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| May 25th, 2003 11:40 PM | ||||||||
| The_Rorschach |
"I agree with you 100% (well, I guess I agree more with Mr. Mill, since I am totally against many of our drug laws, not only b/c they don't work, but also for the reasons you've stated)." Hopefully we'll get to the point where they are unecessary, though I don't envision it in my lifetime. "I don't however see the parallels between that and doing away with LL. If marijuana were legal, meaning it was available for legal use by adults (21+ I suppose), you would agree with making it just as hard, if not harder to get than cigarettes, right?" I don't know, maybe it is going from High School in California to the Navy and then to Hawaii, but I have yet to live anywhere that weed is inaccessable. Fuck, more of my friends smoke weed than cigarettes. In fact, irony of irony's, I've actually been given shit by a couple of my pot head friends for smoking 'cancerous' cigars around them. Madness. In any case, I would keep it out of the hands of minors as weed, despite how old you are, is a disctracting influence. The high only lasts a few hours, or a night if you get really ripped, but it makes constructive action all but impossible. "This is how I see it in comparison to LL. We're not making it any harder or easier for people to invest in companies. We'd only be changing the rules of the game, which is the same thing we do with legal substances such as alcohol and cigarettes." And you don't see that as adverse to an economy which does, lets be honest, get alot of its drive from the stock market? "You seem to be arguing that eliminating LL would discourage investment, because it would mean investment carried a little bit more risk. Well, to appeal to the gambler in you wink.gif, capitalism isn't supposed to be "fair," right Ror??" I wouldn't mind, but then, I wouldn't mind making military service a requirement for citizenship. I know better than to force what I find acceptable on others, as my views are embraced by a minority, even amongst fellow conservatives. "I agree with you to an extent. I find that campaign finance reform has resulted in similar results-- it's like a dam holding back the flood. Once you patch up one hole, the water of corruption simply finds another way to leak out (aren't I the poet this evening)." Yes you are  "However, in regards to corporate corruption, I don't see this as more regulation, rather, I see this as decentralization. I see it as a way to instill more corporate control not in the often inept hands of the SEC, rather, in the hands of the small shareholders who own it. That sounds like good capitalism to me." If it works sure, but if it doesn't? "Ror, we live in a liberal society as a whole. We tried hands off economics back in the day, and frankly, it doesn't work." Agreed. "So the question is how much regulation is too much, and when does it become a hinderance as opposed to a benefit? I don't see eliminating LL as more "nannying," I see it as empowering. BTW, what are your opinions on the social security system? Do you believe in safety nets, or fiscal responsibility? I think I know the answer, and I'd like to know how eliminating LL and SS are vastly different." Just like government, as little regulation as possible, and never more than what is strictly needed. And I would eliminate SS too, I used to have a quote from Calvin Coolidge in my sig. Do you remember it? "The collection of any taxes which are not absolutely required for the public welfare is only a species of legalized larceny." - Calvin Coolidge (1872-1933) Social Security is not an absolute requirement, either is welfare, or, for that matter, LL. But the difference between LL and the others is simple: LL benefits the individual at the cost of the corporation, the corporation which would not exist save for that individual, and I think that is its own merit. "I'm confused. You don't like social safety nets because they result in government coddling, yet you like such coddling in the private sector....?" Sure, why not? I don't support Universal Health Care, not because of the service it provides, but because of who is providing the service. Corporations are a great evil, but far far less of an evil than governmental control, if for no other reason, than that individuals are able to control corporations to a greater degree than they can their elected officials. "They can choose not to invest, much like I can choose not to buy a car if I don't want to invest in its maintenance and upkeep." And if enough people stopped buying cars, the automobile industry would disappear. If enough people don't invest. . . "I think any system that encourages (mind you, ENCOURAGES, not mandates) a better citizenry is always better. " I agree, but laws don't encourage behavioural patterns, they dictate them by force. |
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| May 25th, 2003 11:04 PM | ||||||||
| KevinTheOmnivore |
