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WeWork’s CEO Makes Millions as Landlord to WeWork (wsj.com)
624 points by dcgudeman 66 days ago | hide | past | web | favorite | 449 comments



Beyond the entire conversation about whether this is legal or illegal, and whether this is typical or atypical, there is a much more significant issue.

The entire image and “vibe” of this guy / his team is supposed to be an egalitarian re-invention of the status quo. The kibbutz story. The “community adjusted EBITDA.” The rebranding to “We.” But this sort of real estate self-dealing isn’t a We move, it’s a Me move. And thus, we find ourselves facing a bigger issue that is far more troubling if you’re a shareholder or employee (and somewhat enjoyable if you’re a competitor): the emperor has no clothes and the CEO is full of shit. He is self-serving and isn’t optimizing for the benefit of those around him.

As others in the tech industry are only beginning to figure out, once your curated narrative dies and the reality of who you really are comes to the surface, an unstoppable cycle of “bad press” and “negative sentiment” emerges. That’s a hard cycle to work out of, especially if the value of your company is predicated on your image / the image of the company. Hiring Obama’s speech writer and lobbying Congress doesn’t fix the underlying issue, and eventually you’re living in a Reverse Metcalf’s Law situation that’s scaling in the wrong direction.

As WeWork is built on an image of selling “a new, better way of working” to companies of all sizes, it becomes extremely problematic if people start to associate the brand with “the rich keep getting richer, and they’re screwing us over and working us to the bone along the way.” An image of a “collaborative enterprise” becomes a laughable fantasy novel next to the reality of, “we are funded by third world despots and our CEO is lining his pockets with as much of our money as possible, while scheming up ways to do petty things such as avoid paying the cleaning staff any sort of decent wages or benefits.”

This isn’t the We Company. It’s the Me Company. That’s not very innovative. That doesn’t foster greater productivity. And eventually, a lot of tenants aren’t going to pay for it, because it seems a lot of them really think they’re paying to be part of a progressive, futuristic environment. If their smartest and most progressive employees start telling them they don’t want to visit the office, they’re going to get rid of that office. Companies’ desire to please their knowledge workers — what originally drove WeWork’s success — thus ends up killing it.


I really don't know what you're talking about. I'm a WeWork customer - we rent an office at a WeWork for our small company.

We're not at WeWork because of hype, or the image of the CEO, or anything like that. We're at a WeWork because it's a cheap/easy way to get an office, that we can scale when the company grows with minimal issues since it's month to month. We shopped around a few competitors, WeWork happened to be the best combination of price vs. space vs. availability, so we went with that.

I haven't exactly done a poll, but I doubt that most WeWork customers know or care about WeWork's culture too much - they just need an office, and WeWork is providing a cost-effective solution. Maybe it's artificial because of VC money - if so, I certainly don't care - it'll be good while it lasts!

For contrast: at my previous company, we also wanted to move to an office (instead of working out of my apartment). We spent a huge amount of time looking at offices, and ended up staying put, because it was hard to find a decent office with a decent price, and signing up for a 2-year lease is a huge commitment which is not fun to make when you don't know the future size of the company - do you get lots more space than you need and pay extra? Do you get less space and are in a tough spot if you grow too fast?


> We're at a WeWork because it's a cheap/easy way to get an office, that we can scale when the company grows with minimal issues since it's month to month

Where is WeWork month to month? Yes the open plan area is month to month, but the instant you try to get a private room they want you to sign a 6 month commitment.

I have not gone to ones in the US, though. This is outside the US. Are they truly, genuinely cancel-any-time month to month? Or "yeah it's month to month but if you cancel before 6 months is up you have to pay 50% of the remaining months"?


I've managed WeWork leases in both SF and NYC and they were both month to month with a dedicated office. I think there is a 30 day out but it was pretty easy.

There is some variation between offices though, so entirely possible you had a different experience.


Alright, I am going to check again. Thanks!


I think that's fair. I also think you represent the initial use case and one that's still very relevant today. WeWork has made it clear though that real growth for them now needs to come from mid and large companies willing to use their services at scale and have had some success doing that. I would pivot a little away from OP's "human sentimental" angle and more towards "this obvious ethical lapse, and a board that can't or won't control it" will make those larger organizations pause before becoming too dependent upon WeWork.


I never got that image from WeWork. Anyone around during late 2008-2009 knows what happened to leases and rents. It seemed apparent from the beginning that WeWork was just exchanging future risk for current cash, and thus everything else was marketing farcical bullshit.

The fact that no one can actually do real work at a WeWork was just icing on the shit pie.


I'm currently in a non-WeWork co-working space. It's not clear what you mean with "The fact that no one can actually do real work at a WeWork was just icing on the shit pie.".


My guess is that this person is super angry about open plan offices


WeWork isn't an open plan office. At least, not the one I work in in London. We just pay an extraordinary amount of money for a small glass-walled room. We internally have an open plan office, but that's just because we opted for a single WeWork room.


