximization and treat externalities as matters to be addressed through external regulation. Stakeholder approaches, by contrast, argue that corporate governance itself should incorporate and protect the interests of a broader range of constituencies. Corporate sanction regimes occupy a central position in specifying and enforcing the shareholderist “rules of the game.” The question addressed in this Article is therefore not whether shareholder primacy should be replaced by stakeholder governance, but how sanctioning regimes must be structured if the compatibility between shareholderist profit maximization and social welfare is to be maintained.
The design of corporate sanctions is not conceptually neutral. Different liability models presuppose different understandings of what kind of actor the corporation is. In many sanctioning regimes, particularly those influenced by economic deterrence theory, corporations are treated primarily as rational actors responding to financial incentives. By contrast, other sanctioning regimes conceive the corporation as an organizational entity whose internal governance structures and preventive capacities are central to the attribution of responsibility. The emergence of what may be described as an organizational turn in corporate sanctioning reflects this latter conception, foregrounding internal governance structures as the focus of legal responsibility. These competing assumptions shape both the grounds for corporate liability and the design of corporate sanctions.
Drawing on examples from EU competition enforcement, benefit–based attribution models of corporate criminal liability in the United States and Finland, and the “failure to prevent” model of the UK Bribery Act, this Article examines how sanctioning regimes institutionalize these competing conceptions of corporate agency and ontology. The examples are therefore not presented as representative case studies of entire corporate sanctioning regimes of certain jurisdictions, but as analytical illustrations of recurring features of such sanctioning regimes. Accordingly, the Article does not attempt a comprehensive comparative analysis of legal systems.Footnote 4 Rather, it seeks to identify the conceptual assumptions about the corporation that different liability models reflect and institutionalize, and to examine how these assumptions shape the design and operation of corporate sanctioning mechanisms.
The Article argues that economically calibrated liability models align with a shareholder-centered understanding of the corporation as an instrument of value maximization, placing greater emphasis on economic incentives and corporate advantage than on internal governance and preventive capacities. By analyzing these contrasting approaches, the Article develops an account of corporate sanctioning regimes as mechanisms for shaping internal corporate governance. Organizationally informed sanctioning regimes link responsibility for preventing harm to internal corporate decision-making and compliance systems. In doing so, they help define and enforce the legal limits of profit-seeking, reconciling the pursuit of shareholder value with the protection of stakeholder interests.
The Article proceeds as follows. Section B introduces the Friedman doctrine as the foundational premise of the analysis and examines social welfare as a shared normative reference point in both shareholderist and stakeholderist accounts of corporate responsibility. Building on this framework, Section C analyzes the differing conceptions of the corporation embedded within these paradigms, with particular attention to their assumptions about organizational capacity, governance, and responsibility. This conceptual analysis informs Section D, which examines how economically reductionist understandings of the corporation—commonly associated with shareholder primacy—have shaped prevailing approaches to corporate sanctioning. Focusing on selected examples of economically calibrated sanctioning regimes, the section analyzes how these regimes define corporate accountability in terms of economic incentives and rational responses to them. It argues that, although these sanctioning regimes are formally compatible with shareholder primacy at the level of corporate purpose, they struggle to perform the boundary-setting function necessary to prevent the externalization of harm. Section E develops an alternative approach, arguing that corporate liability should be grounded in an organizational conception of the corporation as an actor capable of internal governance, prevention, and compliance. Liability models built on this understanding aim to give concrete effect to regulatory limits on the pursuit of shareholder value and strengthen the protection of stakeholder interests. Finally, Section F concludes by showing that the shareholder–stakeholder conflict becomes less pronounced viewed through the design of sanctioning regimes. Organizationally oriented sanctioning regimes allow corporations to pursue economic objectives while holding them accountable for their broader societal responsibilities.
B. Social Welfare and the “Rules of the Game”: Defining the Legal Boundaries of Profit-Seeking
In Capitalism and Freedom, Milton Friedman famously asserts that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”Footnote 5 This formulation, commonly referred to as the Friedman doctrine, was later reiterated in a 1970 New York Times essay, where Friedman stated that the sole social responsibility of business is to satisfy shareholder preferences by maximizing profits “while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”Footnote 6 These formulations are intended to produce an equilibrium in which social welfare is maximized through market mechanisms. Profit-making is thereby legitimized on the assumption that it results in increased welfare for all. In this economic frame, social welfare is understood as overall societal well-being generated by efficient markets. The stability of this equilibrium depends on the effective specification and enforcement of the legal boundaries within which profit-seeking is permitted.
Friedman’s proposition is compelling in its simplicity: a corporation is free to maximize its profits as long as it operates within the boundaries of the legal system and, some would argue, adheres to fundamental moral principles.Footnote 7 The second component of this equilibrium, the delineation of boundaries on profit-seeking behavior, which is the principal focus of this Article, remains largely abstract in Friedman’s work. Friedman viewed the government’s role foundational in setting and upholding the legal and institutional frameworks—such as enforcing contracts, safeguarding property rights, and promoting competitive markets—that enable a free market to function effectively.Footnote 8 He did not, however, provide any systematic examination of the nature, content, or sources of the framework of legal rules that restrict corporate profit making but treated the legal frameworks as exogenous background conditions. Consistent with his classical neoliberal outlook, Friedman was skeptical of expansive government intervention and preferred a model of minimal but effective state regulation.Footnote 9
Friedman’s position was not novel in the sense that it drew on classical liberal economic theory, most notably on the thinking of Adam Smith—or a neoliberal interpretation thereofFootnote 10—who asserted, even more famously than Friedman, that by “pursuing his own interest [an individual] frequently promotes that of the society more effectually than when he really intends to promote it.”Footnote 11 While similar propositions had been advanced prior to Friedman, his contribution was to crystallize these ideas into a concise normative thesis, which became foundational to neoliberal economic thought. This theory, in turn, underpins the shareholder primacy doctrine and provides the intellectual architecture for shareholderist reasoning.