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I don't however see the parallels between that and doing away with LL. If marijuana were legal, meaning it was available for legal use by adults (21+ I suppose), you would agree with making it just as hard, if not harder to get than cigarettes, right? This is how I see it in comparison to LL. We're not making it any harder or easier for people to invest in companies. We'd only be changing the rules of the game, which is the same thing we do with legal substances such as alcohol and cigarettes. You seem to be arguing that eliminating LL would discourage investment, because it would mean investment carried a little bit more risk. Well, to appeal to the gambler in you , capitalism isn't supposed to be "fair," right Ror??Quote:
However, in regards to corporate corruption, I don't see this as more regulation, rather, I see this as decentralization. I see it as a way to instill more corporate control not in the often inept hands of the SEC, rather, in the hands of the small shareholders who own it. That sounds like good capitalism to me. Quote:
"But their business IS a service, and it's often granted on a chartered promise to provide that service. What better way to hold them to thaty promise than to have their owners REALLY involved?" Yes but Kev, if they desired to be involved, they would be. Why must we manufacture artifical concern where it does not exist?[/quote] I'm confused. You don't like social safety nets because they result in government coddling, yet you like such coddling in the private sector....? Quote:
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On a side note, back to my conversation with punkgrl about the SEC, here's an article on their settlement matter with WorldCom/MCI: http://www.commondreams.org/headlines03/0525-07.htm Published on Sunday, May 25, 2003 by the Atlanta Journal-Constitution Critics Decry SEC's Corporate Settlements by Marilyn Geewax WASHINGTON -- This past week, the Securities and Exchange Commission reached settlements with both WorldCom Inc. and PricewaterhouseCoopers LLP, forcing the companies to pay penalties for wrongdoing. But some victims of corporate misdeeds ask: Why isn't the SEC hauling the scofflaws into court to let jurors decide the punishments? "The SEC should be enforcing the law to its fullest extent," not negotiating compromises, said Mitch Marcus, a former WorldCom manager who founded BoycottMCI.com to lobby for stiff punishment. Compared with the suffering of investors, WorldCom ended up with "a very, very insignificant fine." But the SEC says a settlement offers several advantages. By negotiating an agreement, the government can impose swift punishment that forces changes in corporate behavior to prevent future crimes, said Thomas Newkirk, associate director of the SEC's enforcement division. "You get things much more quickly than would otherwise be the case," Newkirk said. "The typical litigation case probably takes between two and three years," he said. "One needs to balance the benefit of getting remedial provisions into place now, as opposed to getting them three years from now." WorldCom agreed last week to settle fraud charges by paying $500 million, the largest penalty ever proposed for accounting fraud. In New York, U.S. District Court Judge Jed Rakoff is expected to decide in June whether to approve it. Also last week, the SEC announced that PricewaterhouseCoopers LLP agreed to pay $1 million to settle allegations of improper conduct related to its audits of SmarTalk TeleServices, a now-bankrupt provider of prepaid telephone cards and wireless services. With the lure of a settlement, the SEC can force almost immediate changes to protect shareholders and others from further victimization, Newkirk said. For example, after the WorldCom accounting fraud was revealed last June, "we got a monitor put into place to make sure we didn't have another Enron-type situation where the managers were giving themselves big bonuses on the way out of the door," Newkirk said. "We also got controls put into place to fix what was wrong with their record keeping and the accounting." In the PricewaterhouseCoopers case, the firm agreed to establish new document-retention policies. J. Boyd Page, a securities attorney in Atlanta, agreed that settlements typically offer more benefits than long court battles. "Settlements can make sense because white-collar crime is ofttimes very, very complicated," Page said. "It can take weeks on end simply to present a case" to the jury after years of investigative work. As the case drags on, costs mount, he said. "There is a huge cost of going to trial, just in terms of absolute dollars, to retain lawyers, pay experts and pay employees to sit in a courtroom instead of doing their own jobs," he said. "Furthermore, trials, whether you win or lose, can be quite devastating simply because of adverse publicity." But Page said the reluctance to go to trial can harm shareholders who want to sue. "From a plaintiff's perspective, I prefer to go to trial because during the course of that, there