These bankers are Hoares
April 13, 2009 5:22 AM Subscribe
The separation of the ownership of a business from its management is one of the defining characteristics of the modern capitalist system. But ongoing failures of corporate governance, particularly in banking, have called into question these structures. Is there a better way? Secretive UK private bank C. Hoare & Co. has a solution that works for those customers it chooses to accept.
Structured not as a corporation but rather as private, unlimited liability company (i.e., the managers can be held personally liable for business decisions they make) for over 300 years the Hoare family have offered banking services in the UK.
Thriving during the credit crunch, Chief Executive Officer Alexander Hoare spoke almost approvingly of the seldom used business structure -- “Unlimited liability, the joy of it is it keeps you jolly nervous”.
Perhaps the much heralded G20 banking reform [ .pdf ] should mandate larger personal accountability, if not outright management ownership of institutions?
Structured not as a corporation but rather as private, unlimited liability company (i.e., the managers can be held personally liable for business decisions they make) for over 300 years the Hoare family have offered banking services in the UK.
Thriving during the credit crunch, Chief Executive Officer Alexander Hoare spoke almost approvingly of the seldom used business structure -- “Unlimited liability, the joy of it is it keeps you jolly nervous”.
Perhaps the much heralded G20 banking reform [ .pdf ] should mandate larger personal accountability, if not outright management ownership of institutions?
"Is there a better way?"
My bank's been turned into a trendy wine bar. There must be another way.
I find it interesting that a self-professed private private bank ("We get customers by word of mouth. We have never advertised and don’t intend to.") would agree to what is essentially free advertising in the Times and elsewhere. There must be other unlimited liability banks out there which are more willing to shop around for customers.
Although I guess showing themselves off whilst at the same time saying that they assess the suitability of customers does still add to the mystique.
posted by djgh at 5:54 AM on April 13, 2009
My bank's been turned into a trendy wine bar. There must be another way.
I find it interesting that a self-professed private private bank ("We get customers by word of mouth. We have never advertised and don’t intend to.") would agree to what is essentially free advertising in the Times and elsewhere. There must be other unlimited liability banks out there which are more willing to shop around for customers.
Although I guess showing themselves off whilst at the same time saying that they assess the suitability of customers does still add to the mystique.
posted by djgh at 5:54 AM on April 13, 2009
Fascinating stuff. In my understanding of these issues, the description of shareholder as owner needs to be qualified: a shareholder cannot pledge the firm's assets, and has only residual (equity) interest in the firm whose stock she owns.
The agency problem is a big deal and ideally the shareholder-elected board of directors is there to align the interests of the shareholders to those of the managers, but there are other stakeholders whose interests need to be taken into consideration: employees, consumers, the State, and so on.
The Delaware Supreme Court continues to handle cases related to governance and board duties. Since Delaware is seen as board-friendly many companies incorporate there, so its Supreme Court decisions are significant.
posted by preparat at 6:06 AM on April 13, 2009
The agency problem is a big deal and ideally the shareholder-elected board of directors is there to align the interests of the shareholders to those of the managers, but there are other stakeholders whose interests need to be taken into consideration: employees, consumers, the State, and so on.
The Delaware Supreme Court continues to handle cases related to governance and board duties. Since Delaware is seen as board-friendly many companies incorporate there, so its Supreme Court decisions are significant.
posted by preparat at 6:06 AM on April 13, 2009
If the "Billionaires" were "queueing to sign" then the fact that the bank was managing "assets of over £1billion" for "over 10,000 customers" with liquid assets of £250K or more does not seem to indicate a great deal of commitment on the part of individual account holders.
However in the same vein I'd like to present the tiny Airdrie Savings Bank - which has been doing well on boring old traditional banking values (since the 19th century) while its larger Scottish competitors have run into trouble.
posted by rongorongo at 6:10 AM on April 13, 2009 [1 favorite]
However in the same vein I'd like to present the tiny Airdrie Savings Bank - which has been doing well on boring old traditional banking values (since the 19th century) while its larger Scottish competitors have run into trouble.
posted by rongorongo at 6:10 AM on April 13, 2009 [1 favorite]
I find it interesting that a self-professed private private bank ("We get customers by word of mouth. We have never advertised and don’t intend to.") would agree to what is essentially free advertising in the Times and elsewhere. There must be other unlimited liability banks out there which are more willing to shop around for customers.
Well, it's a bit hypocritical. But let's be realistic, I'm sure they wouldn't mind more customers and rich folks are always wanting to be trendy.
Beyond that, there are lots of small banks that did fine during the credit crunch.
posted by delmoi at 6:18 AM on April 13, 2009
Well, it's a bit hypocritical. But let's be realistic, I'm sure they wouldn't mind more customers and rich folks are always wanting to be trendy.
Beyond that, there are lots of small banks that did fine during the credit crunch.
posted by delmoi at 6:18 AM on April 13, 2009
Actually, hasn't this been the case through most of history, especially in the banking industry? I know the Rothschilds famously risked their entire fortune a few times when one branch risked going under.
Also, I've read on a lot of blogs people saying long ago that the major change in attitudes in banking came not on the Glass-Steagal repeal, but rather when the bulge brackets went public and partnership no longer meant you were second guessing all of your employees' actions.
posted by FuManchu at 6:22 AM on April 13, 2009
Also, I've read on a lot of blogs people saying long ago that the major change in attitudes in banking came not on the Glass-Steagal repeal, but rather when the bulge brackets went public and partnership no longer meant you were second guessing all of your employees' actions.
posted by FuManchu at 6:22 AM on April 13, 2009
Obligatory Jack Aubrey quote: "My bankers are Hoares, sir! Hoares!"
posted by the latin mouse at 6:22 AM on April 13, 2009 [4 favorites]
posted by the latin mouse at 6:22 AM on April 13, 2009 [4 favorites]
Nothing more trendy than a 300 year old business.
