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The New York Times Talks to Libertine Librarians
In an otherwise zzz-tastic article on corporate social responsibility, The New York Times interviews the requisite cranky libertarians:
“C.S.R. is a misguided attempt by a subcategory of business managers to deal with the crisis of corporate legitimacy,” said Isaac Post of the Competitive Enterprise Institute. Russell Roberts, an economist at George Mason University, said: “Doesn’t it make more sense to have companies do what they do best, make good products at fair prices, and then let consumers use the savings for the charity of their choice?”
What can they mean, these strange men with their strange anti-CSR thoughts? The Times breaks it down:
Their essential point is that companies are simply not equipped to “save the world” -- nor is it their mission. That’s what governments are supposed to do.
|11.11.06 @ 8:31PM|#
"Doesn't it make more sense to have companies do what they do
best, make good products at fair prices, and then let consumers use
the savings for the charity of their choice?"
Because a check cut by a corporation is so very different than
several thousand small donations by customers.
Wake me up when corporate giving takes 5% as much out of
stockholders' hands as the bonuses paid to corporate officers.
|11.11.06 @ 8:35PM|#
If the New York Times sums up the argument that individuals should be the ones doing charity by saying that government should be doing charity, maybe they're a much more libertarian newspaper than we ever realized, and its just a strange language barrier that makes them seem otherwise. Or perhaps this language barrier makes us sound like Democrats to them...
Herrick and some balls|11.11.06 @ 8:48PM|#
Isn't most corporate social responsibility done for advertising and public image purposes? If so, then it doesn't seem like corporate giving is any worse than buying a tv ad.
|11.11.06 @ 8:56PM|#
Wake me up when corporate giving takes 5% as much out of
stockholders' hands as the bonuses paid to corporate
officers.
Because we all know a corporate officer has never earned a bonus by
creating value for shareholders.
They just sit in their corporation buildings..being
all..corporationy..see..
Sandy|11.11.06 @ 9:00PM|#
Their essential point is that companies are simply not equipped to "save the world" -- nor is it their mission. That's what governments are supposed to do.
We had to destroy the world in order to save it.
|11.11.06 @ 9:32PM|#
methodman,
There are too many stories of officers leaving with nine-figure
bonuses after running companies into the ground for that objection
to be persuasive.
"Never" and "always" are terms used by people who can't contend
with actual arguments.
|11.11.06 @ 9:46PM|#
"Herrick and His"/"Herrick and some"
Is that the difference between ownership and possession?
|11.11.06 @ 10:32PM|#
One man's "running companies into the ground" is another man's "creating shareholder value".
|11.11.06 @ 10:36PM|#
'Wow, joe, so oblique reference to anecdotal evidence is an
"actual argument?"'
Or the use of gross hyperbole and misleading half truths?
|11.11.06 @ 11:13PM|#
None of you are even going to admit that there's a problem with
executive pay?
'kay.
Buh bye.
|11.11.06 @ 11:28PM|#
None of you are even going to admit that there's a problem
with executive pay?
'kay.
Buh bye.
Wow. That was tons easier than I thought it would be. Nicely done,
chaps.
|11.11.06 @ 11:44PM|#
'One man's "running companies into the ground" is another man's
"creating shareholder value".'
Briliant satire.
I hope.
|11.11.06 @ 11:58PM|#
Ah, he's back. We're irrestible, apparently.
I hope.
And I very much hope not.
|11.12.06 @ 12:26AM|#
joe - If you could agree that there's a problem with taking a
corporations rightfully earned profits and dumping them into your
favorite social causes/gov't boondoggles, then maybe we could start
to discuss what you think is a problem with executive pay.
See, the funny thing is, the gov't TAKES money but it's
corporations and the individuals who work in them who MAKE the
money. Businesses create products or perform useful services that
other people will buy. Gov't just takes as much as it can get away
with and re-distributes it.
It's interesting how you think you've got the moral high ground
because someone else gets paid a lot of money. How can you take a
chunk of money that puts bread on worker's tables and still claim
the moral high ground? Because it's the gov't taking that money? We
are talking about the same gov't using taxpayer money to conduct
scientific studies on what causes pig feces to smell bad? (An
actual gov't-funded study, I SHIT you not!)
D.A. Ridgely|11.12.06 @ 1:07AM|#
None of you are even going to admit that there's a problem
with executive pay?
