Why we will end up piercing the corporate veil

The internet is one big reason why we will find it increasingly difficult to separate out the assets of a company from the assets of its founders or CEOs, as I discuss in my latest Bloomberg column:

More important, social media personalizes agency — in effect, making it easier to accuse particular individuals of wrongdoing. Mark Zuckerberg, Jeff Bezos, and the Koch brothers all have images or iconic photos that can be put into a social media post, amplifying any attack on their respective companies. It is harder to vilify Exxon, in part because hardly anyone can name its CEO (Darren Woods, since 2017), who in any case did not create the current version of the company. Putting the Exxon logo on your vituperative social media post just doesn’t have the same impact. With Bill Gates having stepped down as Microsoft CEO in 2000, it is harder to vilify that company as well.

This personalization of corporate evil has become a bigger issue in part because many prominent tech companies are currently led by their founders, and also because the number of publicly traded companies has been falling, which means there are fewer truly anonymous corporations. It’s not hard to imagine a future in which the most important decision a new company makes is how personalized it wants to be. A well-known founder can spark interest in the company and its products, and help to attract talent. At the same time, a personalized company is potentially a much greater target.

The more human identities and feelings are part of the equation, however, the harder it will be to keep the classic distinction between a corporation and its owners. As the era of personalization evolves, it will inevitably engulf that most impersonal of entities — the corporation.

Do read the whole thing.


Nice column, Cowen. Interesting and underdiscussed topic. +5 internet points.

He might be worried that his benefactors could end up in jail. There's a whole parasitical ecosystem that depends on a few wealthy hosts who pay to keep the propaganda flowing.

And way to miss the point.

You should explain your point as it appears lost on the audience here.

Cowen is confusing owners (i.e., shareholders) and agents (officers, etc.) of a corporation. Piercing the corporate veil to reach the owners is very difficult and I cannot imagine the law will change much if at all. On the other hand, agents that damage the corporation will be likely targets, as more and more agents engage in conduct that is outrageous. The damage is to the corporation, and for which the shareholders may bring derivative actions against the agent (i.e., in which the shareholders are suing the agent on behalf of the corporation because the corporation won't sue the agent because the agent controls the corporation) to recover the damages suffered by the corporation as a result of conduct by the agent. It's an important distinction that Cowen fails to make. Elon Musk is an example, his outrageous conduct resulting in damages to Tesla. Cowen may object because he believes agents like Musk are superstars who should be praised not sued.

If I were a shareholder of Boeing, I'd send a demand to Boeing to sue the agents that approved the defectively designed 737 MAX to recover the damages suffered by Boeing, and if Boeing refused, I'd bring a derivative action against said agents on behalf of Boeing. What damages? Just wait. The engineers at Boeing sill sing like canaries.

I'd take it another step and say we should stop criminally punishing corporations (vs civil suits and vs. criminal punishment against specific agents of the corporation). Criminal punishment targets the owners, who haven't done anything morally blameworthy.

@rayward - I think your point is sound but not responsive to what Cowen is saying, when you say: "Cowen is confusing owners (i.e., shareholders) and agents (officers, etc.) of a corporation." TC's point goes directly to 'piercing the corporate veil" in holding a minority owner (i.e. the Sackler family in Purdue Pharma) liable with their personal assets. In theory I guess, the entire shareholder base (including somebody owning 100 shares) can be held liable, but I bet the law does not evolve that way, due to political pressure.

Bonus trivia: the Sui dynasty of China (580-620 CE, from memory, yeah I memorize stuff as a chess player) had the "well system" for land distribution to landless peasants, but --this is key--the super rich landowners (call them the 1%, like myself, and prior to the Han Dynasty of 200 BC to 200 CE private landowning was not allowed) were exempt from having their land redistributed. Since the 1% are more likely to add value than the 99% (sorry, most of you readers), this is, IMO, sound.

They won't go after the whole shareholder base because only the Sacklers pulled $1B out of the company to hide from penalties. Nobody else committed the deed nor have that kind of authority.

What Ray Lopez and Cowen may be describing is what's called the alter ego doctrine: the corporation is operated as the alter ego of the controlling shareholder and, thus, the latter is liable for the actions/debts of the former because of insufficient separation between the two. Most courts, however, require proof that the corporation was used for a fraudulent or improper purpose in order to pierce the corporate veil: simply operating the corporation as the alter ego of the controlling shareholder is not enough. On the other hand, it's the misconduct of the controlling shareholder and the damage she causes the corporation that is the basis of a derivative claim. Again, courts are reluctant to pierce the corporate veil, because it potentially puts at risk all shareholders of the corporation, which would discourage the kind of risk taking and innovation that has produced enormous economic growth and prosperity. On the other hand, holding someone liable for the damages she causes the corporation has nothing to do with piercing the corporate veil.