I wonder if they still have any records in the form of tally sticks.
posted by DU at 6:23 AM on April 13, 2009
I wonder if they still have any records in the form of tally sticks.
posted by DU at 6:23 AM on April 13, 2009
Of course divorcing stockownership from management allows for more efficient use of capital and larger enterprises, because a business would be limited to the wealth of its owner manager. With ownership and management divorced, businesses are free to accept long-term capital investment which they need only provide returns to on an intermittent basis--instead of borrowing the money at fixed rates and a rigid repayment schedule.
posted by Ironmouth at 6:26 AM on April 13, 2009
posted by Ironmouth at 6:26 AM on April 13, 2009
The other problem, I think with the CEO pay issue is that you've got investors who buy into 401(k) funds and mutual funds and are so far removed from actually being involved in the management of the companies. Not only are they far removed, they're also invested in a huge number of different companies. Looking at the "top 10 holdings" of one of my mutual funds in my retirement account the percentages add up to less then 20%, so there must be like 50 companies in the fund.
There should be a simple way for the 'terminal' investor (i.e. the one who's money is actually on the line) to vote on basic corporate policies like CEO pay.
posted by delmoi at 6:30 AM on April 13, 2009
There should be a simple way for the 'terminal' investor (i.e. the one who's money is actually on the line) to vote on basic corporate policies like CEO pay.
posted by delmoi at 6:30 AM on April 13, 2009
There should be a simple way for the 'terminal' investor (i.e. the one who's money is actually on the line) to vote on basic corporate policies like CEO pay.
Since my tax dollars paid for the bailouts, I'm one of these "money actually on the line" people. But we can't have me having any say in CEO pay. You are letting the bad kind of socialism (human beings deciding as a group what they will and won't allow) to encroach on the good kind of socialism (extracting taxes to hand over to robber barons who can't run a business).
posted by DU at 6:37 AM on April 13, 2009
Since my tax dollars paid for the bailouts, I'm one of these "money actually on the line" people. But we can't have me having any say in CEO pay. You are letting the bad kind of socialism (human beings deciding as a group what they will and won't allow) to encroach on the good kind of socialism (extracting taxes to hand over to robber barons who can't run a business).
posted by DU at 6:37 AM on April 13, 2009
> I find it interesting that a self-professed private private bank would agree to what is essentially free advertising in the Times and elsewhere. There must be other unlimited liability banks out there which are more willing to shop around for customers.
Not having a marketing budget lowers operating costs significantly. Being unwilling to advertise is not the same thing as being deliberately obscure.
Since business managers are personally responsible to their clients' assets, presumably they want to vet depositors not merely for their wealth but for their personal financial management skills; an unstable individual who prefers blaming others for their own actions is not going to be a likely client candidate no matter how wealthy they are.
posted by ardgedee at 6:39 AM on April 13, 2009
Not having a marketing budget lowers operating costs significantly. Being unwilling to advertise is not the same thing as being deliberately obscure.
Since business managers are personally responsible to their clients' assets, presumably they want to vet depositors not merely for their wealth but for their personal financial management skills; an unstable individual who prefers blaming others for their own actions is not going to be a likely client candidate no matter how wealthy they are.
posted by ardgedee at 6:39 AM on April 13, 2009
The separation of the ownership of a business from its management is one of the defining characteristics of the modern capitalist system. But ongoing failures of corporate governance, particularly in banking, have called into question these structures. Is there a better way?
There doesn't need to be a better way (and this way certainly isn't better). The purpose of the current system is not to prevent business failures, the purpose is to make sure that the people who own the business collectively can control it. The problem is the current way wasn't allowed to work anywhere except in the case of Lehman. In all other cases the government chose to bailout the shareholders, which was unrelated to the process of bailing out the bank.
The problem is simple: banks that are too big to fail can be nationalized, their shareholders wiped out, but the operations of the bank can be unwound in an orderly manner as the government maintains operations. The reason this didn't happen is because it would send the stock of not only all the other banks crashing, but other businesses as well.
And because this administration isn't stupid, they know that the stock market is people's retirements. So they can't nationalize out of fear of destroying people's retirement accounts. It has nothing whatsoever to do with corporate governance.
posted by Pastabagel at 6:40 AM on April 13, 2009
There doesn't need to be a better way (and this way certainly isn't better). The purpose of the current system is not to prevent business failures, the purpose is to make sure that the people who own the business collectively can control it. The problem is the current way wasn't allowed to work anywhere except in the case of Lehman. In all other cases the government chose to bailout the shareholders, which was unrelated to the process of bailing out the bank.
The problem is simple: banks that are too big to fail can be nationalized, their shareholders wiped out, but the operations of the bank can be unwound in an orderly manner as the government maintains operations. The reason this didn't happen is because it would send the stock of not only all the other banks crashing, but other businesses as well.
And because this administration isn't stupid, they know that the stock market is people's retirements. So they can't nationalize out of fear of destroying people's retirement accounts. It has nothing whatsoever to do with corporate governance.
posted by Pastabagel at 6:40 AM on April 13, 2009
There should be a simple way for the 'terminal' investor (i.e. the one who's money is actually on the line) to vote on basic corporate policies like CEO pay.
posted by delmoi at 9:30 AM on April 13
As a shareholder, you get to vote your shares at shareholder meetings and elect board members. One share = one vote. But CEO pay is a red herring. Why would you vote to cut a CEO's pay, but not vote to toss him out entirely? If he's not doing a good enough job to merit a big bonus or high salary, why keep him at all?
posted by Pastabagel at 6:47 AM on April 13, 2009
Why would you vote to cut a CEO's pay, but not vote to toss him out entirely? If he's not doing a good enough job to merit a big bonus or high salary, why keep him at all?