Building on this theoretical foundation, contemporary shareholderists argue that social welfare is a natural by-product of value maximization, provided that businesses operate within the “rules of the game” and that there are no significant externalities.Footnote 12 Under the classical shareholder primacy approach, the principal societal function of business is therefore not merely the maximization of shareholder value, but the maximization of social welfare, which is assumed to be achieved through shareholder–oriented profit–seeking.Footnote 13 Crucially, however, shareholderists do not usually internalize the management of corporate externalities—such as environmental damage or labor exploitation—within corporate governance or corporate law. Instead, they maintain that externalities should be addressed through external public regulation,Footnote 14 including corporate sanctions and enforcement mechanisms.
The underlying assumption that corporations function as social welfare maximizers has come under increasing scrutiny. Even proponents of shareholder primacy acknowledge that corporations generate significant negative externalities.Footnote 15 The stakeholderist paradigm, by contrast, rejects the notion that shareholder value maximization is an adequate proxy for social welfare. Instead, it tends to align corporate purpose directly with the pursuit of social welfare, independent of shareholder interests. While shareholderists relegate externalities to the domain of public regulation, stakeholder theorists seek to bring social welfare into the governance mainstream,Footnote 16 calling for internal governance structures that reflect and protect stakeholder interests.
Despite the divergence between these models regarding the proper purpose of corporate conduct, both of them appear to share a common normative objective—namely, the promotion of aggregate social welfare through business conduct.Footnote 17 This shared commitment is rarely acknowledged within legal scholarship. Thomas Jones and Will Phelps suggest that this oversight may be attributable to the opacity of the internal logic underpinning the welfarist foundations of shareholder primacy.Footnote 18 Another explanation is that stakeholderists reject the notion that corporate conduct can be adequately constrained through external mechanisms alone; instead, they underscore the necessity of internal governance structures that explicitly account for stakeholder interests.
Notwithstanding these concerns regarding the sufficiency of external mechanisms alone, this Article does not treat the stakeholderist critique as fatal to the Friedmanian approach. Instead, proceeding from the Friedmanian premise that profit-seeking is legitimate only within effective legal constraints, it examines how corporate sanctioning regimes must be designed if that premise is to hold in practice. On this view, the relevant question is not whether external regulation can, in isolation, constrain corporate conduct, but how regulatory mechanisms should be designed to embed responsibility for harm in corporate governance and internal decision-making. This analytical framing is justified not only by the shared normative commitment to social welfare across both paradigms, but also by the continued predominance of shareholder primacy within the corporate governance regimes of many jurisdictions.Footnote 19
In order to assess the form and content of corporate sanctioning mechanisms capable of shaping internal governance and giving due regard to stakeholder interests, and to identify points of misalignment in existing regulatory regimes, the subsequent section examines the conceptions of the corporation embedded within shareholderist and stakeholderist paradigms. These conceptualizations do not merely reflect competing normative views about corporate purpose; they also function as mediating frameworks through which assumptions about corporate agency, responsibility, and governance travel between corporate law, regulatory regimes, and criminal liability. Examining these underlying conceptions therefore provides a means of understanding how ideas developed in one area of law come to shape sanctioning practices in another, and why certain regulatory approaches prove ill-suited to constraining corporate conduct in practice.
C. Conceptions of the Corporation in Shareholderist and Stakeholderist Approaches
This section examines the underlying conceptualizations of the corporation that inform shareholderist and stakeholderist approaches. Such conceptualizations matter because they frame how legal regimes understand corporate agency and responsibility and thereby condition the ways in which doctrines of corporate liability and sanctioning—developed across different areas of law—are interpreted, justified, and applied. Examination of these conceptualizations necessarily involves a degree of generalization. The analysis presented here does not suggest that all proponents of shareholder primacy or stakeholder theories explicitly endorse the understandings of the corporation outlined below. Rather, these conceptualizations operate as influential background assumptions within legal and economic discourse and therefore provide a useful analytical baseline for the purposes of this study.Footnote 20
Shareholder primacy is theoretically and historically linked to the agency theory, agency cost model and the nexus of contracts theory, both of which originate in the work of Chicago School economists.Footnote 21 Agency theory portrays the corporation as a contractual relationship between principals (shareholders) and agents (managers). Corporate managers act as fiduciary agents of shareholders, bearing obligations to maximize firm value and, consequently, shareholder value.Footnote 22 Shareholder primacy follows logically from agency theory: because shareholders are deemed the ultimate risk-bearers in the corporate structure, they are assumed to possess the strongest incentive to ensure the efficient management of the firm. Provided that managerial conduct is aligned with shareholder interests, overall firm value is expected to increase.Footnote 23
The agency cost model, in turn, characterizes the corporation as a nexus of contractsFootnote 24—a conceptualization that has become “the dominant view of the corporation in legal scholarship.”Footnote 25 Within this contractarian approach, the firm is understood not as a unified legal entity but as a web of explicit and implicit contracts among various constituencies. The agency relationship between shareholders and managers represents merely one specific contract within this broader contractual architecture.Footnote 26 The nexus of contracts theory therefore frames corporate governance primarily as a system of decentralized private orderingFootnote 27 rather than as an expression of organizational authority or responsibility.
