“Collective Knowledge” of a Corporation

The Concept of Collective Knowledge

The issue of whether a corporation’s conduct is “knowing” is often an important step in determining whether a corporation can be found guilty of criminal conduct. But how does a corporation “know” something? While this concept is sometimes difficult to discern for individuals, it is extremely complicated when the defendant is a corporation. Several participants in our survey wrestled with this abstraction. For example, one participant wrote the following:

An individual is a solo entity, responsible for their own decisions. A company, though their policies have been set forth and agreed upon by their top executives, is still an aggregate group of individuals ATTEMPTING to act as one…and not necessarily succeeding.

In the diagram below, we offer a simplified example of collective knowledge’s impact in a criminal case where the defendant is a corporation.

Let’s say an accountant with a software company was reporting to the SEC that the company was making $1 million in revenue from sales to a distributor. Meanwhile, another accountant within the same software company was aware they were giving rebates of $500,000 to that distributor, resulting in an over-reporting of $500,000 in revenue to the SEC. Under the theory of collective knowledge, the company would be held responsible for fraudulent revenue reporting even though neither accountant had knowledge that the revenue report to the SEC was fraudulent.

Collective Knowledge: Survey Responses

Our survey of 300 California residents measured public opinion about theories of how corporations can “know” whether it is engaging in illegal conduct. We used the “Knowledge of a Corporation” jury instruction from the PG&E case in the Northern District of California’s San Francisco Division in 2016 to assess comprehension and agreement with the “collective knowledge” theory.

The PG&E Jury Instruction states:     

The knowledge obtained by corporate employees acting within the scope of their employment is imputed to the corporation. Accordingly, if a specific employee knows something within the scope of his or her employment, then the corporation can be said to know that same thing.

The corporation is also considered to have acquired the collective knowledge of its employees. The corporation’s “knowledge” is therefore the totality of what its employees know within the scope of their employment.

easy difficult collective knowledge 08042017

agree disagree collective knowledge 3Nearly a quarter of the 300 participants had difficulty understanding while nearly one-fifth disagreed with this corporate knowledge instruction. When we examined the open-ended statements of those who disagreed with this instruction, we learned that their criticisms focused on whether it was fair to hold a corporation responsible for the knowledge of its employees, revealing a potential pro-defense position. 

Under the collective knowledge theory, prosecutors are not required to prove that one individual employee had knowledge that it was engaging in a criminal act. Instead, prosecutors are only required to prove that knowledge collectively existed under the umbrella of the corporation. The findings from our survey demonstrate that a significant number of jurors understand the collective knowledge jury instruction, and about one-fifth have negative views of this instruction. Understanding public opinions regarding how a corporation “knows” whether it is engaging in criminal conduct can assist your team in developing successful jury selection and case presentation strategies for trial.

Bonora Rountree Trial Consulting & Research