Corporate law ideas from literature

Corporate purpose, deriving meaning from work, and viewpoint diversity – some thoughts after reading Yosifon’s MOBY DICK AS CORPORATE CATASTROPHE

Professor David Yosifon’s new article, Moby Dick as Corporate Catastrophe, brings to life a number of corporate law issues – corporate purpose, agency costs, aligning incentives of agents (managers) with that of the owners, misbehaving corporate leaders, the role of general counsel, etc. I will discuss three of them here:

Corporate purpose

My favourite passage from the book is below. I like it because Yosifon provides us with a side of the corporate purpose debate that he is not an advocate of. I think we have something to learn about academic practice and about corporate law in this article.

Melville paints both sides of the corporate purpose debate, and while anyone can find confirmation of their priors in the text (as my preceding paragraphs well show), the honest reader is also confronted with complexity that must in the end leave them uncertain. Novelists do not have the policymaker’s responsibility to finally make legal decisions and settle designs with particularity, as must be done. But knowing the complexities in a beautiful way can make us humble about our policy choices and unsanctimonious towards our opponents. Just when you are sure that shareholder primacy has made a mess of everyone involved, this comes: Ishmael brings along his new best friend Queequeg, a Pacific-Islander tattooed from head to foot, to sign up with the Pequod too. Queequeg gives the managers a brief demonstration of his harpooning skill by striking a bulls-eye through a small tar-stain floating in the water off the side of the ship. Captain Bildad quickly offers him the “90th lay”, a far better rate than was given to Ishmael. The profit-motive is narrow, so narrow that it can sometimes sneak a path right through the worst demons of human nature. Queequeg is judged not by the inked icons on his skin, nor by racist presumptions about his character, but by the content of his harpooning skill. This anti-racist policy is dictated not from Bildad’s Bible, nor any conscious humanitarianism, but from the acid bath of the market. [Works of Richard Epstein and Thomas Sowell are referenced for this last claim]

Deriving meaning from work

Another passage in the article I like, speaks to the meaning we find in our work and how corporations fit into that idea:

But thinking it through, he comes to understand the inevitability of human connection:

I saw that this situation of mine was the precise situation of every mortal that breathes; only, in most cases, he, one way or other, has this [conjoined] connexion with a plurality of other mortals. If your banker breaks, you snap; if your apothecary by mistake sends you poison in your pills, you die. . . . [H]andle Queequeg’s monkey-rope heedfully as I would, sometimes he jerked it so, that I came very near sliding overboard. Nor could I possibly forget that, do what I would, I only had the management of one end of it.

Ishmael’s recognition that he is inevitably involved with other people is catalyzed by his first conceiving of his situation as being like a joint-stock company. He builds from that idea to a mature, accepting understanding of the relatedness of all humankind.

Yosifon links this “what sentiment of being the idea of the corporation might provide to” Ishmael “to help him make a gratifying sense of himself, and his relationship to others”. I like this passage and the idea Yosifon draws from it because we all do derive some sense of being from where we work. It is what makes us take a job even if it pays a little less than another – we are looking for intangibles that might help us with that “sense of being”.

Diversity of views and perspectives

Last but not least, I want to highlight a passage that shows the value of people who can speak up against bad decisions:

It takes a special hubris for an executive to scheme as wildly as Ahab, but just common human frailty for a corporate lawyer like Starbuck to let him get away with it. Subordinate to a charismatic leader, who has the frothy allegiance of the crew, Starbuck is motivated to find reasons not to act against the tide sweeping over the ship. Being creative and intelligent, he is able to find those reasons. He sees that something is seriously wrong but decides that there is still plenty of time before he needs to act, if indeed he needs to act at all. Maybe the problem will work itself out. The harm may potentially be great, but maybe it is not very likely to occur after all.

Although this passage focuses on the general counsel, I would draw on this to think about corporate boards and executives as well. The idea here is probably closest to my research because I argue when I write about diversity that to really use the benefit of different perspectives and viewpoints available, we should be able to create a culture that allows dissenting views to be voiced.

I’d recommend Yosifon’s article on Moby Dick and corporate law with the same enthusiasm with which I recommended his previous paper, corporate law as an existential project.