Came here to say all this, so thanks rayward.

From reading Cowen's column, you'd think that piercing the corporate veil were some new and untested concept that has emerged in the last ten years. The law has always allowed veil-piercing in cases where an officer or director of a company personally instructs or authorizes certain types of wrongdoing, e.g. fraud, and uses the corporate form as a tool to defeat the legal claims of those being harmed. Shareholders who aren't directors aren't usually at risk, which is presumably the case here. Warren's bill says it's about agents, not shareholders, and on its face that's what it's about -- this is all consistent with existing legal precedent, even if she proposes to tweak some of the evidentiary or mens rea / intention standards.

I don't really see a story here, just conservative fearmongering from Cowen. Maybe that's justified by something that's happening, but if so his column doesn't identify what that something is.

You don't need to pierce the corporate veil to hold individuals (including corporate actors) responsible for their own torts. Doctors, for example, experience this all the time.

It's not often done because the corporation typically has a greater capacity to pay any judgment.

No, it's the "business judgment rule" that makes it very difficult to recover damages from corporate agents (founders, CEOs, etc.). Under the rule, courts will not second guess corporate agents who act in good faith and in the honest belief that their actions were in the best interests of the corporation. One might get the impression that courts run roughshod over the superstars who Cowen admires, but it's not true. Sure, there's the occasional case when juries seem to run amok, but judges have the final say, and well-established and widely-accepted corporate law doctrines such as the business judgment rule protect both corporations and their agents from liability resulting from good faith actions. Sometimes I get the impression that the hysteria over courts gone wild is intended more as propaganda than a good faith effort to promote good policies.

Serious question. If Zuckerberg is the target of online hate on Twitter, how does that relate to the real world?

Twitter mobs are getting as ignorable as CNN.

Uncle Mark? Say it ain't so!

Why are we even discussing this.

Has not the Supreme Court told us that a Corporation is a person for purposes of electoral politics..

If you prick it,

Does it not bleed?

It hasn't.

If you believe that Citizens United rested on corporate--and union--personhood, then, like all too many people, you have no clue what you're talking about.

To quote a legal commentator at the Brennan Center:

"There are absurdities that flow from granting legal fictions Constitutional rights that were intended for humans. Corporations don’t have minds, and without one it is hard to see how a corporation “thinks” about any political issue du jour from gay rights to the budget deficit. Without a soul, it’s hard to conceptualize how a corporation could “believe” in anything whether it is transubstantiation of communion or the morality of birth control. But here we go again. A corporation makes a Constitutional claim to the righteousness of their legal position. The question is will the Justices fall for it?"

I'm going to incorporate a dog and claim that it has a free speech right to bark all night.

Not surprising that you'd rely on a total misreading of the majority's decision. I refer you to this article, which is hostile to the decision, but nonetheless gets the legal analysis correct:

"What was novel in Citizens United was not anything remotely related to corporate personhood, but the court's expansion of the theory it provided in Bellotti from referendum questions to electioneering for candidates. In both cases, the court defined freedom of speech as protected by the First Amendment from the perspective of the listener, rather than of the speaker. The court held that the listener had the right to listen to all sources, whether the sources be corporations, partnerships, other business entities, individuals, associations or nonprofits. The court relied on the phrasing of the First Amendment to rule that Congress could not abridge “freedom of speech” in the abstract, irrespective of the source of the speech or the rights – or absence of rights – of the speaker."


You obviously haven't read the decision, nor are you aware of what other Supreme Court precedents the Court reversed that lead to the decision in Citizens United.

Instead of reading someone's blog, here is a link to a Harvard Law Review Note on the Citizens United decision. https://harvardlawreview.org/wp-content/uploads/pdfs/vol_12401citizens_united_v_FEC.pdf

I have read the decision and I defy you to cite the part of majority's decision that relies on corporate personhood. In fact, if you bothered to read the article you cite, it mentions a portion of Scalia's opinion that proves my point: "He[Scalia] reasoned that '[t]he [First] Amendment is written in terms of ‘speech,’ not speakers . . . [and] offers no foothold for excluding any category of speaker.'” It's not because corporations are persons that they entitled to 1A protection but because they are speaking about public issues and the public has a right to hear those views.

Scalia was arguing that natural person was not included in the First amendment because of the term press. However, you could also say, with legislative interpretation, inclusio unis exclusio alternious...that by mentioning "press" the founders excluded all other persons except natural persons AND the press.