Why would you cut a union's benefits, but not toss them out entirely? If they're not doing a good enough job to merit health insurance or a livable salary, why keep them at all?
posted by DU at 6:49 AM on April 13, 2009 [3 favorites]
Why would you cut a union's benefits, but not toss them out entirely? If they're not doing a good enough job to merit health insurance or a livable salary, why keep them at all?
posted by DU at 6:49 AM on April 13, 2009 [3 favorites]
Made a point to visit this when in London. Very cool. Along the same lines:
The Five Oldest Banks in the World
posted by leotrotsky at 6:49 AM on April 13, 2009 [1 favorite]
The Five Oldest Banks in the World
posted by leotrotsky at 6:49 AM on April 13, 2009 [1 favorite]
There should be a simple way for the 'terminal' investor (i.e. the one who's money is actually on the line) to vote on basic corporate policies like CEO pay.
In theory the people you've hired to manage those funds for you has a fiduciary responsibility to vote in a manner that is in your best interests. Unfortunately many funds, especially those with lots of names in them and index funds have just turned around and outsourced their fiduciary responsability to the proxy research firms like ISS. Those firms are generally overlly supportive of exisiting management (probably to avoid controversy) and totaly mechanistic in the way they approach those rare occasions they suggest a no vote.
This really is the most embarassing failure of the fund management business. There is just no good reason why fund managers have not been more aggressive in pursing their responsabilities as fiduciaries.
I've read on a lot of blogs people saying long ago that the major change in attitudes in banking came not on the Glass-Steagal repeal, but rather when the bulge brackets went public and partnership no longer meant you were second guessing all of your employees' actions.
I think this is an incredibly important point.
Here is an excellent description of how compensation worked in the old days and how it inherently limited risk investment banks would take.
posted by JPD at 6:55 AM on April 13, 2009
In theory the people you've hired to manage those funds for you has a fiduciary responsibility to vote in a manner that is in your best interests. Unfortunately many funds, especially those with lots of names in them and index funds have just turned around and outsourced their fiduciary responsability to the proxy research firms like ISS. Those firms are generally overlly supportive of exisiting management (probably to avoid controversy) and totaly mechanistic in the way they approach those rare occasions they suggest a no vote.
This really is the most embarassing failure of the fund management business. There is just no good reason why fund managers have not been more aggressive in pursing their responsabilities as fiduciaries.
I've read on a lot of blogs people saying long ago that the major change in attitudes in banking came not on the Glass-Steagal repeal, but rather when the bulge brackets went public and partnership no longer meant you were second guessing all of your employees' actions.
I think this is an incredibly important point.
Here is an excellent description of how compensation worked in the old days and how it inherently limited risk investment banks would take.
posted by JPD at 6:55 AM on April 13, 2009
Yes, unlimited liability is a wonderful idea! Why stop with banks?
You only ever need limited liability if your entering some inherently risky endeavor. Such a risky endeavor should always represent the public good. A country could raise tax money by severely limiting the number of limited liability companies holding blind auctions for the status, prevent limited liability companies form keeping any secrets (outside national security interests), etc. You might even ask that limited liability companies subject all board decisions to approval by deliberative opinion polls or some elected body (separate from the legislature).
posted by jeffburdges at 7:44 AM on April 13, 2009 [1 favorite]
You only ever need limited liability if your entering some inherently risky endeavor. Such a risky endeavor should always represent the public good. A country could raise tax money by severely limiting the number of limited liability companies holding blind auctions for the status, prevent limited liability companies form keeping any secrets (outside national security interests), etc. You might even ask that limited liability companies subject all board decisions to approval by deliberative opinion polls or some elected body (separate from the legislature).
posted by jeffburdges at 7:44 AM on April 13, 2009 [1 favorite]
The concept of limited liability is abhorrent. If you take part in criminal activity, you should be punished.
posted by Anything at 7:57 AM on April 13, 2009 [1 favorite]
posted by Anything at 7:57 AM on April 13, 2009 [1 favorite]
Why would you cut a union's benefits, but not toss them out entirely? If they're not doing a good enough job to merit health insurance or a livable salary, why keep them at all?
posted by DU at 9:49 AM on April 13
Because you can't fire them or cut their pay like you would any other non-union employee. You have to treat them collectively. So the union makes it easier to shut down one whole plant out of several than to cut all workers salaries at all plants by some percentage.
posted by Pastabagel at 8:02 AM on April 13, 2009
posted by DU at 9:49 AM on April 13
Because you can't fire them or cut their pay like you would any other non-union employee. You have to treat them collectively. So the union makes it easier to shut down one whole plant out of several than to cut all workers salaries at all plants by some percentage.
posted by Pastabagel at 8:02 AM on April 13, 2009
The concept of limited liability is abhorrent. If you take part in criminal activity, you should be punished.