Scrooge

Now to get to Scrooge from a Christmas carol, a conversation between Amy Willis and Sarah Skwire at OLL is interesting. I agree with Skwire when she says that it is not the business that’s at fault, rather the man that’s at fault. In any case, the entire conversation is fun. The conversation also discusses Dickens’ other book, The Chimes but I won’t say anything about that because I have not actually read The Chimes!

Corporate purpose, culture, and employees

I’ve been reading Liftoff by Eric Berger for a while now. It’s a great book but other commitments have interfered with my pleasure reading. Anyway towards the end of the book Berger discusses a paper by Zurbuchen (who later became the chief of science exploration at NASA) in an Aviation Week article published in 2010 which found that half of the best students from the University of Michigan’s graduate program in space engineering had ended up working for SpaceX rather than the “industry’s leading companies”. These former students said they took pay-cuts to work at SpaceX because they “believed in the mission”. I think this reflects a corporate mission or purpose that employees could be invested in. In fact, they could believe in it enough to take pay cuts. If the mission statement was mere window dressing, it would not impress employees enough to take pay cuts.

Company culture seems to be another factor that employees seem to value enough to take pay cuts for. A 2020 Glassdoor survey found that employees (particularly younger ones) valued culture above pay, both when applying for a job and when deciding to stay on in the firm. The same survey also found that a majority of employees wanted their firm to have a clear mission and purpose.

So having a positive company culture and a clear mission/ purpose is important. I’d say it is more important that any stated mission or even statements about firm culture need to be backed up with genuine will and action. This is because employees have enough first-hand information to not fall for empty virtue-signaling or “stakeholder-talk” as Bebchuk and Tallarita call it.

The Chair – Quick takes (may include spoilers)

I saw a lot of twitter talk about The Chair on Netflix and decided to watch it. I know it is meant to be a commentary on the struggles of women in academia generally, and women of colour in academia more specifically. Yes there are very good and humorous depictions of some aspects of those issues (glass cliff, glass ceiling and additional barriers for coloured women, work-life balance for women with children, and the disparities with the experiences of men, etc). But in this post, I want to focus on two issues that have resonances for the corporate sector – first, and more briefly, how a lot of the issues faced by diverse people can be seen in the corporate context; and second, the issue of the faculty’s administration taking short term decisions to appease protestors even when the underlying cause of protest is not true.

As someone who researches on diversity in the corporate sector, the comment from the Korean American female department chair about how she thinks she hasn’t been handed an English department, but rather a ticking bomb reminds me of a number of glass cliff stories in corporations. The young black woman struggling to get the older white man to support her tenure application makes me think of all the great work highlighting the role of mentorship and networking to move up the corporate ladder.

Interestingly, the show depicts student protests against a white male professor for something that did not actually happen. The administration responds by simply making a termination offer (with a golden handshake settlement) to the professor in question. I found this interesting because there are parallels with how corporations have been reacting to social media pressure with knee-jerk reactions without attempting to address the real issues. I have done a series on corporate short-termism in response to social media pressure on this blog. Obviously such short-termism makes for some dark comedy in reel life, but not so great decision-making in reality.

Corporate culture

There’s an excellent line in an article in the FT today: It is difficult to assess what the culture of an organisation is from statistics. This is an important point. Even firm with more diverse employees could have a bad work culture meaning that people outside of the in-group (either based on demographic attributes or based on different viewpoints) are not promoted. The article from which I take the line is focused on equity issues for women of colour. A good corporate culture can certainly help on that count. But it can also help on a different count. Incidentally a different article also in the FT (yes, my news source of choice!) shows another issue affected by weak corporate culture. This second article is on Wirecard and mentions that its late CEO Markus Braun had little tolerance for dissenting views. I extract a little passage from the article which narrates an episode that nicely illustrates this lack of tolerance for dissenting views.

In November 2018, chief product officer Susanne Steidl took issue in an email with a draft press release which stated that new products launched by Wirecard would soon generate an additional €100m in revenue. “I don’t want to be the party pooper but this simply seems to be too high by a factor of 10,” Steidl argued, pointing out that the new products at that point generated “almost no revenue”. Braun immediately sent Steidl a terse text message: “I would be very grateful for not pursuing such discussions by mail with a large distribution list!!” One day later, the press release with the highly ambitious revenue target was published.