Let's assume there is. What on earth does that have to do with
whether a private for-profit corporation should be giving corporate
assets to charities?
thoreau|11.12.06 @ 1:11AM|#
FWIW, The Economist (certainly a big fan of capitalism)
has been critical of both CSR and executive pay. They like the
idea of win-win strategies where a company wins customers
with its good deeds and saves money with more efficient practices,
but the practice of CSR is often about highly-paid consultants and
various bells and whistles that please activists but not customers
and boost egos but not profits.
As far as executive compensation, the Economist has noted that
there are a lot of mediocrities getting far more money than
previous generations of successful executives got. It
would be tempting for a libertarian to say "So what? It's a private
matter." Yes. Yes it is. And in time the market will correct this.
But the market will only correct it once enough shareholders care
about the consequences of a system where mediocrities are making
out like bandits, and the effects on incentives, work ethic, etc.
Markets solve problems, but they only solve those problems after
the players recognize the existence of the problems and make a
decision to act. Eventually the tide of shareholder opinion will
turn against this trend, and then they will correct course. And to
hasten that day, the Economist regularly shouts from the page-tops
about the problem, rather than doing what libertarians would
recommend ("Why talk about it when the market will correct
it?").
|11.12.06 @ 1:15AM|#
A lot of executives are of course horrendously overpayed. The problem though is that a government solution for this problem would quite likely do much more harm than good for the economy.
|11.12.06 @ 1:52AM|#
thoreau, I don't see why a libertarian couldn't fall right in
line with the Economist. Shouting about something from the rooftops
to effect a change seems just fine to me.
Good to know, joe, that something that is a problem can't be
discussed because there is another problem, which is a bigger
problem, we know, because you assert that it is. (It might be! I
wish there was a way for someone to point me to the proof on these
here electronic nets.)
How can I brush my teeth when the dishes are piling up in the sink?
What a jackass "argument". fwiw, your fucking off leaves something
to be desired. Try again.
David Nieporent|11.12.06 @ 5:22AM|#
Because a check cut by a corporation is so very different
than several thousand small donations by customers.
Yes, Joe, it is. The difference is that we know that the owners of
the money in the latter situation want that money to go to the
recipient, whereas we don't know that the owners of the money in
the former situation do.
Xmas|11.12.06 @ 6:32AM|#
Dear New York Times,
Governments are really equipped to save the world either, as you
really enjoy pointing out.
Xmas|11.12.06 @ 6:33AM|#
aren't
Governments aren't really equipped to save the world either.
(That's what I get for not previewing)
|11.12.06 @ 9:17AM|#
But the market will only correct it once enough shareholders
care about the consequences of a system where mediocrities are
making out like bandits, and the effects on incentives, work ethic,
etc. Markets solve problems, but they only solve those problems
after the players recognize the existence of the problems and make
a decision to act.
In the case of publicly traded companies, the executives' salaries
are public knowledge. Any shareholder that doesn't know the
executives' salaries is clearly not interested. What the average
shareholder typically won't know is the volume of stock options the
executives have been offered. But in order for this stock option
bonus to have any value whatsoever, the value of the stock has to
have increased.
|11.12.06 @ 9:52AM|#
There are too many stories of officers leaving with
nine-figure bonuses after running companies into the ground for
that objection to be persuasive.
As private corporations the only way that impacts me is if I own
shares in that company. I can certainly choose not to buy whatever
it is they sell. And if I am a shareholder I can take action such
as voting to not retain the board of directors or dumping my
shares.
None of you are even going to admit that there's a problem with
executive pay?
I think there is a huge problem with executive pay, which is to say
there is a problem with incompetent compensation committees and
their incestuous relationships with each other and officers of
their companies, but as I said above, unless I own any part of a
company that is not necessarily a problem. And speaking of the New
York Times, Gretchen Morgenson has been doing a really decent job
for the last few months of showing how contrary board behavior
often is to shareholder interests. She has focused on another big
problem not mentioned: by and large mutual funds and other
institutional funds like CALPERS (where the proxy votes really
accumulate) do a lousy job of acting in the best interests of the
fund owners. As Russ 2000 says, the information is out there.
But in order for this stock option bonus to have any value
whatsoever, the value of the stock has to have
increased.
That assumes the directors don't go back and fuck with the original
strike price, and that happens all the time.