That's a pretty overly simplistic interpretation of the need for LLC. Torts, for one, are a good reason to have LLC. If you were management of a company, do you want to be personally on the line because some nut job sues for some completely ridiculous reason? Your argument is all fine and good if the public and your competition were reasonable, nice entities. It's the wack jobs and sharks you have these laws for.
posted by spicynuts at 8:02 AM on April 13, 2009
That's a pretty overly simplistic interpretation of the need for LLC. Torts, for one, are a good reason to have LLC. If you were management of a company, do you want to be personally on the line because some nut job sues for some completely ridiculous reason? Your argument is all fine and good if the public and your competition were reasonable, nice entities. It's the wack jobs and sharks you have these laws for.
posted by spicynuts at 8:02 AM on April 13, 2009
And the reason you would cut an employee's pay and not fire them outright is if they are not ultimately responsible for the company's success, but their contribution is no longer as valuable as it used to be. An employee may be very good at their job, but the overall business may still not do well. The CEO's only job is to make sure the company does well, year after year. If the business doesn't do well, he isn't doing his job, if you're going to go through the effort of cutting his pay (his employment agreements are considerably more complex than those of a normal employee), you might as well toss him.
posted by Pastabagel at 8:09 AM on April 13, 2009
posted by Pastabagel at 8:09 AM on April 13, 2009
spicynuts:
The correct problem to address there is the legal system that rewards frivolous litigation, not the possibility to hold owners* liable.
*)Both you and Mutant in your words have focused on the managers, who, in my understanding, are liable regardless of whether we're talking about LLCs or not. Please correct me if I'm wrong!
posted by Anything at 8:54 AM on April 13, 2009 [1 favorite]
The correct problem to address there is the legal system that rewards frivolous litigation, not the possibility to hold owners* liable.
*)Both you and Mutant in your words have focused on the managers, who, in my understanding, are liable regardless of whether we're talking about LLCs or not. Please correct me if I'm wrong!
posted by Anything at 8:54 AM on April 13, 2009 [1 favorite]
While recent corporate structures are egregious and it's interesting to run a bank without limited liability, it's downright irresponsible to advocate removal of the limited-liability aspects of incorporation.
The primary benefit for limited liability of shareholders isn't to protect them from illegal actions of its agents (CEO, other executives, and employees), but its principal present-day benefit is as a firewall for debts. If the company blows up, bondholders and other debtholders can't go running off after the shareholders to collect money. If you didn't have this firewall, no one would ever borrow money and open a business. If we didn't have limited liability, then people that bought GM bonds can take money from your bank account because you hold GM stock through your mutual fund.
posted by amuseDetachment at 9:10 AM on April 13, 2009
The primary benefit for limited liability of shareholders isn't to protect them from illegal actions of its agents (CEO, other executives, and employees), but its principal present-day benefit is as a firewall for debts. If the company blows up, bondholders and other debtholders can't go running off after the shareholders to collect money. If you didn't have this firewall, no one would ever borrow money and open a business. If we didn't have limited liability, then people that bought GM bonds can take money from your bank account because you hold GM stock through your mutual fund.
posted by amuseDetachment at 9:10 AM on April 13, 2009
The 'Five Oldest Banks in the World' list seems to be limited to one bank per country, which is how the Bank of New York made the list. (I think Barclays Bank was founded in April 1690, for example).
The oldest bank, the Banca Monte dei Paschi di Siena has a note on their site about taking risks:
The bank also was credited with maintaining a prudent, and generally risk-averse, loan portfolio--a policy adopted in part because of the bank's losses from participating in the funding of Christopher Columbus's expedition in 1492.
posted by eye of newt at 9:15 AM on April 13, 2009 [1 favorite]
The oldest bank, the Banca Monte dei Paschi di Siena has a note on their site about taking risks:
The bank also was credited with maintaining a prudent, and generally risk-averse, loan portfolio--a policy adopted in part because of the bank's losses from participating in the funding of Christopher Columbus's expedition in 1492.
posted by eye of newt at 9:15 AM on April 13, 2009 [1 favorite]
One is indeed aware of Hoares. Just as soon one is able to amass £250,000 in liquid assets one shall make it one's mission to get an account there. One shall entertain the great and the good at the most elegant of soirées and society events. The finest viands from around the globe will be the cornerstone of one's hospitality. Hands will be shook and equine-faced ladies complimented. All of this in order to effect one's acceptance to this august institution. Then, and only then, will one be able to peer through one's monocle at the plebeians in a truly satisfying manner.
posted by ob at 9:17 AM on April 13, 2009 [4 favorites]
posted by ob at 9:17 AM on April 13, 2009 [4 favorites]
The oldest bank, the Banca Monte dei Paschi di Siena has a note on their site about taking risks.
Ironically - in need of being bailed out by the Italian Government
posted by JPD at 9:26 AM on April 13, 2009
Ironically - in need of being bailed out by the Italian Government
posted by JPD at 9:26 AM on April 13, 2009
Limited liability applies to the owners' liability for the debts of the enterprise; it does not relate to criminal liability. Debts, in this context, means indebtedness arising from borrowing money or indebtedness arising from a judgment in a lawsuit. If you did not have limited liability, individuals who started businesses could lose the family car, home, 401(k), etc. to the creditors of the business. On a much larger scale, if you did not have limited liability, the shareholders of a failed bank would be liable for ALL of the outstanding debts of the bank. In short, limited liability is an essential feature of the modern capitalist system.
With regard to manager liability, managers are generally protected from liability for the debts of the company. However, managers are not immune from criminal prosecution for crimes committed in the course of doing business (see Bernie Madoff, Stanford, Enron Execs, etc.). Likewise, managers are frequently sued for actions they took in their managerial capacity. These are called derivative suits and generally may only be brought by shareholders.
On preview: what amuseDetachment said.
posted by SugarFreeGum at 9:27 AM on April 13, 2009
With regard to manager liability, managers are generally protected from liability for the debts of the company. However, managers are not immune from criminal prosecution for crimes committed in the course of doing business (see Bernie Madoff, Stanford, Enron Execs, etc.). Likewise, managers are frequently sued for actions they took in their managerial capacity. These are called derivative suits and generally may only be brought by shareholders.