We know how Wirecard eventually went down.

Anyway, my point in linking these two articles – one on equity and diversity issues, another on Wirecard’s problematic management is to show how effective corporate cultures can help diverse people thrive and also prevent misconduct to a large extent. I write more about these issues in my book (still a work in progress!) titled The Corporate Diversity Jigsaw. I also have an earlier post which discusses these points in the context of issues in Pinterest.

Corporations and social media influencer employees

I ran a corporate short-termism and social media mini-series on this blog last year. The thrust of that series was that various stakeholders, through social media, pressured companies to act on non-financial issues; and companies responded with short-term fixes that might consist of putting out a statement on the issue without following it up with pertinent action.

Today’s post is a different take on social media and corporations. Rather than looking at stakeholder activism or pressure through social media, this post looks at employees’ use of social media and corporate discomfort around it. While corporations might want to control the story, there was a famous case last year of Sherwin-Williams Paints firing its employee who had become a Tik-Tok influencer. The employee mixed paints on his channel and the company seemed to have got uncomfortable with the social media attention because it couldn’t control the story. It fired the employee for allegedly stealing paint. As Kara Alaimo from the Print notes:

Whatever the [company’s] thinking, it was a shockingly shortsighted move. The TikTok channel was generating a huge amount of free, positive publicity for its brand. The lesson is that to reap the benefits of influencers and superfans, companies need to get comfortable not being able to script their messages as tightly as in the past.

The company’s competitors seized the opportunity and made offers to the social-media famous employee.

Something similar happened with Amazon which seems to have had a less drastic reaction. One of its employees gained a following when he started filming himself packing products in the warehouse. Although he posted anonymously, Amazon tracked him down via a packaging label visible in a video. Unlike Sherwin-Williams Paints, Amazon did not fire him. According to the employee in question, this was because his videos showed Amazon in a positive light at a time when its warehouses had been criticised and when Amazon was on a recruitment drive to keep up with the pandemic related demand.

The FT reports that there is in fact a rising trend of companies attempting to harness the potential of these influencer employees by hiring external consultants (“influencer management” companies) to help navigate this. UK-based DSMN8 is one such company and helps coordinate social media activities of employees with rewards for best performers. Companies like Ford and Huawei are among its clients.

Whether companies go the influencer management way or not, it is clear that shutting employee voices down by firing them is likely to backfire. It may be beneficial for companies to acknowledge that their employees are likely to have a social media presence and offer to help employees with deciding where to draw the line when their posts relate to the company. This kind of policy fits into the larger idea about corporate management engaging with employees as stakeholders.

(On a lighter note, I’ll leave you with a story about social media being used by another type of outfit – the Italian mafia!)

The elusive “corporate culture”

Pintrest was in the news earlier this month when it publicly announced an agreement to pay $22.5million to settle claims of gender discrimination brought by its former chief operating officer, Francoise Brougher. Ms Brougher had accused Pinterest of excluding her from meetings after she pushed for equal pay; and that she was ultimately fired after she raised concerns about sexist comments by a colleague to the company. Overall, her complaint said that Pintrest created an “unwelcoming environment for women and minorities”. Along with the $ 2.5 million settlement (which will be donated to organisations that work to advance women and minorities in the tech industry according to Pintrest) the company is apparently taking “meaningful steps” to improve its workplace environment. Ms Brougher also said that “Pinterest is committed to building a culture that allows all employees to feel included and supported”.

While culture in this context seems to suggest something to do with the way women and minorities are treated, it is really about how all employees are treated. As I explain in a recent paper, the “focus on culture and employees is aimed at preventing, or addressing at an earlier stage, egregious corporate scandals”. It is in the interest of the company to create an environment where employees are able to raise concerns whether it is about discrimination and sexism or about misconduct in other contexts. It helps the board address issues before they balloon into bigger problems. Regulators have started paying attention to the importance of culture as I discuss in my paper. Companies should do so too too.