D.A. Ridgely|11.12.06 @ 9:54AM|#
Since this thread has been jacked already, I'll just note that
the psychology of executive compensation, like that of certain
other corporate expenses, is driven at least in part by the law of
unintended consequences. Directors, even the ones who are
exercising independent judgment and not pawns of the CEO, are more
disinclined to under compensate executives than to over compensate
them. The reason is that if the overpaid executive performs poorly
and the company suffers, well, that is unfortunate but there is no
way of proving that anyone else would have done any better.
However, if the "under" compensated executive performs poorly and
the company suffers, the directors can be accused of not "buying
the best" and thus failing in their fiduciary responsibilities.
(Ironically, the same sort of psychology is at play when the CEO
authorizes using the $500 an hour law firm rather than the $400 an
hour firm next door and why investment trust managers don't mind
losing money by investing in Microsoft as much as losing it in some
less "safe" company.)
Still, this is all simply irrelevant to whether for-profits should
or should even be permitted to make charitable contributions -- a
classic case of what a philosopher I know calls "whataboutery."
|11.12.06 @ 10:04AM|#
"None of you are even going to admit that there's a problem with
executive pay?
'kay.
Buh bye."
Hey, someone's nine year old has been sneaking onto Joe's computer.
Better let him know if you see him.
thoreau|11.12.06 @ 10:20AM|#
DAR-
So, what you're saying is that a company wants to be able to say
"Well, we certainly threw enough money at the problem. What more do
you want?"
As far as giving money to charity, an interesting case is Whole
Foods. The founder of the company made it clear to his investors
from day 1 that a certain portion of the profits would be donated
to charity. The information has been out there for every person who
has ever bought stock in the company. The information has also been
out there for consumers as part of an effort to cultivate a
particular image. Despite this fully disclosed policy of giving
away profits the stock has performed well, signaling that people
are willing to invest in this business model. And the business has
done well, signaling that the company is good at wooing
customers.
|11.12.06 @ 10:26AM|#
I'm sure some bright person will take the NYT scoop to claim
that Post and Roberts advocate government intervention, which is
really quite a revelation.
I liken such a possibility to some otherwise intelligent person
using anything that Gretchen Morgenson says as if it was reporting
rather than an editorial on the "business" page.
|11.12.06 @ 10:46AM|#
And what about choice? Corporations - we have, and we do - exercise a choice on whom to support. Governments? rriiiigght.
|11.12.06 @ 11:13AM|#
"As far as giving money to charity, an interesting case is Whole
Foods. The founder of the company made it clear to his investors
from day 1 that a certain portion of the profits would be donated
to charity."
Little off topic, but I'll never forget when my English professor
in college who cited Mecca Cola as the pinnacle of altruistic
companies. Here is part of their mission statement:
The spirit which governed the creation of Mecca-Cola was to
create a profit-making business which would help to relieve human
suffering where action is still possible. The most intolerable and
the most immediate suffering is that of the Palestinian people.The
spirit which governed the creation of Mecca-Cola was to create a
profit-making business which would help to relieve human suffering
where action is still possible. The most intolerable and the most
immediate suffering is that of the Palestinian people.
The Palestinian people are experiencing indifference and
general complicity, these being the most wretched and the most
contemptible acts of apartheid and Zionist fascism.
Zionist fascism... apartheid... Palestinians who are the victims of
the worlds worst suffering...
Never mind that they're the only Arabs living in what can remotely
be called a functioning democracy in the Middle East. And never
mind the black Africans being raped and murdered by the thousands
in Sudan by... Arabs! Yes, it's much more convenient to blame the
Jews for everything because we all know Arabs are all so angelic
and peaceful...
Long story short, I called him out, cited Whole Foods as a better
example, he got his panties in a bunch and... well, I didn't finish
the class... Didn't mind though, one less dipshit leftist I had to
attempt to fill my head.
D.A. Ridgely|11.12.06 @ 11:16AM|#
So, what you're saying is that a company wants to be able to
say "Well, we certainly threw enough money at the problem. What
more do you want?"
Not quite. I'm saying that at least the company cannot be
accused of not throwing enough money at the problem. But I
don't mean to overemphasize this. It's just one factor in the
equation.
Whole Foods is an interesting case. I personally oppose corporate
charitable contributions for various reasons, but one can certainly
make the argument that investors should be permitted, all other
factors equal, to opt for such companies. In effect, they are
either turning part of their profits over to corporate management
to make charitable contributions for them (which from a tax
perspective is foolish) or they believe, possibly correctly, that
enough corporate good will is "bought" by such contributions that
it is good for the overall profitability of the company; that is,
that profits would be lower but for the charitable
contributions.