The agency model and nexus of contracts theory are grounded in rational choice theory,Footnote 28 according to which, individuals—and, by extension, firms—act as utility maximizers.Footnote 29 Although the rationality assumption is not confined to financial motivations alone, but acknowledges that people react to incentives in general, economic incentives remain central in the application of this paradigm to corporate law. Agency theory, in particular, is concerned with how to minimize the agency costs caused by opportunistic agents seeking to maximize their own welfare, typically understood in economic terms.Footnote 30
The Chicago School economists were primarily interested in a corporation as a device to minimize transaction costs.Footnote 31 Although law and economics scholars have widely adopted the agency cost model and the nexus of contract theory, the separate legal personality of the firm has not occupied a central place in these discussions,Footnote 32 at least not in a manner that conceptualizes the corporation in terms of its internal structures, boundaries, and decision-making processes.Footnote 33 The corporation is understood not as a thing or an entity, but instead as a legal fiction,Footnote 34 a mere coordination mechanism for contractual relationships.Footnote 35 It functions as a hub for interactions among various constituencies rather than as an autonomous organizational actor.Footnote 36 A corporation is seen through the lens of economic efficiency and thus, as an instrument for financial value maximization by avoiding conflict of interests in agency relationships. The corporation is simply a passive object of ownership and an instrument for value creation.Footnote 37
For the shareholderist approach, and through its connection with the agency cost model, analytical attention appears to lie primarily in the upper echelons of corporate hierarchy and in the need to align binary agency relationships, with a specific focus on the manager-shareholder relationship and related incentives.Footnote 38 In this setting the web of multifaceted internal social structures, hierarchies, and governance mechanisms are less relevant.Footnote 39 The same is generally true of relationships with external stakeholders. The concept of rational choice narrows the view to economic incentives relevant in binary relationships between shareholders and other constituencies, usually managers.Footnote 40 As a result, one could argue that the shareholderist approach does not have an inherent corporate governance agenda beyond the efficiency agenda impelled by the contractual relationships and the need to manage them.Footnote 41
Turning to stakeholderist approaches, an initial observation is that there is no single, overarching theoretical account of the corporation that unifies stakeholder theories. In contrast to the shareholderist approaches which often commit themselves to the conventional nexus of contract theory and thus understand corporation as a fiction or aggregate of individuals, stakeholder approaches are not focused on the theoretical conception of the firm as such but on governance and internal decision-making procedures. As their fundamental objective is to strengthen the protection of third parties affected by corporate activities, stakeholder theories can be interpreted as being supportive of corporate existence that makes non-shareholder stakeholders more visible and relevant as corporate constituencies.Footnote 42
The stakeholderist account of corporate governance is generally in line with contemporary variants of entity theory, which regards the corporation as an entity in itself—an autonomous actor, even if in many respects intangible. Under this view, the identity and interests of a corporation are not derived from those of its human participants, including shareholders, but it has its own identity and interests.Footnote 43 A corporation is a social phenomenon that has personhood separate from the individuals acting for it. Managers are not conceived primarily as agents of shareholders, but as participants in organizational decision-making processes through which the corporation acts as a collective actor.Footnote 44 Marc Moore and Martin Petrin have noted that the entity paradigm tends to be responsive to the wider social responsibilities of corporations, whereas the contractarian paradigm is generally hostile to them, at least if the demand for social responsibility does not directly emanate from market pressures.Footnote 45
Interestingly, stakeholder theories have also been developed based on the agency cost model and the nexus of contracts theory. A notable example is Margaret Blair and Lynn Stout’s team production theory, which aims to reflect the collaborative nature of corporate operations and diverges from the shareholder primacy norm.Footnote 46 In this view, the corporation serves as a vehicle for coordinating the efforts of multiple stakeholders engaged in team–based production. Central to this theory is the mediating role of the board of directors, which functions not merely as an agent of shareholders but as a governance structure that balances the interests of various stakeholders. While the team production model acknowledges the corporation’s separate legal personality, it sees it as a fiction.Footnote 47 Despite these differences, the team production theory shares with entity theory a focus on organizational structures and procedures, offering a broader perspective on the functions of the corporation compared to traditional contractarian approaches.
The next section applies these conceptual distinctions to the analysis of corporate sanctioning regimes. It examines how differing understandings of the corporation shape the design and operation of punitive regulatory regimes and assesses how economically reductionist assumptions—commonly associated with shareholderist thought—influence the structuring of corporate sanctions. In doing so, it addresses the Article’s central research question: which forms of punitive regulation are capable of giving concrete effect to the legal constraints that are meant to govern profit–seeking behavior and thereby sustain the Friedmanian equilibrium between shareholder value maximization and social welfare.
