I don’t think comparing the fine to the company’s entire revenue makes any sense. It should be compared to the magnitude of the conduct they are being fined for. If you base the fine for a specific action on the company’s entire revenue, it creates some perverse incentives around corporate structure and leads to all sorts of absurd results.
For example, if breaking the rules to earn 0.1% of revenue leads to the same penalty as breaking the rules to earn 100% of revenue, the company might as well maximize the scale of each rule broken to improve the risk-adjusted return.
More reasonably, a fine should be proportional to the amount of incremental revenue that the company obtained by engaging in the illegal conduct, and that should be multiplied by the odds of getting caught (so the fine can’t be amortized as a cost of doing business).
I think this rhetoric claiming that fines are just a slap on the wrist made sense at some point when we were talking about million-dollar settlements, but now we’re talking billions, and in some cases it’s so much money that the company certainly didn’t increase their revenue by that much by breaking the rules. I feel like people are just repeating the same old argument and they aren’t thinking critically about the numbers. Companies do, in fact, care about being fined billions of dollars! It’s a big deal! That kind of money really does drive corporate strategy! Try asking your CEO for a billion dollars to build a new product if you don’t believe me.
For example, if breaking the rules to earn 0.1% of revenue leads to the same penalty as breaking the rules to earn 100% of revenue, the company might as well maximize the scale of each rule broken to improve the risk-adjusted return.
More reasonably, a fine should be proportional to the amount of incremental revenue that the company obtained by engaging in the illegal conduct, and that should be multiplied by the odds of getting caught (so the fine can’t be amortized as a cost of doing business).
I think this rhetoric claiming that fines are just a slap on the wrist made sense at some point when we were talking about million-dollar settlements, but now we’re talking billions, and in some cases it’s so much money that the company certainly didn’t increase their revenue by that much by breaking the rules. I feel like people are just repeating the same old argument and they aren’t thinking critically about the numbers. Companies do, in fact, care about being fined billions of dollars! It’s a big deal! That kind of money really does drive corporate strategy! Try asking your CEO for a billion dollars to build a new product if you don’t believe me.