WHEN a company's products turn out to have hurt people, or worse, that slavering sound you hear is of a thousand lawyers licking their lips. Shareholders, meanwhile, hold their breath. So it was in the past two weeks with Ford's and Bridgestone/Firestone's recall of 6.5m tyres (see article), and with Mitsubishi's separate recall in Japan of 620,000 cars. Punishment of some sort will presumably be meted out. The question is whether it will be meted out to the right people—meaning, in the way likeliest to deter future miscreants. Given how the system currently works, that looks unlikely.

It is not yet clear whether, in any of these companies, crimes were committed or by whom. Corporate-liability cases are often very complicated. In particular instances it may be hard to say whether the harm was pure happenstance, or caused by innocent mistakes, culpable negligence or, in the worst cases, deliberate recklessness. But what is clear is that, even in those worst cases, it is typically shareholders who are punished rather than individual wrongdoers. This is not merely unjust, it provides little incentive for better behaviour.

Companies don't make decisions, people do. At Mitsubishi, repair reports were suppressed for two decades. Ford had apparently known about problems with Firestone's tyres since 1998, but failed to act. Any decisions to suppress information or take no remedial action, if they occurred, would have been choices made by managers, not by assembly-line workers, let alone shareholders. Yet class-action civil suits are directed at companies and their shareholders, who can afford billion-dollar damages, rather than at the individuals concerned, who may be party to the suit but whose liability is generally met by their employers. This approach may have the advantage of compensating victims—over-compensating them, as a rule—but its drawback is that it is only a weak deterrent to similar acts by others.

Go to jail

Episodes of irresponsible corporate conduct tend to occur when employees are not offered the right balance of risk and reward. If their only fear is of internal reprimand, it will be in their interests to engage in deception and cover-ups, and not to blow the whistle on others. Ideally, the balance would be tipped so that people have stronger motives to make the right decisions. The current system relies too much on firms to police themselves. And the worst penalty a firm can mete out to a wrongdoer is the sack.

The difficulty lies in finding ways of removing the cloak of corporate responsibility from individuals. Laws on corporate crime often make the accountability of individuals insufficiently clear. America's environmental statutes are a telling exception: they do clearly assign criminal liability to top managers, and with good results. The country's regime for trading sulphur emissions has done much to reduce acid rain, achieving 100% compliance with the rules because firms' bosses risk lengthy prison-sentences if they violate them. That kind of clarity is helpful. Governments should seek other opportunities to increase the accountability of individuals.

In addition, prosecutors ought to be encouraged to pursue high-profile cases. Since wrongdoers typically worry most about being caught, they need to be persuaded that they run a risk of being found out and punished. Prosecutors tend to pursue firms rather than individuals because they are easier targets. But, as the civil lawsuits over tobacco have shown in America, tenacious investigation can put names to specific decisions. Where those decisions violated the law, appropriate penalties should follow.

Shareholders must, of course, expect to take ordinary commercial risks—but that does not include the risk of being punished for criminal behaviour of which they were unaware. This is not to say they should be freed of all responsibility in this regard: shareholders do need some incentive to ensure that their employees are working within the law. But if a better balance can be struck between, on the one hand, financial losses imposed on shareholders and, on the other, criminal penalties imposed on individual malefactors, the corporate-liability regime would serve society more effectively.