D. Economic Conceptions of the Corporation and Corporate Sanctioning Regimes
Building on the preceding analysis, this section examines how the conceptual assumptions underlying shareholderist approach are institutionalized in contemporary sanctioning regimes. It focuses on two paradigmatic approaches that reveal structural tendencies in corporate liability design: economically calibrated enforcement models and benefit-conditioned attribution doctrines. The examples that follow are not intended as representative accounts of particular legal systems, but as illustrations of recurring patterns in the way corporate accountability is operationalized. Together, they show how sanctioning regimes influenced by economically reductionist understandings of the corporation tend to structure responsibility through economic rationality and corporate advantage rather than through the evaluation of organizational governance and preventive capacity.
I. The Economic Approach to EU Competition Law Enforcement
Probably the most obvious example of neoclassical economic theory’s influence on corporate sanction regimes can be observed in the field of EU and US competition law. The foundations of competition policy enforcement on both sides of the Atlantic rest on the assumptions of rational utility maximization, predominantly value-neutral efficiency goals, and consumer welfare maximization which is typically understood to take place through lower prices, higher output, and increased innovation.Footnote 48 These principles are crystallized in the European Commission’s “More Economic Approach,”Footnote 49 and have shaped the substantive norms of competition law and the design of enforcement mechanisms, including the use of sanctions and regulatory strategies based on economic—or “simple”—deterrence.Footnote 50
As discussed previously, law and economics scholarship and its rational choice paradigm assume that economic agents act as rational utility maximizers. When applied in the context of competition law, this means that firms and individual managers will engage in anti-competitive behavior only if the expected benefits outweigh the expected costs. Consequently, competition law enforcement seeks to structure incentives in a way that deters illegal conduct by making violations economically irrational.Footnote 51 Sanctioning mechanisms are generally designed around economic optimization and deterrence, in line with hypothetical consumer welfare maximization rather than moral or distributive justice concerns.Footnote 52
An illustration of this approach is the optimal fines paradigm, derived from Chicago economist Gary Becker’s economic theory of crime and punishment (1968).Footnote 53 Becker’s model suggests that individuals and firms weigh the expected benefits of a violation against the expected costs, which include the probability of detection and the magnitude of sanctions.Footnote 54 Becker’s approach to deterrence has been highly influential in informing the design of corporate fines in competition law, where penalties are intended to be set at a level that either neutralizes illicit financial harm or eliminates expected profits from anti-competitive conduct. In practice, this has led to the adoption of purportedly morally neutral sanctioning schemes based on hypothetical economic harm or gain calculations.Footnote 55
In EU competition law, fines are calculated as a proportion of a firm’s turnover in the affected market, with adjustments for factors such as recidivism and duration of infringement.Footnote 56 The fine imposed does not aim to reflect the level of negligence, culpability, or blameworthiness of the infringement or the infringing undertaking,Footnote 57 but the primary aim is to model the economic effects of the infringement.Footnote 58 By decoupling sanctioning from fault-based assessments of blameworthiness and tying it instead to economic modeling, the regime risks framing liability as a function of market impact rather than as an expression of normative accountability. This approach ensures that fines are theoretically aligned with economic incentives, as it relies on the assumption that corporations behave as economically rational actors and that enforcement agencies can accurately estimate economic harm. In this respect, the sanctioning regime reflects and reinforces economic rationality as the dominant decision-making logic, in a manner consistent with shareholder primacy assumptions.
A competition law sanction regime framed in financial terms does not account for the actual plurality of factors in play in corporate decision–making.Footnote 59 This limitation is consistent with the nexus of contracts theory and the agency model, which conceptualize the firm through an individualistic lens and do not recognize corporate behavior as emerging from organizational structures or collective processes. As a result, the primary focus of competition law sanctioning regimes tends to rest on managerial, financially driven decision-making, rather than on broader organizational dynamics. Consequently, rather than fostering a value-based understanding of competition compliance, competition law sanctioning regimes draw on an instrumental approach where compliance is seen as a cost utility calculation rather than an ethical obligation. In such a value–neutral frame, anti–competitive behavior can be understood as a strategic means of creating shareholder value.
