Subject: Re: street performer protocol
From: "Stephen J. Turnbull" <>
Date: Mon, 8 May 2000 02:12:55 +0900 (JST)

>>>>> "shap" == Jonathan S Shapiro <> writes:

    shap> Corporate culture sets a norm to which individuals usually
    shap> conform, and that norm may in some cases be disfunctional in
    shap> the eyse of society.

Which society?  Wasn't it you that pointed out that your father
probably doesn't see Microsoft that way?  Are you _sure_ you know
better than he does?

    shap> I *did* mean to say that the corporate structure needs to be
    shap> fundamentally altered. Otherwise, you simply feed new people
    shap> into it and it generates the same behavior all over again.

I certainly agree with this.

However, Lynn's suggestion was "nationalization as punishment."  At
least that is what I inferred.  I think that that would amount to the
same kind of punishment that Credit Lyonnaise (to beat up on a
convenient French example), like the Japanese banks, have received to
date.  Ie, aid and succor to the _guilty_ with no recompense in sight
for the victims (who will often cheer, although in the Japanese case
the bank CEOs were sufficiently brazen that a majority of Japanese
voters support a truly disgusting rip-off of bank revenues by the
Tokyo City government because the banks "had it coming to them").

If you want to punish the organization, dismember it.  But I reiterate
that it is stupid to "punish" organizations.  It can't really be done.
They dis-organize and reappear in different form with a different

Instead, we should look at the structures, and---why bother, Jonathan
already said it quite clearly.  Read his post for the appropriate policy.

    >> But no one is directly guilty either, except the company
    >> itself.

    shap> I would argue that *everyone* is directly guilty. The
    shap> problem is that the people as individuals failed to question
    shap> the norm, and in failing were led to act improperly in a
    shap> systematic way. We must somehow learn as individuals to
    shap> question more often.

I respectfully submit that this is the point of view of a social
Luddite.  This basically destroys the notion of the corporation, and
sets us back to prefeudal society.  At least, taken to the extreme
that would be required to get investors, employees, and customers to
shun companies like Microsoft, that principle would set us back that

The ethics of corporate behavior are extremely difficult.  I believe
Jonathan himself has been on the "I don't think a company can do that,
it violates their fiduciary duty to the shareholders" side of some
argument recently.  "Everybody is guilty" says there is no such thing
as limited liability.  It says that every time you make a decision,
you must consider all possible social ramifications, and you are not
protected from the caprice of individual judges who disagree with your
honest assessment of the balance of good and bad effects.

Increasing corporate liability in well-specified ways would be OK with
me; I have no qualms about changing the rules of the game, _ex ante_.
But remember, to the extent that Microsoft's illegal (as determined
_ex post_ by the judge's decision and still subject to appeal) behavior
harmed competitors they (and ultimately their shareholders) are
already liable for treble damages.  That's a lot of punishment.  It's
not clear to me that the basic rules really need changing, although
it's likely IMO that they could be strengthened usefully, eg, by
allowing ex-stockholders (in companies which would find it hard to
join a lawsuit because they've long since gone out of business due to
predatory practices) to join some sort of class-action suit for

However, Microsoft has not broken any prima facie rules as far as I
can see (although I'm willing to accept the opinions of those more
informed than I); rather they have pushed so hard on the
interpretation of rules that depend on degree and context that the
judge's patience broke.  Thus any remedies, in justice to the
stockholders and other stakeholders in Microsoft, must be of the form
"OK, you've had your fun---now here's how you're going to have to
behave in the future."  Anything else is retrospective law, unfair and
tending to undermine respect for the whole judicial enterprise.
(Treble damages are not retrospective in this sense, they're part of
the known risks that corporations take in behaving aggressively toward

Taking due account of the inability of the leadership (Gates and
Ballmer) to judge where the boundary lies, they must be separated from
some of their power to cause harm; and given that they have set the
tone for the whole corporation, it's probably a good idea to break up
that corporate culture.  But this is not "punishment," it's "more in
sorrow than in anger."

I think Gates, Ballmer, and the rest of that cohort probably
overstepped the bounds beyond which "pushing the limits of
interpretation" became premeditated violations.  Proving that is
another matter, very difficult, and taking the difficulty into
account, probably not worth it.

