Ebay vs Newmark: You're all just cogs. Accept it. There is no joy in it, but you have no choice.

[elfs]

Ebay vs Newmark

A relatively obscure court case, Ebay vs Newmark (Newmark here is Craig Newmark, the founder of craigslist), found that yes, a corporation’s first duty is to maximize shareholder value (Yale Law Review. Note: PDF).

That case hinges on some fairly technical issues, but here’s the gist of it: Ebay bought a 28% share of craigslist, and the board at craigslist voted to restructure the corporate governance into a poison pill; Ebay buying just one more share would trigger a whole cascade of penalties that made buying that share much more expensive and troublesome than it was worth.

Ebay sued, saying that the restructuring was done not for the benefit of craigslists’ shareholders (including itself), but for reasons unrelated to shareholder value. Newmark testified that this was, in fact, the case; he rejected the idea of “maximizing shareholder value” and instead desired to steer craigslist in a way that maintained its value to the communities it served.

The Law Review article starts by asking if corporations exist for specific reasons:

What is the purpose of the corporation? Who cares? If the New York Times is formed to publish a newspaper first and make a profit second, no one should be allowed to object. Those who came in at the beginning consented, and those who came later bought stock the price of which reflected the corporation’s tempered commitment to a profit objective.

It describes this as “concurrent with contract law, and a person’s rights to enter into a consensual contract.” But in Newmark, the court ruled that you cannot enter into such a contract with a corporation that explicitly declared itself “for-profit:”

Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders. The “Inc.” after the company name has to mean at least that. Thus, this court cannot accept as valid for the purposes of implementing the poison pill Rights Plan a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders.

This language is so strong that the court is saying the poison-pill restructing after the fact doesn’t matter. Craig Newmark had no right to create a business and incorporate as a corporation if he didn’t intend to maximize profits for shareholders. As Max Kennerly puts it, corporations “can engage in modest philanthropic efforts, but if they put their money where their mouth is, they’ll get Newmark’d.”

Corporations are Sociopathic Thinking Machines

Corporations are effectively large, slow thinking machines. They’re information-processing organizations that take in data and react to it with real-world affect. Their collective effort does not necessarily reflect the moral ideals of the people who make up the majority of its workforce. They have a consciousness of sorts, that taking in information and reflecting it back upon the world, but very few corporations have a conscience, a recursive, reflexive, inward-looking process that asks if it is doing the right thing, if it is acting well toward its neighbor.

The Newmark case shows that having a conscience is simply not legal for a for-profit corporation; that taken as a whole a corporations actions must be seen to maximize profits and any philanthropic activities must be seen in that light as a form of “reputation management” and nothing else.

This is sociopathy. Corporations, like sociopaths, have selfish extrinic goals. Neither cares about the rights or well-being of people who are not them, and the court has ruled that corporations are not permitted to have such cares. Large corporations will employ child labor if that’s what it takes to drive profits. Large corporations will argue that if their product killed you quickly, your family has no right to sue on behalf of your pain and suffering because it was over before you could complain.

There are two kinds of people in the world: those who behave well toward their neighbors and their community because it’s the right thing to do and all the evidence points to mutual benefit from acting well, and those who behave tolerably– at least not criminally– toward their neighbor because a powerful external authority would punish them if they did not.

Both sociopaths and corporations view the world through a lens of risk vs reward, and the feelings of others don’t factor into that view at all. They are only and ever the second type; only the threat of painful sanction keeps them from heinous behavior.

Un(Just) Workplaces

So it was with a strong sense of familiarity that I read Tim Burke’s Institutionality Is The Thief of Joy. Burke’s case is a simple one: capitalists sell you constantly on the idea that work, and only work, is the source of all self-worth. “The dignity of work” is the idea that they prattle on endlessly, but that idea sucks all the life and self-worth out of people who are not sociopaths.

The notion that hospitals and schools are only workplaces, that they are for-profit enterprises and that notions such as “healing the sick,” “safeguarding the well-being of people,” and “inspiring minds and soul,” are sentimental twaddle; your duty is to maximize profits and those notions and actions inspired by them are merely the mechanisms by which you do so.

Burke says he’s “unwilling to accept a life sentence without parole in the worst timeline,” but he’s also unwilling to accept the idea that we live in a kyriarchy, in which there are so many forms of oppression that resisting any one of them results in the others inflicting so much pain the resistance is forced back, so he’s unwilling to “burn it all down.”

It’s not just that, as I once heard a street preacher say, “The world we need will not be built by men loyal to the world we have.”¹ It that the institutions loyal to the world we have don’t care about the men in it.

Now how do we do better?

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¹(I was later disappointed to learn that he cribbed it from Game of Thrones.)

Comments

This implies we should use better corporate structures

[shunra]

...non-profits, public benefit corporations, I'm sure there are others.

[omahas]

It is quite clear that before this decision was rendered, the judges opinion about what corporations of any kind exist for didn't, well, exist. In fact, his opinion is clearly NOT based on any legal or moral ideas. Take: "Those standards include acting to promote the value of the corporation...". Because when he says "value of the corporation" he means fiduciary value, then he's talking about money increases.

Then he says "...for the benefit of its stockholders." And I ask why? After all, the corporation was invented as a means of creating an "individual person" through which a company can create contracts, make business deals, etc. Stockholders are "the corporation" They are a part of the whole. And in fact, if the entire reason for a corporation to exist means that stockholders only get money, then they also have the responsibility for liability as well.

All in all, this is NOT a "relatively obscure court case". It's a huge landmark case that should be confronted and eliminated as a "status quo". By either changing the definition of fiduciary value for stockholders only, or by suing stockholders for liability since they are singled out for the fiduciary value of the company.