Under this approach, competition law sanctioning regimes provide only limited normative guidance on why anti-competitive behavior is harmful from a public interest perspective; that is, why collusive conduct is wrongful beyond its purely economic effects. Christine Parker has referred to this as a “compliance trap,” using Australian cartel enforcement as an example: “[s]imple [economic] deterrence will often fail to produce compliance commitment because it does not directly address business perceptions of the morality of regulated behavior.”Footnote 60
There is no robust empirical evidence to suggest that neoclassical competition policy and its enforcement mechanisms have a genuine deterrent effect, understood as sustainably preventing future anti–competitive conduct. Empirical studies examining the deterrent effects in this field typically model optimal fine levels by applying assumptions derived from the rational actor paradigm. While these studies yield mixed results, several indicate significant underdeterrence, suggesting that sanction levels are too low relative to the profits gained from wrongdoing.Footnote 61 This is problematic given that the magnitude of sanctions is already considerably high within the European Union. This phenomenon is referred to as the “deterrence trap”:Footnote 62 due to the low probability of detection, it remains rational for a calculative firm to continue offending until the expected penalty surpasses an estimated—extremely high—limit. However, sanction levels high enough to ensure economic deterrence may result in crippling the corporation entirely, and causes problems related to the proportionality principle, which calls for a sanction to be in a reasonable relationship with the offense at hand.Footnote 63
The fundamental assumptions of neoliberal competition policy rest on a specific conception of markets and corporate behavior that does not align well with sanctioning systems that rely on notions of responsibility. This relates to one of the core insights in Lindsay Farmer’s work on responsible markets, where good and bad would not be classified based on rationality and efficiency but also viewed from the perspective of morally meaningful standards.Footnote 64 For Adam Smith, who has been considered the primogenitor of neoclassical economic theory, self-interest was not a purely egoistic instrument as he believed that market transactions socialize us and thus teach us sympathy. Markets are places of trust, which necessarily requires respect for others to persuade them into the transactions that serve one’s self–interest.Footnote 65
By contrast, the rationality assumption in neoclassical economic theory does not readily accommodate questions of responsibility, which lie at the core of criminal liability and arguably should also inform regulatory sanctions, particularly where regulatory violations concern central societal values.Footnote 66 Competitive markets themselves may be understood as such a value. The central question, therefore, is whether competition policy should be framed predominantly in financial terms, incentivizing opportunistic behavior whenever it is economically rational to do so.Footnote 67
If sanctioning regimes encourage firms to engage in calculated risk-taking based on economic trade-offs rather than responsibility-oriented considerations, there is a heightened risk of socially undesirable outcomes in the form of negative externalities. In this respect, the alignment of competition law sanctions with neoclassical economic theory may undermine their normative legitimacy, fostering an environment in which regulatory compliance is treated primarily as a cost variable within corporate decision-making. While such an approach may advance shareholder value maximization, it does not necessarily function as a robust boundary-setting mechanism capable of constraining harmful profit-seeking behavior, on which the Friedmanian equilibrium depends in practice. This tension illustrates the difficulty of relying on economically rational deterrence alone to generate social welfare under contemporary regulatory conditions.
II. Intent to Benefit Doctrine as a Constraint on Corporate Criminal Liability
A second paradigmatic illustration of a regulatory approach that reflects an economically reductionist conception of the corporation can be found in the intent to benefit doctrine within corporate criminal liability. This doctrine constitutes a central element of corporate criminal liability models across various jurisdictions. While the precise formulation varies, several systems condition corporate liability on some connection between the offense and the corporation’s interests, activities, or objectives. It is important to note at the outset that the intent to benefit doctrine does not originate in neoliberal economic theory but in older principles of vicarious liability developed in nineteenth-century tort lawFootnote 68 and thus predate modern debates on corporate purpose. Nevertheless, as this section demonstrates, the doctrine’s contemporary operation aligns closely with an economically reductionist conception of the corporation, consistent with shareholderist understandings of corporate purpose.
The intent to benefit doctrine operates by conditioning corporate criminal liability on the requirement that the offense, committed within the scope of corporate operations, must have been undertaken on behalf of or for the benefit of the corporation. While the precise application of this standard varies across jurisdictions, this section concentrates on its relevance within the U.S. federal system under the respondeat superior standard, and within the corporate criminal liability regime in Finland. The U.S. respondeat superior standard is a strict derivative liability model that attributes corporate liability through employees acting within the scope of their employment and for the corporation’s benefit.Footnote 69 The Finnish corporate criminal liability regime likewise relies on derivative attribution, but additionally requires either that corporate management participated in or permitted the offence, or that the corporation failed to exercise the due care necessary to prevent it.Footnote 70 Under both models, the intent to benefit is an additional restriction that requires that the offense confer, or at least is aimed at conferring, a financial or operational advantage to the corporation. The benefit may be indirect or intangible; that is, non-pecuniary advantages such as improved client relationships or operational efficiency may meet the threshold.Footnote 71
Under these models, the intent to benefit requirement functions as a gatekeeping mechanism, restricting corporate criminal liability to cases where the employee’s unlawful conduct is at least partially motivated by a desire to advance the corporation’s economic or strategic interests. Conduct that is purely personal or unrelated to the corporation’s goals—despite occurring in the workplace or during the performance of work-related tasks—is excluded from corporate attribution.Footnote 72 This reflects a foundational assumption, according to which corporate liability should only extend to offenses undertaken in furtherance of the firm’s economic objectives. As such, the doctrine is conceptually consistent with the shareholder primacy model, which frames the corporation’s purpose primarily in terms of generating economic value for shareholders.
At first glance, the intent to benefit doctrine appears as a rational boundary–setting mechanism, especially in cases where the corporation itself is the victim of the offense. The doctrine works well in the context of offenses that have a financially driven motivation, such as bribery. However, the doctrine also has the effect of excluding from the scope of corporate liability certain forms of workplace misconduct that lack a clear financial dimension, such as sexual or other types of workplace harassment. This exclusion is of particular relevance to the present analysis, as such offenses are integral to protecting employee well-being and the rights of internal stakeholders. These are interests that remain peripheral in economically reductionist models of the corporation.