As you know, I
oppose corporate taxes. My objections to corporate charitable
contributions viewed as donations (and not as marketing expenses)
go to keeping for-profit corporations transparent and efficient,
reducing conflicts of interest and focusing charitable behavior
where it belongs, at the individual.
D.A. Ridgely|11.12.06 @ 11:34AM|#
I probably need to qualify and quibble my own last comments. First, it should have been "with the individual," not "at the individual." Second, I can't say for a fact making a company in which one invests one's agent for charitable contributions is foolish from a tax perspective, but I suspect for many people that is the case. Finally, it isn't just a matter of corporation as agent of charitable giving versus marketing expense as though it must be one or the other. There is also, more probably, a bit of both plus whatever noneconomic benefit derives from the sense of "doing good" involved.
|11.12.06 @ 11:34AM|#
If by "saving the world" you mean lifting millions of out
poverty, then corporations have done much more in the last 30 years
than any government ever could hope.
If there's anything wrong with corporations, it's the government
giving them privileges, so business without government has no
choice but to satisfy consumer demands and innovate to be
successful.
Win-win transactions create wealth in the world, when government
takes money from you, wealth is lost.
|11.12.06 @ 11:42AM|#
Late question. Ms. Howley, why does the title of this post refer to "libertine librarians?"
|11.12.06 @ 11:46AM|#
I think Joe's getting the short shrift here. Let me try it from
another angle.
On the one hand, you could argue that a corporation can do whatever
it f-ing wants with its money as long as it's revealed to
shareholders. In that case, I'm not sure why you'd be upset about
either executive pay or CSR. I mean, as somebody pointed out, top
executive pay is revealed to shareholders, and I think we all
realize that in many cases, CSR's only raison d'etre is to make a
public spectacle.
On the other hand, you could argue that excessive corporate pay and
CSR are both examples of wasteful spending that prevent a company
from operating at full efficiency. In this case, I would think
you'd be much more concerned about the pay issue, since CSR
generally involves pretty small outlays in comparison.
A third argument could be that CSR is wasteful, but executive pay
is always aligned with what it takes to hire and retain the best
leadership. For the reasons DAR and Thoreau outline above, I'd say
this is kind of head-in-the-sand thinking, and yes, I do work at a
large corporation and am pretty well (over?)paid myself.
|11.12.06 @ 11:47AM|#
Hey, if corporations want to give money away I have no problem
with it. It may be the shareholders money, but just like with the
officers compensation it's up to the shareholders to decide. Too
bad if they don't.
I suspect the good will arguement may have some basis, but givings
are a double-edged sword. One company may get kudos for giving to
popular causes. Still other companies may get beat up for donations
to more divisive causes.
If I'm a shareholder I want my money to make my own investment and
charitable decisions. As a citizen I want my money to make my own
investment and charitable decisions.
D.A. Ridgely|11.12.06 @ 12:05PM|#
I think Joe's getting the short shrift here.
We tried giving Joe a long shrift once but it didn't fit him.
Seriously, though, whether a corporation is wasteful is its own
business just as whether an individual is wasteful is his own
business. But there are other factors at play in corporate
charitable giving that count against it. Someone has already
mentioned controversial 'charities,' but there are also conflict of
interest problems. When corporate management drops a carload of
company cash on a charity, it also thereby buys entry and access to
the big-money and politically connected world of the nonprofits not
only for the corporation but for those decision makers and becomes,
in effect, yet another executive perk. Anybody wanna bet we'll
never see one of those Whole Foods execs, tired of just doing good
running a successful corporation decide to take a shot at
politics?
thoreau|11.12.06 @ 12:11PM|#
DAR-
Well, the CEO of Whole Foods has described himself as a
libertarian, which immediately disqualifies him from ever winning
an election.
D.A. Ridgely|11.12.06 @ 12:22PM|#
thoreau:
Not at all. He'll just have to redefine "libertarian" as our
Democratic, um, friends have been doing lately.
thoreau|11.12.06 @ 12:38PM|#
I think this comment a few weeks ago said it best about
redefining the word "libertarian":
Les | October 13, 2006, 11:45pm | #
Personally, I had never seen such hatred toward a politician in my lifetime (before GWB) from Democrats. All the man did was try to reign in the growth of government.