is a lot of testimony developed, a lot of documentary evidence made public," he said. "That type of evidence often bolsters the claims of individual investors who have lost their life savings." The settlements also fail to help victims of corporate wrongdoing by allowing the perpetrators to avoid admissions of guilt. The WorldCom settlement allowed the company to declare that it does not admit guilt. Page said companies insist on that provision because typically, "they remain subject to a number of class-action civil lawsuits. An admission of guilt would pretty much stop them from fighting those lawsuits." Reformers alarmed Charlie Cray, a corporate reform expert for Citizen Works, a Ralph Nader group, said quick settlements allow companies to get off too easily. At WorldCom, where company officials overstated earnings by about $11 billion since 1999, a punishment of $500 million won't amount "to a penny on the dollar," Cray said. "The number sounds impressive at first because it's the largest ever levied in history, but you take into count all the factors, and it looks pretty weak." Moreover, because the company didn't have to admit a crime, "it doesn't help people in lawsuits," he said. If the court accepts the SEC proposal, the settlement could help WorldCom Chief Executive Michael Capellas lead WorldCom out of the largest bankruptcy case in history. WorldCom's revelations last June of massive overstatements of earnings came on the heels of similar announcements by Enron Corp., Tyco International Ltd. and others. The SEC accused WorldCom with committing fraud "in connection with several securities offerings" and violating record and bookkeeping laws. Former Chief Financial Officer Scott Sullivan, who was fired after the earnings misstatements were discovered, has pleaded not guilty to criminal fraud charges. Ex-CEO Bernard Ebbers has said he was unaware of the disguised expenses and has not been charged. Four other executives have pleaded guilty to criminal charges filed in New York and are cooperating with investigators. © 2003 The Atlanta Journal-Constitution ### |
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| May 23rd, 2003 02:07 PM | ||||||||
| The_Rorschach |
This was entirely too long, so I'm editing everything but my main points. "is it a good sign that investment in the American economy runs parallel with small time gambling? Don't you think a lot of the corporate crime that you are very well aware of would perhaps have been, or will be lessened were smal time investors more educated on what they were doing?" Probably Kev, actually, I'll even grant this am almost definately. . .But the Government has no right to dictate laws based upon making people do what's good for them, on a completely unrelated topic, this is why I am against anti-drug laws. However, I do not lobby against them because, sadly, I think our public is too irresponsible to be trusted with the means to chemically alter their own state of mind safely. Anyway, here is a quote to explain my position best: "The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not a sufficient warrant." -- John Stuart Mill, "On Liberty", 1859 "We're talking about averting corporate crime and being fair. . ." But see, thats just it. Capitalism isn't fair, it is a system based entirely upon relative inequalities. Corporate corruption, as we see it, boils down to another form of competition. Once one company bribes an elected official, all must do it. It sets a standard, the only advantage lies in finding an exploitable politician, see what I'm saying? I don't agree with it, I don't support it, but I realize that in the world we live in, its inevitable. The more laws you make restricting corporations, the more deft they will be in finding ways around them. Its a cat and mouse game, essentially, corruption is inherent in the system. "They have small investment, and can't afford to lose it. Wouldn't no limited liability perhaps create that kind of reciprocity on a broader scale?" Definately, but it becomes a matter of, is the government the public's nanny, and I hope the answer is no. The more responsibility for people the government takes upon itself, the less accountability individuals themselves will show. "And, btw, I think he goes beyond merely venture in the article, gets into value of negative stock, etc., I think he's arguing for a revolutionizing of the entire system." Well, maybe I'm being close minded, but I think its a bit late for that. "But their business IS a service, and it's often granted on a chartered promise to provide that service. What better way to hold them to thaty promise than to have their owners REALLY involved?" Yes but Kev, if they desired to be involved, they would be. Why must we manufacture artifical concern where it does not exist? "This to me is responsible behavior, and wouldn't it be great if everyone had incentive to do the same?" Never expect me to harmonize with Nader and Chomsky in the future, but I agree, stockholders should assert their right to corporate involvement and management, but I believe it should be because they desire it, not because they are forced to. Whats worse? Having a system with Limited Liability where the stockholder may lose out, or revoking it, and possibly ending up with a system relient upon apathetical investors? Neither one seems ideal. . . |