On preview: what amuseDetachment said.
posted by SugarFreeGum at 9:27 AM on April 13, 2009
Why would you vote to cut a CEO's pay, but not vote to toss him out entirely? If he's not doing a good enough job to merit a big bonus or high salary, why keep him at all?
This statement shocked me. Really. I'm curious if you would draw a line on the salary of a CEO (say 10% of a company's earnings, 20%? 90%?) beyond which he is no longer affordable and then simply vote to fire him. Isn't it everyone's desire to get as large a salary as possible? Isn't it the responsibility of the manager (the shareholders in the case of the CEO) to try to keep costs down, which includes having a limit on pay?
There have been a lot of CEOs incredibly overpaid in my opinion. Not in yours?
posted by eye of newt at 9:35 AM on April 13, 2009 [1 favorite]
This statement shocked me. Really. I'm curious if you would draw a line on the salary of a CEO (say 10% of a company's earnings, 20%? 90%?) beyond which he is no longer affordable and then simply vote to fire him. Isn't it everyone's desire to get as large a salary as possible? Isn't it the responsibility of the manager (the shareholders in the case of the CEO) to try to keep costs down, which includes having a limit on pay?
There have been a lot of CEOs incredibly overpaid in my opinion. Not in yours?
posted by eye of newt at 9:35 AM on April 13, 2009 [1 favorite]
I'm a credit union member. There are no issues with their books. But of course the members are also owners, so it's not like a commercial bank.
posted by krinklyfig at 9:43 AM on April 13, 2009
posted by krinklyfig at 9:43 AM on April 13, 2009
Just listened to a stuff you should know podcast on Corporate Personhood. Really interesting stuff, check it out here if you're interested.
posted by jourman2 at 9:53 AM on April 13, 2009
posted by jourman2 at 9:53 AM on April 13, 2009
Steve Parnell, owner of the Peanut Corporation involved in February's salmonella scandal, which made hundreds upon hundreds of people ill and killed at least a handful of people, is getting away scot-free. Hell, he was called to Congress to testify and refused! Further, his company is getting to restructure under bankruptcy laws.
Here is a man who actively made the decision to poison America, but because of limited liability, he is walking around a free man.
That is insane.
posted by five fresh fish at 10:12 AM on April 13, 2009
Here is a man who actively made the decision to poison America, but because of limited liability, he is walking around a free man.
That is insane.
posted by five fresh fish at 10:12 AM on April 13, 2009
ob, are you intentionally channeling Smoove B?
posted by George_Spiggott at 10:16 AM on April 13, 2009
posted by George_Spiggott at 10:16 AM on April 13, 2009
Steve Parnell, owner of the Peanut Corporation involved in February's salmonella scandal, which made hundreds upon hundreds of people ill and killed at least a handful of people, is getting away scot-free. Hell, he was called to Congress to testify and refused! Further, his company is getting to restructure under bankruptcy laws.
Two points
- Peanut Corp is in Chapter 7 - so they aren't restructuring they are in liquidation.
- If Parnell acted in a manner that makes him personally negligent then he can be sued. He can also have criminal charges filed against him. The only thing he is shielded from by the corporate veil is having his own assets seized to satisfy creditors of the PCA (for example people who sue PCA, but not him personally, and are owed money as a result)
A corporation doesn't shield you from violations of criminal law.
posted by JPD at 10:27 AM on April 13, 2009
Two points
- Peanut Corp is in Chapter 7 - so they aren't restructuring they are in liquidation.
- If Parnell acted in a manner that makes him personally negligent then he can be sued. He can also have criminal charges filed against him. The only thing he is shielded from by the corporate veil is having his own assets seized to satisfy creditors of the PCA (for example people who sue PCA, but not him personally, and are owed money as a result)
A corporation doesn't shield you from violations of criminal law.
posted by JPD at 10:27 AM on April 13, 2009
Yes, hereditary owner-management is definitely better than public ownership and management hired (and fired) based on skill rather than genes.
Some considerations that might support the idea of hereditary owner-management:
1) If there's any genetic correlation to aptitude for the business, then the founder will pass it on to their offspring.
2) If the business is not highly technical -- and I'm told that reliable banking isn't rocket science -- then unusual aptitude is not required to make it work well. Combined with #1, this should mean that most family members will probably be able to do the job as well or better than a likely sample of the general population.
3) Family businesses might arguably have better institutional memory and social knowledge transmission than other comparable private / public institutions.
4) When long-term success of the business is part of your personal and social identity, you have an incentive that goes way beyond your compensation to make sure the institution makes healthy decisions for itself and its clients.
posted by weston at 10:34 AM on April 13, 2009 [1 favorite]
Some considerations that might support the idea of hereditary owner-management:
1) If there's any genetic correlation to aptitude for the business, then the founder will pass it on to their offspring.
2) If the business is not highly technical -- and I'm told that reliable banking isn't rocket science -- then unusual aptitude is not required to make it work well. Combined with #1, this should mean that most family members will probably be able to do the job as well or better than a likely sample of the general population.
3) Family businesses might arguably have better institutional memory and social knowledge transmission than other comparable private / public institutions.
4) When long-term success of the business is part of your personal and social identity, you have an incentive that goes way beyond your compensation to make sure the institution makes healthy decisions for itself and its clients.
posted by weston at 10:34 AM on April 13, 2009 [1 favorite]
ob, are you intentionally channeling Smoove B?
