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.


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  • ||

    "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.

  • ||

    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||

    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.

  • Herrick and His Balls||

    Or commercial, as they call tv ads nowadays

  • ||

    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||

    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.

  • ||

    All corporations are evil. Exception: The Corporation for Public Broadcasting.

  • ||

    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.

  • ||

    "Herrick and His"/"Herrick and some"

    Is that the difference between ownership and possession?

  • ||

    Wow, joe, so oblique reference to anecdotal evidence is an "actual argument?"

  • ||

    One man's "running companies into the ground" is another man's "creating shareholder value".

  • ||

    'Wow, joe, so oblique reference to anecdotal evidence is an "actual argument?"'

    Or the use of gross hyperbole and misleading half truths?

  • ||

    None of you are even going to admit that there's a problem with executive pay?

    'kay.

    Buh bye.

  • ||

    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.

  • ||

    'One man's "running companies into the ground" is another man's "creating shareholder value".'

    Briliant satire.

    I hope.

  • ||

    Ah, he's back. We're irrestible, apparently.

    I hope.

    And I very much hope not.

  • ||

    And irresistible, even. sheeesh...it's bedtime.

  • ||

    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||

    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||

    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?").

  • ||

    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.

  • ||

    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||

    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||

    Dear New York Times,

    Governments are really equipped to save the world either, as you really enjoy pointing out.

  • Xmas||

    aren't

    Governments aren't really equipped to save the world either.

    (That's what I get for not previewing)

  • ||

    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.

  • ||

    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||

    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."

  • ||

    "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||

    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.

  • ||

    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.

  • ||

    CSR is only a marketing gimmick to get more business - it is about profits.

  • ||

    And what about choice? Corporations - we have, and we do - exercise a choice on whom to support. Governments? rriiiigght.

  • ||

    "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||

    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||

    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.

  • ||

    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.

  • ||

    Late question. Ms. Howley, why does the title of this post refer to "libertine librarians?"

  • ||

    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.

  • ||

    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||

    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?

  • ||

    "Buh bye."

    Would that it were true.

  • thoreau||

    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||

    thoreau:

    Not at all. He'll just have to redefine "libertarian" as our Democratic, um, friends have been doing lately.

  • thoreau||

    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.

  • ||

    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.

  • ||

    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.

  • ||

    "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.

  • ||

    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||

    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.

  • ||

    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.

  • ||

    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||

    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||

    Isaac, nice succinct summation.

  • The Wine Commonsewer||

    Any libertarians still believe that the corporate form of business should be abolished?

  • Jennifer||

    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 -- Why?

  • Jennifer||

    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.

  • ||

    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.

  • ||

    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.

  • ||

    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||

    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.

  • ||

    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.

  • ||

    Uh -- that should have been $45 million.

  • Jennifer||

    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||

    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.

  • ||

    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.

  • ||

    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.

  • ||

    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.

  • ||

    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.

  • ||

    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.

  • ||

    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.

  • ||

    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||

    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||

    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.

  • ||

    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||

    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?

  • ||

    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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