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| May 23rd, 2003 12:59 PM | ||||||||
| KevinTheOmnivore |
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I don't want to drown in analogies, but on your point, is it a good sign that investment in the American economy runs parallel with small time gambling? Don't you think a lot of the corporate crime that you are very well aware of would perhaps have been, or will be lessened were smal time investors more educated on what they were doing? Quote:
And, btw, I think he goes beyond merely venture in the article, gets into value of negative stock, etc., I think he's arguing for a revolutionizing of the entire system. Quote:
I think it could be very interesting, because often employees own shares (tiny ones) in their own company, and have their pensions invested in it, ie. ENRON. Wouldn't this make corporations more responsive to even their own employees perhaps, unlike our friends at ENRON, who encouraged buying stock on their website up to the day before they hit bottom....? Ultimately, I'm a commie advocating a kind of syndicalism. Quote:
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I know this is very typical of me, but I'm going to bring up Ralph Nader. Nader buys and sells stock, he is in fact heavily invested in CYSCO Systems. Some may say "oh! Hypocrite hypocrite! Mr. anti-corporations owns shares in them!!" But that's the thing, he doesn't advocate destroying incorporation, he simply advocates public responsibility over them. Chomsky actually said something similar to you once. Why do we blame the animal for being the animal that it is? Corporations are out to make money, and that's it. It isn't their job to have self-restraint and responsibility, rather, it's the public they are beholden to who must shoulder this responsibility. When Nader is displeased with a decision made by the board or the CEO, he writes letters, makes phone calls, and if he doesn't get answers, he sells off. This to me i responsible behavior, and wouldn't it be great if everyone had incentive to do the same? Quote:
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| May 23rd, 2003 11:39 AM | ||||||||
| The_Rorschach |
"We live in a society of actions and consequences. Nobody is forcing them to invest, and with no limited liability, I think it would encourage smarter investment, as well as better corporate behavior." Sure. . .But we're talking about what most small investers regard with as much levity as the slot machines in Vegas. It may be a crap shoot, it may pay off, the odds are in their favour with Limited Liability. This is like requiring kids to study agriculture and lawn pattern theory before letting them use a playground, they have other concerns and for the most part, couldn't care less. "Do they really, Ror??? Do you think a CEO, who himseld may sit on the board for another corporation, really fears the guy who plays around with some stock to see if he can make extra money??" Oh I know they do. Not when they get as big as Jack Welch maybe, or Ted Turner, but when a buisness is first starting out, and I believe the tone of the article was speaking of Limited Liability in regards to venture capital, though I am working from a memory numerous hours old. When a corporation is first conceptualized, they need their investors more than their investor need them. "The truth is, corporations are really only beholden to a select few of major share holders." And that won't change by revoking Limited Liability. "These shareholders are often involved with other corporations, and understand that the name of the game is making money, and if the persuit of that money means cutting a few corners, well why not?" And you think shareholders who find themselves suddenly responsible for the company's debts and expenditures isn't going to be just as willing to cut those corners? "You have criticized the apathy of the citizen, is it that different than the apathy of the investor? Have you not advocated compulsory serve for citizenry???" Because I honestly see this as a more civilized form of gambling. I play black jack every year at the hundred dollar table at the Bellagio. I don't count cards, I haven't read books on strategy, and I don't care to. I could, possibly, make a living in Vegas gambling if I applied all my powers of perception and intellegence at mastering their system, but I don't care to. I think most shareholders feel similar in their investments. "But that's the thing, your assumption is based on the idea that these corporations are no doubt up to no good." All corporations are up to no good. They aren't in the buisness to provide a service, they are in it to make money, and money -as they say- is the root of all evil. "Like the article says, negative stock would likewise hold its own value that could be purchased, b/c a buyer would buy not only the depleted stock, but all of the other negative entailments. This unloads the problem for the investor, and likewise grants the adventurous capitalist the prospect of taking on a cheap investment that might turn around and become more that it was initially worth, post-poor corporate behavior." And it would simultaneously alient many unknowledgable investors, which sadly or happily, make up a sizable portion of shareholders. |