No, not at all, in fact I've never heard of him. Thank you for pointing him out. He sounds like a fine chap.
posted by ob at 10:47 AM on April 13, 2009
No, not at all, in fact I've never heard of him. Thank you for pointing him out. He sounds like a fine chap.
posted by ob at 10:47 AM on April 13, 2009
Yes, hereditary owner-management is definitely better than public ownership and management hired (and fired) based on skill rather than genes.
Sure, but it's not like the oldest son just inherits the lot. They've got hundreds of adult family members available to pick for senior positions at any given time.
posted by atrazine at 11:27 AM on April 13, 2009
Sure, but it's not like the oldest son just inherits the lot. They've got hundreds of adult family members available to pick for senior positions at any given time.
posted by atrazine at 11:27 AM on April 13, 2009
Sorta turning around the question about cutting CEO salaries: if you cut a CEO's salary and he doesn't leave the job, doesn't that mean that he was definitely, unquestionably overpaid beforehand?
posted by XMLicious at 11:36 AM on April 13, 2009
posted by XMLicious at 11:36 AM on April 13, 2009
There have been a lot of CEOs incredibly overpaid in my opinion. Not in yours?
posted by eye of newt at 12:35 PM on April 13
There are CEO's who should be fired or at least given an utlimatum. Too much pay or too little is an insignificant detail. You might as well argue about whether a company's headquarters should be in the tallest building downtown or in an office park in the suburbs.
The reason they are overpaid isn't because their salary is too high, it's because they aren't making the company as successful as it could be. It's because they aren't doing their job. There are countless numbers of people who could do the job well enough. But a CEO's job is to do the absolute best. So the resolution for coming in low is to to fire them (or threaten it), not pay them less.
For CEOs, compensation is usually negotiated ahead of time, and it is back loaded with equity, options, and bonuses. It incentivizes success. If the company is earning $10 billion a year, a $100 million salary is not "too much". Steve Ballmer's total compensation is $1.27 million (2007), but the company earned over $60 billion. By no quantitative metric is that "too much." But he isn't leading the company to the success it could/should have, so he needs to go. The CEO's pay is a useless metric.
Consider the examples of the Wall Street banks. They were making record profits 3 years ago, and their compensation, even including bonuses etc. was still small relative to the company's earnings. That doesn't mean they were good CEOs then but bad ones now because their pay relative to earnings is so out of whack. They were bad CEO's then because they exposed the company to devastating risk either knowingly or negligently.
Too say they are paid too much is to beg the question of what is enough. The CEO has exponentially more responsibility than rank-and-file workers. You have to compensate that person for taking on that much responsibility, otherwise, why should they?
posted by Pastabagel at 12:00 PM on April 13, 2009
posted by eye of newt at 12:35 PM on April 13
There are CEO's who should be fired or at least given an utlimatum. Too much pay or too little is an insignificant detail. You might as well argue about whether a company's headquarters should be in the tallest building downtown or in an office park in the suburbs.
The reason they are overpaid isn't because their salary is too high, it's because they aren't making the company as successful as it could be. It's because they aren't doing their job. There are countless numbers of people who could do the job well enough. But a CEO's job is to do the absolute best. So the resolution for coming in low is to to fire them (or threaten it), not pay them less.
For CEOs, compensation is usually negotiated ahead of time, and it is back loaded with equity, options, and bonuses. It incentivizes success. If the company is earning $10 billion a year, a $100 million salary is not "too much". Steve Ballmer's total compensation is $1.27 million (2007), but the company earned over $60 billion. By no quantitative metric is that "too much." But he isn't leading the company to the success it could/should have, so he needs to go. The CEO's pay is a useless metric.
Consider the examples of the Wall Street banks. They were making record profits 3 years ago, and their compensation, even including bonuses etc. was still small relative to the company's earnings. That doesn't mean they were good CEOs then but bad ones now because their pay relative to earnings is so out of whack. They were bad CEO's then because they exposed the company to devastating risk either knowingly or negligently.
Too say they are paid too much is to beg the question of what is enough. The CEO has exponentially more responsibility than rank-and-file workers. You have to compensate that person for taking on that much responsibility, otherwise, why should they?
posted by Pastabagel at 12:00 PM on April 13, 2009
I have seen companies where the CEO's pay, after bonuses and incentives, is over 10% of the revenue of the company. And there have been many cases where the CEO packed the board and carefully crafted the pay and bonuses so that he could cook things to make those bonuses pay outrageous amounts of money even when a company goes downhill (Nortel comes to mind). CEO's pay is not a useless metric. Often times it tells you how honest or not the CEO is, or even better, how little oversight the board is exercising.
Too say they are paid too much is to beg the question of what is enough.
This, we agree on.
posted by eye of newt at 12:18 PM on April 13, 2009
Too say they are paid too much is to beg the question of what is enough.
This, we agree on.
posted by eye of newt at 12:18 PM on April 13, 2009
Steve Ballmer's total compensation is $1.27 million (2007), but the company earned over $60 billion. By no quantitative metric is that "too much."
Well, if the janitor is paid about $8.65 an hour for 40 hours a week, that would make Balmer's $1.4 M/yr (in 2008) a little under 78 times greater than the lowest paid employee, which is certainly much better than most large American corporations but still an arguable measure of "too much."
posted by effwerd at 12:35 PM on April 13, 2009
Well, if the janitor is paid about $8.65 an hour for 40 hours a week, that would make Balmer's $1.4 M/yr (in 2008) a little under 78 times greater than the lowest paid employee, which is certainly much better than most large American corporations but still an arguable measure of "too much."
posted by effwerd at 12:35 PM on April 13, 2009
78x is within the realm of reasonable. But there are many CEOs earning well in excess of 400x the average front-line worker wage, and that is stupidly unreasonably.
posted by five fresh fish at 1:23 PM on April 13, 2009
posted by five fresh fish at 1:23 PM on April 13, 2009
Too say they are paid too much is to beg the question of what is enough. The CEO has exponentially more responsibility than rank-and-file workers.