At least in my NYC WeWork the sound isolation is so bad that it might as well be an open office. I can clearly hear all the phone conversations my WeWork neighbors make. I assume they can hear mine as well.


The two I've been in in seattle have been basically silent inside our office.


One of the reasons that I didn't sign up for a WeWork space was that it seemed to noisy. WeWork plans social events in the office every day.

I guess it's good if you like to meet people. Not so much if you need a quiet space to work.


Don’t they serve beer whole day there? Or have they stopped doing that? I guess that was seen as one reason why you couldn’t get serious work done.


in the book Disrupted (about the author's time working at Hubspot), he posits that the free beer offered at startups is to soften the blow of the long working hours and relatively low salaries.

In this case, the free beer might be an intentional way to take "loud room I can't work in", to "laid back atmosphere I feel home in". The latter is false, but it's not as bad as being stuck with "loud room I can't work in".


Different people have different fcactors effecting quality of life. Some people want something more laid back and are willing to give up salary. Others want to optimize salary and work at a big corporation. The market can take a number of strategies—it’s up to the employees to vote with their feet. Given the inherent instability of startups and if they in fact do it less, that vote should be easy to cast if someone is not satisfied.


Drinking or not drinking beer during the times you should be productive is a matter of self-discipline and I doubt it has any direct relation to productivity.

Disclaimer: I work in a private office in a London WeWork and the free beer is a nice to have, even if it wasn't a consideration while picking an office.


The place I'm in doesn't serve beer at all. I can see that not being great for productivity.


I tend to think the beer, or the bar serving it, are not the ones at fault.


> The entire image and “vibe” of this guy / his team is supposed to be an egalitarian re-invention of the status quo. The kibbutz story. The “community adjusted EBITDA.” The rebranding to “We.”

This is all just marketing. It's like believing all the actors in a commercial really are elated and blissful just because they chose the right brand of soda.


It's not. It's a product. Once you let go of the 'cool vibe' brand, you get an overpriced cowork and no one will use that.

Like a luxury alcohol makers, they are selling identity, not chair by hour.


In this case yes.

But I think it's very important to remember that companies can have moral standards and follow them. Many companies don't sell-out in crucial ways, and throwing one's hands up and condemning them all is punishing the ones that stay true.

I think moral outrage is a very important and effective market force. It will do things our government never could, like take down facebook. I'm glad we have this tool.


> But I think it's very important to remember that companies can have moral standards and follow them. Many companies don't sell-out in crucial ways, and throwing one's hands up and condemning them all is punishing the ones that stay true.

I agree, which is why I criticize shallow analysis of a company's motivation based on its skin-deep marketing veneer.

In this case it's not even moral standards - the implication is that WeWork's CEO is neglecting his fiduciary duty to maximize shareholder value by lining his pocket instead.

That's in fact a corruption of capitalism, it's illegal, and he can be sued for that by shareholders.

> I think moral outrage is a very important and effective market force.

I completely agree, which is why it's important to look beyond the marketing.

If a company can breach standards of morality and decency, but get away thanks to some 30 seconds commercial featuring smiling kids, then we will not be effective as a public in enforcing those very real consequences that companies should face for their actions.


To add to what the other commenter noted about varying levels of truth...

There is marketing of product and then marketing of company and then marketing of person/people. Not only does each have varying levels of truth, but each also has varying types of intent. The later in SV seems designed to encourage beliefs about a person or company that are immune to facts that counter them.

Branding it as marketing starts, to me, to sound like a convenient cover for propaganda.


Embracing militant veganism as a "marketing" gimmick, to name one example, sounds even more psychopathic than usual for marketing.


Marketing can be based on varying depths of truth. Generally speaking, the greater the depth the greater the long term value and efficacy of the marketing. (Marketing is not always a veneer.)


Either way, the truth value can be deduced by taking a hard, penetrating, objective look at the commercial entity, its policies, actions, and impacts.

It is not ascertained by buying into the shallowest outer layer of its marketing veneer.


Absolutely.


petty things such as avoid paying the cleaning staff any sort of decent wages or benefits.”

It’s pathological. WeWork, Google, Facebook and all the rest don’t need to shaft their cleaners, catering staff, security guards etc. The cost is a rounding error and it’s directly antithetical to their stated brand values. But they just can’t help themselves.


I believe there was a NYT story posted last year about how all custodial services are contracted out these days, and ye olde American success story of 'going from the janitor supply closet to the boardroom' was gone forever. The used an example of a cleaner at HP in the early '80s who became a manager of some sort.

The comments on that article? Mostly something along the lines of "maximizing shareholder value" and "fiduciary duty to the corporation". Anything to avoid having to admit that this is wrong.