The significance of the intent to benefit requirement can be illustrated through a Finnish Supreme Court decision 2023:42, which addressed the limits of corporate criminal liability in the context of workplace sexual harassment. The case concerned a division director who had previously been convicted by lower courts of two counts of sexual exploitation, an occupational safety offense, and employment discrimination.Footnote 73 These offenses were committed against two sixteen-year-old employees during photo shoots organized to produce marketing material for the company, in circumstances that exploited their dependency on the director. The Supreme Court’s review was limited to whether the director’s conduct constituted an occupational safety offense committed in the course of the company’s operations and whether this could give rise to criminal liability for the company. The Court noted that the harassment had taken place while the sixteen-year-old victims were performing work tasks, and that the director had a duty to ensure that occupational safety regulations were followed in that situation. Therefore, the director was not acting as a private individual, but as a representative of the company. The Court however concluded that the director’s actions were driven by personal motives and did not serve corporate interests. Accordingly, the offenses were not deemed to have been committed on behalf of or to the benefit of the company, and thus, not within the scope of the company’s operations. This reasoning narrows corporate liability to conduct directly aligned with corporate advantage, even where organizational conditions have enabled the harm.
The U.S. respondeat superior liability standard would likely yield comparable outcomes. The structural consequences of the intent to benefit doctrine are visible in high-profile U.S. cases involving systemic workplace misconduct, such as those involving Harvey Weinstein and Larry Nassar. In both instances, criminal proceedings were directed only at the individual perpetrators, despite the evident and substantial role played by organizational factors in enabling their misconduct.Footnote 74 A significant body of empirical evidence underscores the importance of the organizational environment for the occurrence of sexual– or gender-based harassment. Organizational research has highlighted that sexual harassment is more likely to occur in an organizational culture that is hostile to women’s equal opportunity or to work-family balance, or where the management or colleagues indicate a tolerance for sexual harassment.Footnote 75
One of the central justifications for corporate criminal liability is that it incentivizes corporations to organize their activities in accordance with legal and ethical norms.Footnote 76 This due care function necessarily extends beyond individual acts to encompass organizational cultures, governance structures, and internal compliance processes that either promote lawful and ethical conduct or, conversely, foster non-compliance and misconduct. Where non–financial forms of misconduct are systematically excluded from the scope of corporate criminal liability, corporations lack external punitive incentives to identify, prevent, and address such risks. From the perspective of internal stakeholder protection, this omission is particularly problematic.
Attribution logics similar to those underlying the U.S. and Finnish intent–to–benefit requirement can be found elsewhere, underscoring the broader doctrinal significance of this approach. Swedish corporate sanctions are tied to offenses committed in the exercise of business activitiesFootnote 77 and similarly emphasize the relationship between wrongdoing and the undertaking’s economic sphere of activity.Footnote 78 Other jurisdictions adopt broader formulations. Norwegian and Danish law employ functional connection requirements that focus less on corporate benefit and more on the relationship between the offense and the enterprise’s activities,Footnote 79 that is, whether the offense was committed in the course of the offender’s work–related tasks.Footnote 80 French law, by contrast, attributes liability where offenses are committed pour le compte of the legal person by its organs or representatives, a formulation that may encompass conduct undertaken on behalf of, or in the interests of, the organization even where no direct financial gain is sought.Footnote 81 Scholarship has interpreted the pour le compte requirement broadly, suggesting that it may be satisfied not only where the conduct seeks to generate a direct economic benefit, but also where an organ or representative acts in furtherance of the organization’s objectives or in the course of activities directed at maintaining its functioning and operations.Footnote 82 The existence of these alternative attribution models indicates that the exclusion of workplace harms from corporate liability is not an inevitable feature of corporate criminal liability, but the consequence of particular choices about how the relationship between wrongdoing and the corporation is conceptualized.
Economically reductionist attribution models conceptualize employees primarily as instruments acting in furtherance of corporate objectives.Footnote 83 In doing so, they reinforce a view of the corporation as an economic actor whose legal responsibility is triggered only by conduct aligned with profit–seeking or strategic advantage. Corporate liability models grounded in respondeat superior and similar purely derivative models are therefore rooted in methodological individualism: the corporation does not act as an autonomous organizational entity, but liability is attributed directly through the acts and motivations of individual agents. This approach aligns with the nexus of contracts theory underlying shareholderist approach, which conceives the corporation as an aggregation of contractual relationships rather than as a bearer of independent responsibility.Footnote 84
As a consequence, liability standards that rely on a narrow benefit- or interest-based conception of corporate wrongdoing struggle to account for the corporation’s internal structures and responsibilities toward its employees as stakeholders. Where employees are victims of misconduct facilitated by organizational conditions, such models offer no mechanism for attributing responsibility to the corporation itself. Broader formulations may alleviate this problem because they construct the connection between wrongdoing and the corporation differently. Functional models, such as Danish and Norwegian standards, focus on whether the offense was committed in the course of work-related activities, while French law emphasizes whether the offender acted as an organ or representative of the legal person. By shifting attention away from the offender’s alignment with the corporation’s economic interests, and towards the offender’s organizational role, such models may be better able to capture workplace harms that arise within corporate structures even where no corporate benefit was sought.