I think lots of non-Democrat/non-lefties (like myself) hated Gingrich because he was a typical hypocrite politician (defending marriage against homosexuals, but not thrice married adulterers, like himself) who threatened to kill people who smuggled pot into the country. You can't work to intensify the war on drugs, increase the always huge defense budget, maintain the status quo on a variety of industrial and agricultural subsidies, and then pretend to want to shrink the government. I mean you can, but only Republicans will take you seriously.
Yeah, we're really far off-topic now. Oh well.
|11.12.06 @ 1:04PM|#
I'd be curious if those who share my free-market views would
disagree, but it seems to me that the most significant harm that
so-called "excessive" executive pay has visited upon corporate
America is that it has given the anti-business crowd something to
point at, mouth agape, eyes bulging, while
half-screaming/half-whispering "Evil!"
If it weren't for the anecdotal evidence of highly paid CEOs
overseeing periods of downsizing and layoffs, these critics would
have to actively review annual reports, SEC filings, and financial
data to (maybe) ID corporate waste. And that's a lot of work. And
your findings will be a hard sell to the public at large.
But if the face of evil is one man? And one number that's more than
most Americans will ever make in their lives? That's negative PR
gold. It won't matter if the corporation or its shareholders get
value for that money. After all, "nobody is worth THAT much
money!"
High executive pay is to the anti-corporate crowd as smokers are to
state government tax coffers -- they claim they're against it, but
they really can't live without it.
|11.12.06 @ 1:55PM|#
I believe there were conflicts of interest when Hank Paulson donated billions in Goldman Sachs profits to conservation funds. But since Paul Newman says he's a fine guy, he's now our Treasury Secretary. I'd bet the Whole Foods guy is in it as much for the connections as the good will. And hopefully he pays plenty for insurance because that organic crap is going to kill somebody.
|11.12.06 @ 2:01PM|#
"Businesses exist within real communities and have real effects,
both good and bad, on those communities. Like individuals living in
communities, businesses make valuable social contributions by
providing goods and services and employment. But just as
individuals can feel a responsibility to provide some philanthropic
support for the communities in which they live, so too can a
business. The responsibility of business toward the community is
not infinite, but neither is it zero. Each enlightened business
must find the proper balance between all of its constituencies:
customers, employees, investors, suppliers, and communities."
Couldn't have said it better.
|11.12.06 @ 2:10PM|#
it seems to me that the most significant harm that so-called
"excessive" executive pay has visited upon corporate America is
that it has given the anti-business crowd something to point at,
mouth agape, eyes bulging, while half-screaming/half-whispering
"Evil!"
I agree.
Relatedly, we will shortly be seeing the first round of
compensation-discussion-&-analysis reports to be issued by
publicly traded corporations, as required by the Sarbanes-Oxley
reforms to the federal securities laws. These are supposed to
include options and perks. In the past, increased disclosure of
executive compensation has apparently had the unintended effect of
increasing executive compensation, because it makes it
easier for executives to see what their peers are making and thus
to pressure their boards to give them the same.
Larry A|11.12.06 @ 2:44PM|#
I was interviewing a SAG-AFTRA agent one time when she got off
on the "There ought to be regulations so CEOs could only earn five
or six times as much as the lowest paid peon on the company"
thing.
I asked her if she would be writing such a restriction into the
movie contracts she was negotiating for her superstars. That their
salaries would be limited to five or six times the amount the movie
set peons are paid.
I almost had to do CPR.
|11.12.06 @ 3:05PM|#
Whole Foods' policy is derived from the founder's personal
beliefs. It is transparent and apparently approved of by the
shareholders and probably appealing to the company's target
consumer. It is almost certainly effective and wise with respect to
their bottom line. Whether it is actually socially useful is
another matter.
More cynical but none the less effective as a PR policy is
Walmart's "giving back to the community' policy.
By far the greatest failure was BP's attempt to establish itself as
the "responsible green energy" company. While it was sinking
billions into black holes of "alternative energy"* as its PR flacks
loudly announced it to every breathless reporter on business and
environmental policy it was neglecting essential maintenance and
ignoring safety procedures at its facilities at Prudhoe Bay and
Texas City.
Such actions are, in the end, cynical to the extreme but sadly, in
my opinion, typical of most CSR campaigns.
*Please note: not all investments in alternative energy (note no
quotation marks) are "black holes". But almost certainly all of
BP's were.
|11.12.06 @ 4:29PM|#
I was interviewing a SAG-AFTRA agent one time when she got
off on the "There ought to be regulations so CEOs could only earn
five or six times as much as the lowest paid peon on the company"
thing...I almost had to do CPR>
Oprah, Barry Bonds Eminem and uncountable numbers of other
"entertainers" make far more than their worth. I don't blame them,
I just "try" to avoid patronizing their product.