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| May 23rd, 2003 12:24 AM | ||||||||
| KevinTheOmnivore |
[quote="punkgrrrlie10"]Just as every murder doesn't get solves, there are always going to be people who get away with it. Fortunately, when it comes to money, the shareholders can always file derivative suits to make ceos get off their lazy asses. They try to keep it as self-sustaining as possible which is fine by me.[/quite] I think your comparison makes more sense compared to corruption within the police force, not crime. Corruption in law enforcement is looked upon as wrong, whereas crime is seen as societal. Police have internal affairs, self-checks, much like the SEC. The question is which one is more effective, and I think in regards to the SEC, when you have the wolf watching the hen house, fraud and neglegence are inevitable. Quote:
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| May 23rd, 2003 12:08 AM | ||||||||
| punkgrrrlie10 |
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Just as every murder doesn't get solves, there are always going to be people who get away with it. Fortunately, when it comes to money, the shareholders can always file derivative suits to make ceos get off their lazy asses. They try to keep it as self-sustaining as possible which is fine by me. Quote:
And as far as corporate entities, they are considered persons unto themselves. A fictional legal person which is why individuals aren't personally liable for this other person. |
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| May 22nd, 2003 11:49 PM | ||||||||
| KevinTheOmnivore |
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You have criticized the apathy of the citizen, is it that different than the apathy of the investor? Have you not advocated compulsory serve for citizenry??? Quote:
Like the article says, negative stock would likewise hold its own value that could be purchased, b/c a buyer would buy not only the depleted stock, but all of the other negative entailments. This unloads the problem for the investor, and likewise grants the adventurous capitalist the prospect of taking on a cheap investment that might turn around and become more that it was initially worth, post-poor corporate behavior. |
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| May 22nd, 2003 11:38 PM | ||||||||
| AChimp |
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| May 22nd, 2003 11:35 PM | ||||||||
| The_Rorschach |
"I think I have to disagree with the notion that investors are more involved now, Ror." I'm not saying they ARE involved, simply the propincity for them to BE involved exists now. Have the freedom to do something does not necessarily mean that freedom will be exercised. "If investors were forced to be involved, forced to stay educated, and forced to stay on top of their investment, I think you'd have less corporate fraud and neglegence." I thought we lived in a free society where force was unnecessary. Those who play the stock market, and will actually come up with enough capital to get prospective buisness rolling, WILL as a natural consequence, be interested and educated. It's call Due Dilligence, every corporation knows those two words, and fears them. Due Dilligence means even the intellectual property of a buisness, technically, belongs to the shareholders and can be exhumed upon demand. I think the minute population of moms and pops who own a few thousand dollars in a corporation should be allowed the freedom to invest without having to concern themselves with how the corporation if spending their money, and whether their stocks will be adversely affected as a result. They have enough to worry about, and LLC offers them some degree of security. . .Even if it is only skin deep. |
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| May 22nd, 2003 11:12 PM | ||||||||
| KevinTheOmnivore |
I think I have to disagree with the notion that investors are more involved now, Ror. Many people in America own stock in corporations, but most own very little. Most people have little idea about the things corporations are doing that are inappropriate primarily b/c they don't have to. If investors were forced to be involved, forced to stay educated, and forced to stay on top of their investment, I think you'd have less corporate fraud and neglegence. It seems to me to be everything America is supposedly premised upon (ie. Bennett's "why right?" thread ).