Bernard Lang's argument about "giving excuses to do the right thing"
is valid as a general proposition; but my belief is that it is
preferable to have those pirates in the board room, where their
aggressive natures are (somewhat) channeled in (what is arguably) the
public interest, rather than out on the high seas of, say, politics.
As he points out, most ENArques do have public spirit and the public
interest somewhat at heart; but relying on that has done France a
disservice IMHO, both by stifling entrepreneurial spirit and by
permitting the inevitable sleazy fraction to do what comes naturally
to them.  I don't really think that trying to deter CEOs from pushing
the envelope can be effective or beneficial.

    shap> It shouldn't surprise any of us that the resulting corporate
    shap> culture is "take no prisoners" and has absolutely no regard
    shap> for the consequences of its actions.

Yes, and while you're putting Gates and Ballmer into the stocks you
should be sending demolition teams to the top ten business schools.
Companies that spend a lot of time and effort on taking and succoring
prisoners find themselves unable to feed their stakeholders.  At
least, that's what those business schools teach.  And that's what the
current parlous state of many larger European firms also teaches.

My personal opinion, following Feyd-Rautha Harkonnen, is that one is
much safer when one knows which hand holds the knife.  We know Bill
and Steve were out to get us, and how.  It's possible to make fairly
clear and enforcable rules against their worst actions.  It's much
harder to figure out what Dicks Nixon and Clinton [sic] were up to, or
what "W" or Al have in mind for 2001.  Even what the nature of an
acceptable and implementable solution to the relatively limited
problem of campaign finance might be seems beyond us (and the Germans,
as well).

Would you really rather have all the cunning and drive, that Bill
Gates turned into an industrial monument, in politics?  Or, worse yet,
have Bill Gates still at the head of MSFT and using that money and
power to buy off the Justice Department a la Boris the oligarch?  That
latter is just not worth doing in the U.S. where there is a modicum of
respect for the law, and violations of civil law result in fines and
exposure to treble damages, rather than the equivalent of corporate
capital punishment.

Of course I'm setting up a straw man.  But as Jonathan himself has
argued often enough, there are many grey areas.  I think it is silly
to set up more grey areas where the scrupulous will "do the right
thing" at the expense of their own stakeholders, and the unscrupulous
will continue as they always have.  Self-interest is not going to go
away; it is better to provide sharp incentives, and to angle them
toward the public interest by creating clearly delineated "off-limits"
areas of behavior with well-specified punishments for trespass, than
to create vague duties to be "well-behaved" that Solomon himself could
not adjudicate.

And it is true that at the margin the less room for creativity you
leave in the relatively well-defined business area, the more you drive
those creative and aggressive souls in the direction of the much more
ambiguous arena of politics.  Not a good thing, IMO.

    shap> corporations come to wield power in our lives in degree
    shap> comparable to that of the government, we will come to need
    shap> protections from that power.

This is true.  Of course, it's been true for hundreds of years.  But
the names of the corporations, and even the industries, in charge have
changed, and regularly too.  That may not be true in the future, but I
rather expect it will be.

    shap> In this regard the law is far
    shap> behind. The battle being waged about aggregation of personal
    shap> information in the US is a good example. Corporations are
    shap> putting in place systems and norms that will retain them in
    shap> power for a long time.

I think that in the case of the U.S. you would be surprised at how
quickly the law can catch up.  A few activist judges can probably
apply precedents in credit evaluation, eg, to browser cookies, say,
and create a lot of law in a hurry.  Civil law systems, like that of
France, and common law systems where the government is actively
pushing to strip citizens of their privacy (and the citizens and
judiciary are not so used to pushing back as they have been doing for
years in the U.S.), may find themselves much farther behind.  Of
course, creation of law via an activist judiciary may not be the best
way to go.

Either way, arguing that executives (and middle managers,
stockholders, and customers, apparently) should "just do the right
thing because it's right" is not going to overcome self-interest;
merely give advantages to those whose self-interest is strong enough
to outweigh such considerations of "duty."

    >> > What you are suggesting is that millions of retirees and
    >> > middle class investors should have their investments
    >> > destroyed.

    >> Why not... they take a risk ... they do not mind big wins, they
    >> should not mind larges losses. Isn't that the american way ?

    shap> Well, no. The middle class and retiree category basically
    shap> doesn't engage in high-risk investment. They invest for
    shap> long-term stability and steady growth.

I don't think that answers Bernard's point.  You get long-term
stability and steady growth by diversification.  If it were simply
risk, we could just ignore the source of the risk, once we've computed
the "beta".

The problem with nationalization as a "risk" is moral hazard on the
part of the government.  France again is a classic example, although
Brazil puts the issues into even more stark relief.  And, in the U.S.,
that it would require a capricious decision in violation of precedent,
thus greatly increasing risk in a way that doesn't have any clear
benefits to outweigh the clear defects.

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