Pastabagel, I'm not unsympathetic to this view, but would you agree that some companies are being raided by management? That is, it is sometimes possible to capture a board through nepotism and disinterested shareholders, and then to exchange some favors for a larger-than-appropriate piece of the profits? Perhaps it includes overly generous retirement provisions to which the board did not sufficiently attend? Perhaps the compensation package is appropriate at the time it is negotiated, but as a result of market conditions becomes unreasonable during the CEO's watch? Does this truly seem an unreasonable claim to you?
he isn't leading the company to the success it could/should have, so he needs to go. The CEO's pay is a useless metric.
Like others, here, I worry that there is some multiple of earnings and baseline pay that would be overpaying for even the most talented manager. Like any calculation, it seems sufficient to say that there's an inappropriate number without saying more definitely what that compensation would be in every case. Compensation may not be an exact science, but there might still be a logic to it we can extract given enough examples and challenging cases.
So, let us imagine the highly capable CEO who is overpaid. Let us assume that he is a very talented negotiator, and that he is dealing with a board of directors whose skills or attention lie elsewhere that salary negotiations. Such a CEO might find himself (in his private capacity as potential employee) negotiating a salary that overemphasizes the value of his capacity to maintain and grow the business. Moreover, such a CEO could be overpaid in absolute terms even if he is doing a very good job.
In most cases there are laws governing this, and shareholders can sue the board or the CEO for breach of fiduciary duty. Still, there might be some gap between the clear cut cases of illegality and a truly just or appropriate sum of money. It would be odd to say that every compensation package that is legal is appropriate, since the law must allow some leeway to avoid punishing the just by over-extension of a rule.
Thus, it may be that some corporations have the best possible manager but are also overpaying him: in such a case, the appropriate action is to reduce the manager's compensation, not to fire him! Would you agree?
posted by anotherpanacea at 2:14 PM on April 13, 2009
Pastabagel, I'm not unsympathetic to this view, but would you agree that some companies are being raided by management? That is, it is sometimes possible to capture a board through nepotism and disinterested shareholders, and then to exchange some favors for a larger-than-appropriate piece of the profits? Perhaps it includes overly generous retirement provisions to which the board did not sufficiently attend? Perhaps the compensation package is appropriate at the time it is negotiated, but as a result of market conditions becomes unreasonable during the CEO's watch? Does this truly seem an unreasonable claim to you?
he isn't leading the company to the success it could/should have, so he needs to go. The CEO's pay is a useless metric.
Like others, here, I worry that there is some multiple of earnings and baseline pay that would be overpaying for even the most talented manager. Like any calculation, it seems sufficient to say that there's an inappropriate number without saying more definitely what that compensation would be in every case. Compensation may not be an exact science, but there might still be a logic to it we can extract given enough examples and challenging cases.
So, let us imagine the highly capable CEO who is overpaid. Let us assume that he is a very talented negotiator, and that he is dealing with a board of directors whose skills or attention lie elsewhere that salary negotiations. Such a CEO might find himself (in his private capacity as potential employee) negotiating a salary that overemphasizes the value of his capacity to maintain and grow the business. Moreover, such a CEO could be overpaid in absolute terms even if he is doing a very good job.
In most cases there are laws governing this, and shareholders can sue the board or the CEO for breach of fiduciary duty. Still, there might be some gap between the clear cut cases of illegality and a truly just or appropriate sum of money. It would be odd to say that every compensation package that is legal is appropriate, since the law must allow some leeway to avoid punishing the just by over-extension of a rule.
Thus, it may be that some corporations have the best possible manager but are also overpaying him: in such a case, the appropriate action is to reduce the manager's compensation, not to fire him! Would you agree?
posted by anotherpanacea at 2:14 PM on April 13, 2009
4) When long-term success of the business is part of your personal and social identity, you have an incentive that goes way beyond your compensation to make sure the institution makes healthy decisions for itself and its clients.
Expanding on this, if the hereditary title and responsibilities that come with it is taken seriously, the inheritor is trained from an early age to perform the position's duties. If it's clear that he or she cannot do so, hereditary systems usually include mechanisms for changing who is to inherit, or limiting the damage. (Including voluntary abdication, assuming the inheritor was raised with common sense and basic self-assessment skills.)
That's what happened to hereditary titles: limitation of the damage has led to limitation of the powers and reduction in the duties, to the point where in English-speaking countries the whole idea is viewed as something of a joke. It needn't be. We as a society have fallen in love with merit selection to the point where getting selected for anything has become an exercise in gaming the system of assessment of merit: obtaining useless degrees and certifications, writing elegant nonsense to address selection criteria, resume-padding with useless activities, hobnobbing with equally cynical system-gamers for mutual "character references". This leads to most people having no real sense of a "place in the world". Because a person could get to do so many different things, people are always looking for what else they can do, hesitate to commit to anything, and are half-hearted and insincere in their performance of the functions of their present role. Panoply of choice leads to regrets. On the other hand feeling you had no choice can lead to resentment.