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| May 22nd, 2003 11:06 PM | ||||||||
| The_Rorschach |
I don't have a great deal to say Kev, this is more Punks domain than mine, as we are leaving economics and headng into the legal territories. "Republicans are pushing hard to reduce the tax on dividend income, arguing that the government unfairly taxes it twice" Any why shouldn't we? The corporation's income is taxed at the corporate level, and then when distributed earnings get to the shareholders via dividend, the shareholders include the dividend in their taxable income and are all taxed on that income again. This is double taxation. It is illegal. There are no two ways about it. "But if the Bush administration truly wants a free market economy, it shouldn't stop there. It should also put an end to limited liability for shareholders." I like LLC's which basically translates into shareholders not individually being liable for the debts of a corporation, nor lease obligation and loan repayment. I see no reason why the corporation should be given a free ride at the expense of those whom have invested in it. I think the very notion is tremendously short sighted. LLCs generally provide more accounting flexibility than either C or S corporations, which are the only other variable types allowed by most states. In fact, though generally like S-Corporations, LLC corporations possess the fewest necessary formalities required for operation (no annual reports, no limitation to 35 shareholders, no limitation to domestic capital). "But in a globally connected age of overdevelopment, environmental hazards and corporate malfeasance, does it make sense to have society underwrite the money-making schemes of private individuals?" Word words blah, If we did away with LLCs, and instituted expressly class C and S corporations, I think we would see more corporate malfeasance, not less. LLC's are very informal for a reason, it makes it easier for shareholders to be more directly involved. If you take the shareholders away from their investment, you will see corporations take accountability away from their practices. |
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| May 22nd, 2003 11:05 PM | ||||||||
| KevinTheOmnivore |
I fixed my mistake. 
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| May 22nd, 2003 11:03 PM | ||||||||
| AChimp |
I don't know anything about corporate entitlement, but I DO know a thing or two about AChimp Entitlement which states that I'm entitled to having my ego stroked for every goddamned post that I make on this board. 
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| May 22nd, 2003 10:57 PM | ||||||||
| KevinTheOmnivore |
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If I pay for my child to go to college, whether they flunk out or get kicked out due to drug use, they have still proven to be a poor investment with my money. Their grades may have been excellent, and they may have done everything academically necessary. But they broke the rules of society, as well as the policies of the college, and now they pay, and I'm out a few grand. I may even need to cover my child's legal expenses beyond college expenses. I realize this is a loose analogy, but I feel that it draws parallels between citizens and corporations, a line that is often blurred, generally in favor of the corporation, and I feel it's a double standard. You probably know far more about corporate entitlement laws than I do, so please, share.
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| May 22nd, 2003 10:36 PM | ||||||||
| punkgrrrlie10 |
I've read many cases dealing with the SEC going after fraudulent CEOs who were undercapitalizing or using corporate resources for their own personal benefit. Quote:
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| May 22nd, 2003 08:39 PM | ||||||||
| KevinTheOmnivore |
Thank you for acknowledging this thread, Punkgrrlie. EDIT: And you too, chimpy. Quote:
I don't necessarily see a problem with someone holding a microscoping share in a corporation paying an equally microscoping price for the poor judgement of their investment. Wouldn't this perhaps make all of those minor shareholders take more of an interest in the practices of their investment??? Quote:
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 Do you think WorldCom and ENRON are somehow the sole exceptions in corporate malfeasance? I would disagree. |
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| May 22nd, 2003 08:37 PM | ||||||||
| AChimp |
I think that limited liability should be removed for people who own more than a certain percentage of a company. Like punkgrrlie said, a lot of people own stocks from dozens of companies in their portfolios, but only 1000 here and 1000 there. It's nothing substantial, and stockholders like this shouldn't really be left on the hook for something that they're just using to generate some capital. Maybe stockholders with an interest larger than 5%... this would make many CEOs more accountable, and anyone with more than 5% interest in a company is most likely not voting by proxy. |
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| May 22nd, 2003 08:12 PM | ||||||||
| punkgrrrlie10 |