I think you clearly fail to understand that you can be a "person" for one purpose and not another. For example, the Fifth Amendment, which applies to persons, does not apply to corporations.

He was arguing that what matters was the activity not the person or entity responsible for the activity. That's why it doesn't matter if the press is a human being or a corporation, and why the majority did not want to get into the messy business of deciding what's a media corporation.

And if you prefer scholarly legal articles: "However, a careful reading of the opinion reveals that the Supreme Court never explicitly stated that because corporations are persons, they must be treated like individuals for purposes of the First Amendment. Instead, the Court framed the issue in terms of whether the speech is the type of speech the First Amendment protects, not whether the speaker is the type of person who can claim First Amendment rights.' It did not matter whether the speaker was a corporation or a human being because the political speech at issue in the case-a documentary film that reflected negatively on Hillary Clinton's candidacy for the 2008 Democratic Presidential Nomination-was covered by the First Amendment. The personhood of corporations was not the basis of the Court's decision; the Court did not focus on corporate personhood anywhere in its opinion. However, critics argue that the unstated premise of the case is that corporations are persons that enjoy the same free speech rights as human citizens.'" (pp. 286-7, https://ir.stthomas.edu/cgi/viewcontent.cgi?article=1071&context=ustjlpp)

Note that the critics themselves have to concede that the majority did not explicitly rely on corporate personhood and so the critics have to claim that it was an unstated premise.

Expressio Unius Est Exclusio Alterius Definition: Latin: the expression of one thing is the exclusion of the other. ... "... a maxim of interpretation meaning that the expression of one thing is the exclusion of the other.

Also, Stevens really lambasts Scalia with the history of corporations at the time of the Bill of Rights, because, at that time, they were viewed as creations of the state, and thus subject to regulation.

Nothing you've said really gainsays my point. If you want to say that the majority got the decision wrong, that's fine, but that's a different argument.

No it isn't.

Sorry, but it is, and as many people have noted, were a constitutional amendment adopted to overturn Citizens United using the corporate personhood idea, the courts would ignore it for precisely the reasons mentioned.

Anon, Here is another law review article making the same point....begin reading at p. 781 https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1014&context=jcl

"Justice Stevens, writing on behalf of the dissenting Justices, was outraged by this glib invocation of our Founding Fathers and resulting manipulation of First Amendment jurisprudence.78 Justice Stevens discussed at great length his view that the Founding Fathers never would have extended individual rights to a corporation.79 Justice Stevens also noted that the entire Bill of Rights was designed to protect individual rights (the rights of natural people). In his words, there is not a “scintilla of evidence to support the notion that anyone believed” corporations should be given the free speech rights of individuals.80
Justice Stevens discussed what the Founding Fathers would have understood about corporations:81 at the end of the eighteenth century there were only a few hundred corporations in the entire country, and each needed to specifically petition its local state governments for a charter that would entitle it to do anything at all.82 Since these corporations were very much at the mercy of the state for all of their rights, the notion today that corporations should not be subject to congressional regulation would be absurd to men like Thomas Jefferson.83 In Justice Stevens’s words, this notion is not merely a misinterpretation of the Constitution in a close case, but is absolutely “implausible.”84

The turgid dissent is irrelevant to the basis of the majority's decision even if Stevens were entirely correct about the Framers or the original public meaning of the text.

By that definition, every dissent is turgid, even if correct.

Not every dissent is turgid. Stevens managed to drone on for nearly 100 pages. And it's still irrelevant to what the majority actually said.

The CEO is likely to be automated soon. Intra company communications are becoming intelligent with optimized reporting structure. Tools like Github generate low cost distributed software management. CEOs have less barrier to entry, over time. An independent group of engineers can develop just as well with the distributed, intelligent design tools every where, and logistics is doing nothing be being increasingly productive. Whie collar beware, the bots are likely o keep the blue colors around, they have opposing thumbs and eat dirt.

You should write press release for Silicon Valley...oh wait, isn't that what this is?

Eventually? Maybe. But I work in automating white collar jobs, and most of what you'd do in the C suite is, at best, decades away.

A still very optimistic, but not crazy alternative is that, in 20-30 years, it will be hard to be an executive in a high performing firm without knowledge of data science, as enough decisions currently handled by gut will be computerized.

Re: "we will find it increasingly difficult to separate out the assets of a company from the assets of its founders or CEOs"

This mid sized business owner thinks Musk stole assets from Tesla to salvage Solar-World, this stealing from other Tesla share holders, while recovering good money from his worthless solar world share. And it sounds felonious.


Tesla stocks have gone up by a factor of 10x over the last 10 years. I imagine most long term stock holders aren't too unhappy. I suspect Elon Musk still has a substantial amount of goodwill available.