The Wine Commonsewer|11.12.06 @ 4:57PM|#
I think corporate bosses are often overpaid. I also think
athletes and rock stars are grossly overcompensated. My opinion,
however, doesn't matter because I am not an athlete, a rock star, a
record company, a film company, or a club owner, nor do I own stock
in any company that pays execs too much.
I do have a marginal interest in the salary of athletes in that my
tax dollars support their work environment but it is still only a
marginal interest.
All of which, as DA Ridgely pointed out, is largely irrelevant to
the issue of corporate charity. Which is again, a matter for the
board or directors or stockholders to deal with.
I also hate grocery store cards and rebates. Let's make it
illegal.:-)
The Wine Commonsewer|11.12.06 @ 5:00PM|#
Any libertarians still believe that the corporate form of business should be abolished?
Jennifer|11.12.06 @ 5:37PM|#
Any libertarians still believe that the corporate form of
business should be abolished?
I would love to see an end to the legal fiction of corporation =
human being.
Jennifer|11.12.06 @ 6:16PM|#
Why not, JP? What are the benefits of giving corporations human
status? Actually, more like super-human status: they can survive
indefinitely, and they certainly can't be imprisoned or executed
for wrongdoing; they merely pay a fine and write it off as a cost
of doing business.
I'd actually like to see business law in some ways (not all) be
more like the business laws in Victorian England. If I start a
business, there's no distinction between Jennifer Person and
Jennifer Incorporated, and if I run Jennifer Incorporated onto the
ground Jennifer Person doesn't get a golden parachute and live in
luxury forever.
|11.12.06 @ 6:25PM|#
TWC, thank you.
As to this:
That's what governments are supposed to do.
Holy Cow!!!!
Any libertarian who has a reporter draw this conclusion has failed
to explain himself properly, or, possibly is just dealing with
someone who has a totally different mindset. I suspect the latter
in this case.
I am used to encountering this mindset with Canadians but rarely
with Americans.
|11.12.06 @ 6:32PM|#
The limited liability aspect of corporations is what enables them to create wealth. If there isn't a corporate veil between the corporation and the stockholders, people would be much less willing to pool money in corporations. Who could afford the risk? Plus the corporate form gives each investor assurance that the capital of all fellow investors is locked into the enterprise. Without these characteristics, corporations would not have been able to raise the large amounts of capital needed for railroads, skyscrapers, major manufacturing or research undertakings, etc. We would be reduced to a sole proprietorship / partnership economy, with only government able to finance big undertakings.
|11.12.06 @ 6:36PM|#
Jennifer, I find it necessary to observe here that many of the
laws protecting corporations arose as depression era laws designed
to protect "the little guy" investors who had been hit so hard by
the '29 Crash.
On the same subject, it is also, I think, appropriate to observe
here that many of the executive compensation problems that we have
today also come from the same depression era laws designed for the
same purpose. These laws had the unintended consequence of shifting
corporate power from shareholders (who are interested, mostly, in
return on investment) to management (who are interested in
protecting their status).
Boy howdy, it always comes back to the fact that FDR and the New
Dealers fucked up this country, doesn't it?
D.A. Ridgely|11.12.06 @ 6:38PM|#
There is no such thing as a legal fiction that corporations are
"human beings." They are legally "persons" for certain limited
purposes, e.g., the ability to buy, sell and own property, to enter
into contracts, to sue and be sued. But that's hardly human status.
And in return for these legal fictions, corporations perform a
vital economic role.
Without the modern corporation, capital formation through
investment would be limited to the extent that the modern economy
could not exist because no one would be willing to be passive
investors if they stood to be ruined personally for the misdeeds of
the company they invested in. (Also, I don't think anyone would
actually prefer to live in the economy of Victorian England except,
of course, the English Aristocracy and Victoria, herself.)
That said, there are all sort of reasonable ways corporations could
be reformed to address some of Jennifer's concerns, especially
including making corporate directors and executives more liable
personally for the misconduct of the companies they, and not the
company's owners, manage and effectively control.
|11.12.06 @ 6:49PM|#
DAR -- Skilling was sentenced to 24 years in prison and has to pay $45 to victims. How much more liable do you want directors and officers to be? And bear in mind that the more risk we impose on businesspeople, the less willing they'll be to innovate.