The truth is, the bell curves of human ability to perform difficult tasks and the difficulty of tasks performed by humans match up very closely. Most people can do most jobs, perform most social functions, etc. Whether you chose to be a banker and learned how to do it, or were told by your parents that it was the family trade, or told by the State that a banker would be needed in time and you would be that person, or were apprenticed to the banking guild as you were born with back hair and a vestigial tail, matters very little. You may be a happy banker, or an unhappy one; you may be competent, or incompetent. Unhappiness will likely make you incompetent, and incompetence will likely make you unhappy. If you decide you'd rather be a social worker, there is no guarantee that this will make you any happier, or more competent, either. Without investing a great deal of time and energy into it, it's almost impossible to know, and at this time, unfortunately, we get only one life each.
posted by aeschenkarnos at 2:50 PM on April 13, 2009 [1 favorite]
Expanding on this, if the hereditary title and responsibilities that come with it is taken seriously, the inheritor is trained from an early age to perform the position's duties. If it's clear that he or she cannot do so, hereditary systems usually include mechanisms for changing who is to inherit, or limiting the damage. (Including voluntary abdication, assuming the inheritor was raised with common sense and basic self-assessment skills.)
That's what happened to hereditary titles: limitation of the damage has led to limitation of the powers and reduction in the duties, to the point where in English-speaking countries the whole idea is viewed as something of a joke. It needn't be. We as a society have fallen in love with merit selection to the point where getting selected for anything has become an exercise in gaming the system of assessment of merit: obtaining useless degrees and certifications, writing elegant nonsense to address selection criteria, resume-padding with useless activities, hobnobbing with equally cynical system-gamers for mutual "character references". This leads to most people having no real sense of a "place in the world". Because a person could get to do so many different things, people are always looking for what else they can do, hesitate to commit to anything, and are half-hearted and insincere in their performance of the functions of their present role. Panoply of choice leads to regrets. On the other hand feeling you had no choice can lead to resentment.
The truth is, the bell curves of human ability to perform difficult tasks and the difficulty of tasks performed by humans match up very closely. Most people can do most jobs, perform most social functions, etc. Whether you chose to be a banker and learned how to do it, or were told by your parents that it was the family trade, or told by the State that a banker would be needed in time and you would be that person, or were apprenticed to the banking guild as you were born with back hair and a vestigial tail, matters very little. You may be a happy banker, or an unhappy one; you may be competent, or incompetent. Unhappiness will likely make you incompetent, and incompetence will likely make you unhappy. If you decide you'd rather be a social worker, there is no guarantee that this will make you any happier, or more competent, either. Without investing a great deal of time and energy into it, it's almost impossible to know, and at this time, unfortunately, we get only one life each.
posted by aeschenkarnos at 2:50 PM on April 13, 2009 [1 favorite]
Unhappiness will likely make you incompetent
I thought studies found that slight depression increased productivity?
posted by BrotherCaine at 4:46 PM on April 13, 2009
I thought studies found that slight depression increased productivity?
posted by BrotherCaine at 4:46 PM on April 13, 2009
The CEO has exponentially more responsibility than rank-and-file workers.
And yet even when he screws up and is severenced "to spend more time with his family", he, and yes, she, tends to get a nice little going away present.
The janitor- not so much.
Problem with the compensation structure of recent decades is that managers managed to convince board members that senior management should be rewarded like owners, not hirelings.
(But I like the romance of the bank, and like to think that they have carved stone grottoes underneath the building, with lightly sleeping dragons guarding piles of gold nuggets and jewels. For that and the Chippendale tables, I would, if rich, take the crappy rate of return.)
posted by IndigoJones at 5:21 PM on April 13, 2009 [1 favorite]
And yet even when he screws up and is severenced "to spend more time with his family", he, and yes, she, tends to get a nice little going away present.
The janitor- not so much.
Problem with the compensation structure of recent decades is that managers managed to convince board members that senior management should be rewarded like owners, not hirelings.
(But I like the romance of the bank, and like to think that they have carved stone grottoes underneath the building, with lightly sleeping dragons guarding piles of gold nuggets and jewels. For that and the Chippendale tables, I would, if rich, take the crappy rate of return.)
posted by IndigoJones at 5:21 PM on April 13, 2009 [1 favorite]
If pay should reflect value, there is a crop of CEOs right now who owe us back all their income, ever, and then some. They have the largest net negative value of all CEOs ever. They've cost us trillions in value — they destroyed value.
If these CEOs were Samuri, they'd have committed seppuku out of shame and atonement for their gratuitous offenses against the public. They are CEOs without honour.
posted by five fresh fish at 8:38 PM on April 13, 2009
If these CEOs were Samuri, they'd have committed seppuku out of shame and atonement for their gratuitous offenses against the public. They are CEOs without honour.
posted by five fresh fish at 8:38 PM on April 13, 2009
It's been said that limited liability is a form of government subsidy of corporations. (Looking at them as a black box, this seems pretty trivially true.) Just now, reading various posters' defenses of limited liability (***), it occurred to me that the specific form this subsidy takes is insurance. Near-universal, free insurance for business-owners.
Hmm.
It's not precisely the same kind of thing as health insurance, but it's interesting that to business owners, universal coverage is taken for granted as a bedrock necessity of modern civilized life.
posted by hattifattener at 11:41 PM on April 13, 2009 [1 favorite]
Hmm.
It's not precisely the same kind of thing as health insurance, but it's interesting that to business owners, universal coverage is taken for granted as a bedrock necessity of modern civilized life.
posted by hattifattener at 11:41 PM on April 13, 2009 [1 favorite]
I'd still say the main point is that real limited liability means your operations should serve the public interest and be dangerous, and thus require public supervision. I can still imagine some weaker limited liability that protects family property and/or has damage caps and jurisdictional restrictions. It's no big deal if a municipality grants a restaurant's owners protection for their pre-existing assets, but obviously if they start dumping toxic sludge into the river then the states further down should have the power to take the family home too.
posted by jeffburdges at 4:20 AM on April 14, 2009
posted by jeffburdges at 4:20 AM on April 14, 2009
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