The only problem with eliminating limited liability in my eyes is that shareholders aren't responsible for business decisions that are proposed for the most part. Most number in the thousands for the bigger corporations and they vote their proxies to a proxy agent and the board of directors decides what insurance to take out and what business policies to implement. It's a democratic process. Eliminating limited liability basically does away with the entire purpose of incorporation. By making shareholders liable you basically destroy alot of incentives for investment and the risk-taking that makes businesses flourish. You don't want to scare away innovation. As far as corporate malfeasance, there are ways to "pierce the corporate veil" in order to hold individuals liable who may be responsible for fraud, etc. that are in place. That's one of the jobs of the SEC. |
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| May 16th, 2003 08:19 PM | ||||||||
| KevinTheOmnivore |
Eliminate dividend tax, AND limited liability....? I'm not sure what I think of this proposal, perhaps some of the more economically "savvy" Mockers can chime in.... I await Rorschach's commentary. ----- Following is an important article on corporate reform in today's New York Times. http://www.nytimes.com/2003/05/10/opinion/10CONL.html Reward but No Risk by Dalton Conley Republicans are pushing hard to reduce the tax on dividend income, arguing that the government unfairly taxes it twice. Dividends come from corporate profits, which are taxed, and the individual stockholder who receives the dividend check also pays Uncle Sam. Therefore, President Bush argues, reducing ?or better yet repealing ?the tax on stockholders would treat dividend revenue like other income, reducing free market imperfections. But if the Bush administration truly wants a free market economy, it shouldn't stop there. It should also put an end to limited liability for shareholders. Under current law, if I invest in an incorporated company, the only money I risk losing is that with which I bought the shares of stock. So if Exxon destroys a sizable section of Alaska's coastline; if R. J. Reynolds directly contributes to the astronomical health care costs of smoking; or if Enron goes belly up, leaving many unpaid accounts, the most their victims can retrieve is the value of the corporation's assets. Once the value of the company ?and thus the shares ?is driven down to zero, creditors and litigants are out of luck. So why do public companies and their shareholders enjoy protection from the consequences of their actions? The history of limited liability dates back to the earliest days of capitalism when the British crown would grant this protection to companies in order to encourage risky endeavors to stimulate investment. In 1886, the United States Supreme Court found that the 14th Amendment ?intended to protect the rights of freed slaves ?granted corporations the legal status of persons, enshrining the distinction between corporations and their owners. But in a globally connected age of overdevelopment, environmental hazards and corporate malfeasance, does it make sense to have society underwrite the money-making schemes of private individuals? Though business executives would shudder at the notion, and claim that the economy would grind to a halt, ending limited liability moves us closer to a true "free market." In a truly capitalist system, worthy investments would find ways to attract capital, in spite of risk. And possible scenarios exist. Two law professors, Henry Hansmann of Yale and Reinier H. Kraakman of Harvard, have suggested that liens could be assessed to the shareholders who owned stock at the time of legal judgment. This may seem overly burdensome to shareholders who have taken a beating by Wall Street, but an efficient market will quickly adapt to reflect the social risks that are now ignored and subsequently paid for by tax dollars. I would even suggest that liability be tradeable, following the shares, and thus stock could trade at negative values. In practice, this means that the seller pays the buyer to take over ownership ?thereby offloading legal headaches and financial risk. The investor who gets paid to "buy" the shares is gambling that ultimately, the assessed liability will be less than what was paid for them. New insurance markets would arise to protect investors in cases of a tort judgment or lien that led to substantial personal risk. Insurers would have an incentive to assess the risk of a corporation's practices to the general welfare. Shareholders would become more involved in the business of the companies in which they invest. After all, who wants to risk their house on Ken Lay's judgment alone? In other words, corporate oversight would be far stronger because it would be in the market's interest. There are potential pitfalls. For instance, investors could hide their assets abroad or insiders could hide risks until they unload their stock, but those kinds of problems already exist at the corporate and individual level. The division between the human person and the corporate person is one of the most taken-for-granted aspects of our economic system ?but one which leads to enormous inefficiencies and inequities. Fair is fair: let's get rid of the dividend tax, but only in exchange for a real free market. -30- Dalton Conley, director of New York University's Center for Advanced Social Science Research, is author of the forthcoming "The Pecking Order.'' |
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