Jennifer|11.12.06 @ 6:56PM|#
The limited liability aspect of corporations is what enables
them to create wealth.
They were able to create wealth beforehand without LLC
status.
I don't think anyone would actually prefer to live in the
economy of Victorian England except, of course, the English
Aristocracy and Victoria, herself.
Compared to nowadays, hell no. But as far as wealth creation goes,
it was quite an improvement over what came before.
the more risk we impose on businesspeople, the less willing
they'll be to innovate.
I don't think that being held responsible for misdeeds or
mismanagement is the same thing as "imposing a risk."
D.A. Ridgely|11.12.06 @ 7:45PM|#
jp
I don't have an opinion one way or the other. My comment was merely
an attempt to say that whatever problems Jennifer mentioned could
be addressed short of abolishing corporations.
In any case, Skilling was convicted of criminal charges. The laws
holding corporate executives criminally liable have been in
existence for some time, though not all that frequently enforced
until fairly recently. By contrast, corporate executives are not, I
believe, personally liable in tort for intentional but not criminal
harm, and certainly not personally liable for the negligent harm
their companies may do. I'd be willing to look at those areas. And,
sure, there is a social cost involved in taking such measures. I
don't have a particular position there, either; I merely note it is
a legitimate matter of concern and debate.
|11.12.06 @ 7:49PM|#
Jennifer, I think you're confused between corporations and joint
stock companies. The latter never had limited liability and have
remained largely confined to the UK. Corporations had limited
liability well before the nineteenth century (it can in fact be
traced back to ancient times; Roman water companies were probably
comparable to modern corporations). But before the nineteenth
century, a corporation could only be formed with a special act by
the sovereign. Canal companies and the early railroads were formed
this way. As the demand for corporations grew in the nineteenth
century, Western governments started passing the "general
corporation" acts that we have today, under which state approval is
still needed but is much easier to get.
Joint stock companies, by contrast, only undertook relatively
small-scale and short-lived business, along the lines of what
partnerships are used for today.
In other words, large-scale finance has always gone hand-in-hand
with limited liability.
|11.12.06 @ 7:52PM|#
JP and DAR,
You have identified yourselves as libertarians rather than
anarchists. I think many people don't get the difference. When
people talk of the "free market" they usually are not referring to
a regulated market that allows for a framework of economic activity
based on rules designed to create a healthy market... but a well
regulated market is a better description of the ideal market than a
"free market" (he said, waiting for the future attack).
Corporations, however, are a creation of the government. They may
be an appropriate form of government intervention into markets, but
they can not exist in a "free market." As such, reforms can and
should be implemented to make sure that market framework is
beneficial on balance for the society.
Just talking out my ass here, but it seems a way to make corporate
reform address some of Jennifer's concerns would be to provide
either a limited lifespan to corporations, or to have the
corporation itself liable for certain actions, meaning that when a
corporation breaks the law (due to the actions of its officers),
not only will the officers be held liable, but the corporation
itself would be dissolved after paying fines and restitution for
its actions.
|11.12.06 @ 8:01PM|#
DAR -- Thanks for the clarification.
Just to flesh this out a little further. . . . Regarding civil
liability, virtually all intentional torts are crimes, so the legal
tools exist for punishment. The government sometimes brings RICO
actions on this basis. Moreover, directors and officers are
frequently found liable for gross negligence in shareholder suits
(or they settle before a finding is made, which amounts to the same
thing). Nowadays, in the U.S. a director or officer can hardly fart
without being sued in a shareholder action. We pay for it
indirectly when the costs of D&O insurance are passed on to
us.
IMO, the Enron prosecutions showed that the system works, and the
new theories of liability added by Sarbanes-Oxley were an
overreaction that cost the economy more than they're worth.
|11.12.06 @ 8:09PM|#
MSM - I wholly agree with your first 2 paragraphs. I part
company on the 3d because I don't believe that corporate law needs
reforming (other than getting rid of Sarbanes-Oxley, which is all
cost and almost zero benefit). Corporations already can be found
liable for breaking the law -- that's why Arthur Andersen doesn't
exist anymore. But prosecutors tend to go after the individual
actors instead of the company because, since the assets and most
employees are not "bad," wrecking the company would just be wanton
destruction of value, like killing an ox in retribution for goring
a man.