E. Taking Prevention of Negative Externalities Seriously
The previous section sought to demonstrate the limitations inherent in aligning corporate sanctioning systems and corporate responsibility with a narrow, economically reductionist conception of the corporation, characteristic of the shareholder primacy paradigm. Due to these limitations, such a conception of the corporation is ill-suited for the design of corporate sanctioning regimes that take the prevention of negative externalities seriously.Footnote 85 If business conduct is to generate social welfare in the manner assumed under the Friedman doctrine, externalities must be managed through regulatory models that operate according to a different logic. This does not entail abandoning shareholder primacy as a model of corporate purpose, but rather constraining and complementing it through regulatory mechanisms that account for a wider range of stakeholder interests than those of shareholders alone. Economic theory may inform many aspects of corporate conduct, but it does not offer a normative account of responsibility. When discussing the “responsibilisation” of markets, Lindsay Farmer observes that “[i]n these circumstances, the function of criminal law is that of enforcing the kind of ‘morally meaningful’ standards that allow trading to take place.”Footnote 86
The developments examined in this section can be understood as part of what may be described as an organizational turn in corporate sanctioning. If the central weakness of economically reductionist sanctioning models lies in their inability to engage with the organizational structures through which misconduct is generated and prevented, an alternative approach must focus directly on those structures as the object of legal evaluation. The organizational turn does not denote the replacement of models based on economic deterrence, nor does it imply that legal systems uniformly embrace a single conception of corporate responsibility. Rather, it captures a shift in the center of gravity of liability design: from sanctioning regimes that structure corporate liability primarily around economic optimization and alignment with corporate advantage toward regimes that treat internal governance structures and preventive capacities as central objects of legal evaluation.
In order to “responsibilize” corporate conduct, corporate sanction regimes should be grounded in a realistic, organizationally informed understanding of how firms operate in practice and to what extent corporations should take responsibility for stakeholder interests. This requires attention to the organizational structures and decision-making processes through which corporate misconduct arises and through which compliance and stakeholder protection can be effectively institutionalized. In other words, sanctioning mechanisms should reflect the complexity of corporate life, rather than being aligned with the reductive, individualistic, and economically instrumental view of the firm embedded in shareholderist thought.Footnote 87
The organizational turn reconceptualizes the corporation as a societal actor—an entity capable of autonomous decision-making and responsive to normative expectations that extend beyond the interests of shareholders alone. From the perspective of corporate punitive responsibility, this implies the development of regulatory mechanisms that are not only reactive but also preventive. In practice, this shift occurs when law shapes internal corporate governance mechanisms. Such liability models make corporate responsibility contingent on the adequacy of compliance systems, risk assessment procedures, reporting mechanisms, and internal oversight structures. Boards and senior management are thus incentivized not merely to avoid detectable misconduct, but to institutionalize preventive architectures capable of identifying and addressing risks ex ante. The rules governing corporate punitive responsibility should therefore aim at conveying the idea of organizational responsibilityFootnote 88 rather than merely posing a financial threat in case of non-compliance. In this light, corporations are understood not only as vehicles for private gain but simultaneously as collective actors capable of contributing to—or undermining—public welfare.
Drawing on this conception of a corporation, sanctioning regimes should incentivize the development of internal systems that foster ethical behavior and prioritize the protection of stakeholder interests. As Eli Lederman has argued, this transformation reimagines corporations not only as objects of regulation but also as assistants to law enforcement;Footnote 89 actors that participate in upholding the legal order by implementing effective compliance programs, identifying risks, and fostering internal cultures of accountability. This shift is not merely theoretical. It reflects a broader societal recognition of the influence and capabilities of corporations, both economically and socially. As expectations of corporate responsibility have evolved—driven in part by the corporate social responsibility (CSR) movement and the rise of stakeholder-oriented governance models—legal frameworks have gradually adapted to reflect these changing norms.Footnote 90
A concrete example of such an organizationally informed approach to corporate criminal liability can be found in the UK Bribery Act. Liability under the Act is organized around the concept of organizational failure to prevent an offense (Section 7). The Act imposes strict liability on corporations for failure to prevent bribery by an associated person (Section 7(1)), but it also offers a defense where the company can demonstrate that it had “adequate procedures” in place to prevent such conduct (Section 7(2)). The Act is accompanied by guidance on adequate procedures issued by the UK Ministry of Justice. The guidance sets forth six principles on how to design internal anti-bribery compliance procedures.Footnote 91
The “failure to prevent” model aims to align corporate liability with the reality of organizational life, recognizing the role of internal procedures in facilitating or preventing misconduct. In this respect, the Act reflects a regulatory understanding of the corporation as a collective actor, capable of taking proactive responsibility for harm prevention.Footnote 92 Therefore, the structure of the liability model under the Act and its accompanying guidance can be seen to reflect a societal expectation that corporations take active responsibility for preventing harm in an area where their operations may generate significant externalities. This regulatory framework goes beyond merely prohibiting bribery as it addresses the internal corporate procedures that are instrumental in preventing wrongdoing.Footnote 93 Liability is structured around organizational failure rather than individual intent, thereby shifting the focus of legal scrutiny from isolated acts to systemic preventive capacity. This framing intends to encourage companies to develop compliance systems rooted in principles rather than narrowly defined legal obligations that lack communicative potential.Footnote 94
Seen through the lens of externalities, the UK Bribery Act directly addresses the harms that bribery imposes on stakeholders: competitors harmed by distorted markets, consumers affected by inflated prices, public institutions weakened by corruption, and society at large whose trust in fair economic processes is eroded. By requiring companies to implement preventive controls and by conditioning liability on proactive organizational measures, the Act embodies an understanding of corporations as bearing responsibility toward the stakeholders affected by bribery-related harms, rather than merely being subject solely to economically calibrated deterrence.