That's true. It is one of these stocks we rationally should short, but it would have bankrupted us.

'The internet is one big reason why we will find it increasingly difficult to separate out the assets of a company from the assets of its founders or CEOs'

The Sacklers, like many other founders or owners (though not CEOs, who are just employees in the end, not owners), are grinning at this observation.

And it was not the Internet that potentially tripped up their transferring a billion dollars offshore, it was prosecutors.

Seen, not fully endorsed:

"Cancel culture is social media's immune system. Individuals are the antibodies. A well-functioning immune system can differentiate harmless allergens from harmful pathogens. The answer isn't no immune system at all: then the body succumbs to disease.

An overactive immune system can be as fatal as any other disease. But removing it entirely is a last-ditch effort to save an otherwise doomed circumstance, not a long-term survival strategy."


I think there is a parallel here with the Purdues, and Tyler's concern that the immune system will become overactive.

The corporate veil jurisprudence is the wrong framework. Celebrity founders will increasingly face criminal/personal liability for actions taken even if they are acting within their capacity as CEO. Criminal liability or regulatory liability often sidesteps the "corporate veil" analysis and a corporation cannot indemnify for certain types of punishments imposed (e.g. jail time). The "corporate veil" analysis is applicable in a civil action where the company is sued by a third party tort creditor. It is not particularly useful if, for example, DOJ brings an action against a Founder for violations of consumer protection law or privacy law where punishment may include prison time and/or bans on serving as an executive officer of a public company. What Tyler gets right is that Founders, given their high levels of control and knowledge about the organization, combined with celebrity status, make for a tempting prosecution.

+1, informative

"More generally, if a company is endangered by lawsuits, and the suits are not settled, its owners have a rationale to extract money from the company and stash it far away. But doing so will elicit a legal and public response, and the distinction between the personal and the corporate will not always be respected."

This is the crux of the whole thing isn't it? If the owners have a rationale to not respect the wall between corporate and personal, then they've done the job of breaching the veil leaving their fates to the legal system. In this case, the Sacklers should have left the money well alone since it wasn't theirs but the company's in the eyes of the law. They made a calculated move and believed they could get away with it but now that the political climate has changed since the Wall Street bailouts the idea of moral hazard, the idea of "privatize the gains but socialize the losses", the idea of skin in the game are being revisited.

Rockefeller and Carnegie didn't personify their companies? Henry Ford? The celebrity entrepreneur is nothing new.

It's not about photos or social media. It's about ownership.

Mr. Zuckerberg owns enough FB equity to own the majority of voting rights in the companiy. Elon Musk owns ~20% of Tesla. Mr. Bezos even after the divorces still has 10+ of Amazon equity. Koch industries is a private company probably with major ownership by the Koch family.

Compare that to the CEO of Exxon. He may own a few thousand shares or options. But nothing remotely close to the examples above.

Never compare CEOs to owner-CEOs.

Veil piercing is nothing new of course and the courts had had a fair amount of discretion in applying the doctrine, however amorphous it might be, under existing legal precedents in certain relatively rare instances.

The more interesting notion advanced in Cowen's piece is that the legal system and judges are subject to the influence of social media outrage. Given the patent, widespread refusal of a large portion of the US judiciary to be bound by the law itself in using decisions to advance their personal political preferences, he may have accidentally identified a truth.

From a legal and economic perspective, versus a sociological perspective, Steven M. Bainbridge's prescient 2001 article "Abolishing Veil Piercing" advances a more substantive and rational approach that would directly address the cases Cowen raises, by advocating the replacement of the existing veil piercing doctrine with direct liability for LLC owners when the owner/shareholder/defendant has done something for which they are appropriately held personally liable.

Considering an alternative that has been thoroughly analysed economically and debated and considered in the open, seems a much preferable option than merely surrendering to judicial activism run amok.

Link to Bainbridge article: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=291060

There's an interesting post at Lawfare about Facebook's new statement of values. The post concludes:

Of course, none of the values Facebook has set out are technically binding. Facebook could theoretically change its values the day after it gets an Oversight Board decision it doesn’t like. [...]

But the point of the Oversight Board experiment is to garner greater public legitimacy for Facebook’s content moderation decisions through a commitment to transparency and explanation of Facebook’s decision-making. The board’s existence is fundamentally a bet that this kind of legitimacy matters to users’ perceptions of the company and their decisions on whether to keep using the platform—as well as to regulators pondering what to do about the tech giants. [...] it will be the public’s job, too, to hold the company and its new Oversight Board to a fair and justifiable reading of what these commitments entail.

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