Re: Corporate liability (WAS: Environmentalism in a Free society)
Sun, 20 Dec 1998 16:41:09 EST

In a message dated 98-12-14 10:34:34 EST, Mike Lorrey wrote:

> > Consider
> > that shareholder limited liability is one of the key elements supporting
> > secondary market for widely-held equity investment. Who will buy the
> >of
> > ABC Corp. on the secondary market if before they do they have to engage
> > a
> > complete program of due diligence to be sure that they're not buying into
> > personal liability for some then-well-hidden corporate policy? I know I
> > wouldn't. Allowing corporations to be sued as legal persons actually
> > benefits
> > the plaintiff as much as limited liability benefits the shareholders: I
> > only
> > have to sue ABC Corp., not track down all of its (possibly millions of)
> > shareholder.
> Since a shareholder, when not prevented by the government, has the right to
> examine all corporate documents, then current technology allows for
> driven complete due diligence if all company records are digitized (which
> can
> easily be made a standard by PPA polices). Granted that it was much easier
> in the
> past for a corporation to hide things, but this is no longer the case.

With all due respect, this doesn't even come close to addressing the issues I raised. Saying that it's easier now to determine what a company's policies are than it used to be doesn't mean it's a good idea to make shareholders liable for a company's wrongs. Imagine that I had instantaneous, searchable electronic access right here in my study to every single record kept by General Motors for the last twenty years. Now, say you get a judgment against GM next year based on a defectively designed airbag that failed to deploy in an accident and you come looking to execute that judgment on my personal assets. Was I -- a non-engineer -- supposed to identify the records documenting that defect before I bought some GM stock this afternoon? If that were the law, believe me that I would never put another dime into the equity market and I would advise my clients to also refrain from doing it.

And you haven't addressed the cost to you as a judgment creditor of chasing me, as a stockholder, to get your money. Oh, and am I, as a stockholder, supposed to defend myself personally in your airbag case? If that's the law -- even if I genuinely believed that GM would never make a design mistake -- I would never buy their stock.

> > A corporation's liability is reflected in its share price, so the market
> > does
> > act to discipline equity holders. And intentionally inadequately
> > capitalized
> > corporations can lead to "piercing the corporate veil" and thence to
> > personal
> > shareholder liability, so shareholders have a keen interest in seeing to
> > it
> > that a corporation is sufficiently capitalized to satisfy judgments
> > against
> > it. I don't see anything at all inconsistent with radical anarcho-
> > capitalism
> > in allowing corporate limited liability and corporate legal personhood.
> A corporation's liability is only reflected in its share price insofar as
> estimate the outcome of a legal action given that the corporation can
> squads of high priced lawyers and the plaintiff usually can't, thus the
> estimated
> outcome is on average going to be in the corporation's favor, thus the true
> market
> liability is undervalued in the stock price. Corporate person fiction
> sheilds the
> investor from the risk which equates to the returns they are expecting,
> improperly inflating the value of the stock, thus the investors costs are
> being
> externalized onto potential plaintiffs against the corporation.

Some of the best lawyers in the world are plaintiffs lawyers who work on a contingency fee basis. One thing that study of anarcho-capitalist legal theory has made me do is change my mind about contingency fees: I used to be opposed to them; now I favor them.

	Greg Burch     <>----<>
	   Attorney  :::  Director, Extropy Institute  :::  Wilderness Guide   -or-
	           "Good ideas are not adopted automatically.  They must
	              be driven into practice with courageous impatience." 
	                      -- Admiral Hyman G. Rickover