Scholarly commentary situates the UK Bribery Act within a broader transnational development toward corporate accountability mechanisms that incentivize internal preventive structuresFootnote 95—a development that this Article conceptualizes as an organizational turn in corporate sanctioning. Jeremy Horder’s recent defense of the failure-to-prevent model as a general theory of corporate criminal liability provides important theoretical support for this development. On his account, corporate responsibility is more appropriately located in the company’s failure to prevent wrongdoing by associated persons, and in the adequacy of its preventive systems, rather than in attributing the underlying offense to the company itself.Footnote 96 This broader tendency of organizational liability systems includes, for example, the UK Corporate Manslaughter and Corporate Homicide Act,Footnote 97 the Australian model of corporate criminal liability, and several European approaches that adopt a procedure-centered conception of corporate liability. Both the Finnish and Swedish corporate criminal liability models, for instance, employ a “failure of due care” model under which corporations may be held liable where they have failed to take reasonable preventive measures.Footnote 98 Certain administrative and regulatory sanctioning regimes may also fall within this development insofar as they rely on procedural obligations governing corporate conduct. Not all such regimes, however, equally reshape corporate governance practices. Where liability remains structured predominantly around financial penalties that function as a price for non-compliance, the governance implications may remain limited. The importance of the organizational turn lies in foregrounding liability designs that treat internal governance and preventive capacity as central criteria of responsibility.
F. Conclusions
The preceding sections examined sanctioning models that connect corporate responsibility to economic harm, deterrence, or the pursuit of corporate benefit. Although these models differ doctrinally, they share a tendency to conceptualize the corporation primarily through its economic objectives. The organizational turn represents a different approach. Rather than focusing on economic incentives or corporate advantage, it directs attention to organizational structures, governance arrangements, and the corporation’s capacity to prevent wrongdoing. The organizational approaches to corporate liability reflect a growing recognition that corporate wrongdoing cannot be adequately understood solely through the actions or motivations of individual actors. Instead, attention shifts to the organizational conditions within which misconduct occurs and to the corporation’s capacity to structure, monitor, and prevent harmful conduct. The analysis has not sought to compare national legal systems as such, but to identify recurring techniques of corporate liability and to examine the conceptions of the corporation that underlie them.
The analysis has shown that sanctioning regimes reflect underlying conceptions of the corporation. As discussed in Section C, shareholderist and stakeholderist paradigms embed different assumptions about corporate agency, governance, and responsibility. Economically calibrated deterrence models, particularly in competition law, embody an economically reductionist conception of the firm as a rational utility maximizer. Within this frame, sanctions operate as price signals,Footnote 99 encouraging compliance through cost–benefit calculation. While such mechanisms may influence behavior, they risk reducing responsibility to economic optimization and under–specifying the ethical and normative dimensions of corporate conduct.Footnote 100 In doing so, they may weaken the capacity of sanctioning regimes to prevent negative externalities in a manner that reflects broader societal values.
Similarly, corporate criminal liability regimes structured around intent–to–benefit requirements condition responsibility on whether misconduct advances corporate economic interests. This structure aligns with an instrumental view of the corporation as oriented primarily toward shareholder advantage. Where liability turns centrally on corporate benefit, harms that lack an economic character fall outside the scope of corporate responsibility, even when enabled by organizational conditions and affecting internal stakeholders. In these models, the management of externalities remains tied to the economic alignment of wrongdoing rather than to the adequacy of corporate governance.
By contrast, organizationally informed liability models reflect a different conception of the corporation: one that treats it as an institutional actor capable of structuring its internal governance to prevent harm. Failure–to–prevent and due-care models assess not only whether an offense occurred, but whether the organization had designed and implemented effective compliance systems, risk management structures, and oversight mechanisms. Even where liability is triggered by the conduct of individual agents, the normative focus shifts toward institutional design and preventive capacity. Responsibility becomes embedded within organizational architecture rather than attached solely to the economic character of misconduct.
In this light, the shareholder–stakeholder divide appears less as a binary opposition and more as a question of institutional mediation. While the paradigms diverge in their accounts of corporate purpose, both ultimately depend on legal mechanisms capable of internalizing externalities and protecting stakeholder interests.Footnote 101 The organizational turn in corporate sanctioning does not displace shareholder primacy as a theory of corporate purpose; rather, it conditions its legitimacy by ensuring that the pursuit of shareholder value operates within governance structures capable of preventing harm to employees, consumers, competitors, and the broader public.Footnote 102
Returning to Friedman’s insistence that business must operate “within the rules of the game,” this Article has argued that those rules cannot remain external background constraints. They must be translated into organizational practice. By linking liability to the adequacy of corporate governance and preventive measures, corporate sanctioning regimes shape how companies are governed: they define the boundaries of legitimate profit-seeking, embed responsibility within corporate decision-making processes, and secure the normative foundations of market activity. In this respect, they mediate the corporation’s dual role as both an economic actor pursuing shareholder value and a societal actor whose activities generate risks and externalities requiring institutional constraint.
Acknowledgements
This Article was written during my visiting fellowship at the London School of Economics, LSE Law School, in 2025. I am grateful for the support and comments of Professors Jeremy Horder, Eva Micheler, Nicola Lacey, and Lindsay Farmer, as well as for the feedback received from participants at the LSE Corporate Law Hub seminar.
Competing Interests
The author declares none.
Funding Statement
I am grateful to the Foundation for the Advancement of Finnish Securities Markets for financial support.
Open access
