On Sept. 9, 2015, the Justice Department announced it will “will try harder to hold company executives responsible for corporate crimes.” The Justice Department had followed a policy of prosecuting companies - instead of individuals within a company. This is because individuals tend to fight accusations in court whereas corporations are much more likely to settle out of court by agreeing to pay fines. How is the observation that CEO’s of corporations are more likely to agree to pay a fine if the company is sued rather than fight an allegation in court (as opposed to the CEO herself/himself being sued) related to the principle/agent problem?
(Hint: imagine you are a stockholder. What do you want the CEO to do if the company is sued? What do CEO's typically do? Why is there a difference?)