Needless to say, corporate welfare is bad for everybody and should
be stopped, and fraudsters should be sued and/or prosecuted.
|11.12.06 @ 8:23PM|#
jp,
Fair enough.
Like I said, I haven't thought much about this.
What about the idea of a corporation having a limited lifespan: the
idea that it is a way for people to pool resources to conduct some
well defined activity for a well defined period of time. After
that, the corporation goes away and the owners get their profits or
losses and move on. It seems that by giving corporations unilimited
lifespans, they can take on many of the characteristics of
government bureaucracy, which have an incentive to find a purpose
once their original purpose is completed. It would, of course, be
wise to make reauthorization for a new period easy to do.
Again, this is way outside my area... just thining aloud.
|11.12.06 @ 8:40PM|#
After that, the corporation goes away and the owners get
their profits or losses and move on.
Think about a massive long term investment like an iron and steel
plant for example. I worked on getting a brand new one get off the
ground thirty-some years ago (one of the first in North America for
many, many years). It represented many years of effort.
How long a lifespan does such an effort deserve?
I realize that you are engaging in speculation here but my position
is that as long as there are no protections from foreign
competition and no subsidies together with no protection to
existing management from "hostile takeovers" (one of those
depression era "protections" referred to above) the corporation
should exist as long as it can function profitably and its shares
can be traded openly and freely.
|11.12.06 @ 8:41PM|#
MSM -- That's a fair question. I suspect that having a limited
lifespan would simply add some inefficiency (it's expensive and
distruptive to liquidate a going concern) while not really changing
the ultimate state of things. Like the shari'ia prohibition on
earning interest -- all it does is force Muslims to devise tortured
transactions that have the effect of earning interest while making
it look like something else.
If what you want to guard against is a corporate "state" that runs
everybody's lives, then you need to maintain a separation between
corporate "power" (through voluntary contracting) and government
power (through its monopoly on force). Breaking up the
state-sponsored telephone monopolies was a good step in this
direction.
D.A. Ridgely|11.12.06 @ 8:47PM|#
jp
My understanding of the law is that intentional torts have criminal
counterparts, not that they are the same, though they have the same
historical basis in English common law.
MSM
You are correct that I am a libertarian, not an anarchist. I
believe in (highly) limited government. Thus, while I agree that
corporations are, of course, creations of government, that is only
to say that the law permits the creation of corporations and the
law is a creation of government, itself a creation of society. And
I much prefer the notion that markets need to be ordered and
structured according to at least a minimum legal framework as
opposed to the notion that they should be regulated, at least in
the common contemporary sense of regulation.
I don't think much of limited duration corporations in most cases.
That would mean that a still thriving (profitable) and socially
desirable company coming near the end of its lifespan would have
difficulty arranging long term financing or meeting its already
existing financial and legal obligations (e.g., pensions) and
eventually need to transfer assets to a newly created company to
carry on. What would the point be? Why should, say, Coca Cola or
any number of other perfectly respectable corporations not continue
to serve generation after generation of shareholder?
Thomas Paine\'s Goiter|11.12.06 @ 10:44PM|#
If I start a business, there's no distinction between
Jennifer Person and Jennifer Incorporated, and if I run Jennifer
Incorporated onto the ground Jennifer Person doesn't get a golden
parachute and live in luxury forever.
And on the 8th day, Jennifer killed entrepreneurship.
|11.13.06 @ 6:21AM|#
My understanding of the law is that intentional torts have
criminal counterparts, not that they are the same, though they have
the same historical basis in English common law.
I don't disagree. Instead of "virtually all intentional torts are
crimes," I should've said, "virtually all conduct that is
privately actionable under a tort theory of recovery is also
punishable as a crime."
Larry A|11.13.06 @ 1:15PM|#
virtually all conduct that is privately actionable under a
tort theory of recovery is also punishable as a crime.
Hmmmm. Read any homeowner association rules lately? What laws
address not raking leaves, parking an RV beside your house, having
an airconditioning unit on your roof, and painting your house
purple?
|11.13.06 @ 1:53PM|#
Larry -- Those things are actionable on the basis of contract,
not tort. When you choose to join the association (by buying
property within it), you agree not to do X, Y, Z. If you then do X,
Y, or Z, the other parties to the contract can sue you for
breaching the agreement, not because letting the weeds take over is
a tort.
However, you did alert me to a mistake in my supposedly improved
re-write. It should say, "virtually all
intentional conduct that is privately actionable
under a tort theory of recovery is also punishable as a crime."
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