I remember a similar story but from Kodak. I think the shareholder narrative and the race to the bottom started in the 70/80s has lead to the current situation. Short term mentality and spreadsheet driven management has taken a toll on the American dream. It seems like the last blue collar stronghold- drivers- is the one under siege right now and bound to collapse in the coming decade(s?). It does worry me to think about easily we are able to brush that aspect of technology to the back of our minds and pretend it’s not going to affect almost everybody in one way or another


I think Kodak was the company in the article, actually.

> Short term mentality and spreadsheet driven management has taken a toll on the American dream.

Yes, but stock market growth since the '80s is a big reason why the "wealth" of the average American has increased, even though wages have stagnated and debt has increased. One hand has been feeding the other for a long time.


Sadly, this is the way that IT is going as well. It's getting harder to start at the help desk and work your way into a real position anywhere. When we interviewed for a Desktop Support person, 80% (my guesstimate) of our applicants only had (limited) access to the Office 365 portal, performed basic password resets, and did shit-work like wipe drives. They were totally silo'd out of being able to grow. They weren't even given local admin permissions on workstations to be able to do any real troubleshooting.

Of course, all this is in the name of "security" and the least-privilege thing. It's horse shit really. You need to be able to trust your employees and then audit. But it's easier to manage people when you can just lock them into a position and leave them there to rot.


Helpdesk?! Outsourced development for major institutions is done that the developer has a remote access to the virtual machine with the IDE, repository cloned, etc. Growth? Your are a JAVA+Angular whore. Complaints? This workplace is for team-players only. Fired? Revoke the access with one click.


WeWork’s customers are also maintaining their own curated narrative. Many of them don’t actually care about ideology, they just want a hip co-working space where they can drink beer and socialize with other startups and “crush it” everyday.

It’s only fitting that the owner would also be full of shit.


I won't vote you down, but I think this is a pretty gross generalisation, is it not?

For every person shouting about crushing it and hammering back booze there are another handful quietly getting on with their work, happy to have an office space with stable, fast internet, clean, stocked kitchens, 24 hour access and clean, comfortable spaces - where they don't have to worry about sorting bills and contracts, cleaners, etc etc etc.


I'm genuinely curious. WeWork seems seriously over priced. At one person it's maybe 25%-50% more then else where. At 4 people it's like 300% more and keeps getting worse.

A couple of examples. Friends in Pasadena have an office that could fit 6 comfortably, 8 less so. $1300 a month. Guy at WeWork 1 block way, $1100 a month for an office just big enough to fit one desk.

A "hot desk" in Tokyo is $490 a month where as at my co-working space my dedicated desk is $400 a month. That includes "fast internet", meeting rooms, printers, copiers, cheap snacks, receptionist, networking events, cleaners, open 24/7 etc... The rent 3 person private office for $1k where as WeWork a single person private office is $1100.

They claim "coffee". Hardly seems like coffee is work $1k a month. Besides, there's probably 11 craft coffee places withing a 3 minute walk of my office.

And it's not an exception, there's been an explosion of co-working / shared office spaces in Tokyo over the last 2-4 years.


Speaking of coffee, so many people think that you need to go to some hip overpriced place to get caffeine. It's not true, and they are all just complete idiots hypnotized by marketing. I can literally buy a 6 lb tub of restaurant-quality instant coffee for the cost of about 15-20 of the overpriced "pour overs" you can get from your local hipster who went to barista school.

The great thing about instant coffee is that you don't even need hot water to make it. I've found that it mixes up great with cold water in one of those protein drink shakers with the little springy balls.

This is awesome because there's no heat or hot water in the storage unit I'm renting. That's a subject for another post, but I just need a parka and a pair of fingerless gloves to get the exact same experience as those co-working hipsters. Plus, I'm not subjected to the torture of an open plan office. My unit is in the basement, and it's dead quiet.

I'm sitting here, only five subway stops away from the fancy WeWork downtown, laughing my ass off at the startup bros high-fiving and "crushing it". I've got a way better experience, and all in I'm saving like $100-200 per month over those hipster bros.


Sounds fine if you don't care too much how your coffee tastes. Granted, buying coffee from a cafe always comes with a markup, but nice fresh-ground coffee beans (which you can also do at home and do pour over if you want) definitely beat instant coffee.


Aeropress + an electric kettle == pretty good coffee with roughly the hassle factor of instant.

Honestly, I think it's even decent with coffee that's ground ahead of time if it's stored well. Alternatively you can use it to make coffee concentrate that will keep for a few days in a fridge.


Grandparent is definitely being sarcastic...


No he’s not? I didn’t find that post particularly sarcastic, caffeine is just a chemical. If all you care about is getting a quick fix all the extra taste and ceremony has no added value.


I was unsure myself until I got to this:

"This is awesome because there's no heat or hot water in the storage unit I'm renting. That's a subject for another post, but I just need a parka and a pair of fingerless gloves to get the exact same experience as those co-working hipsters."

a spectacular work of satire


There's a big difference in taste between cold instant coffee and a pour over. If you don't care about the coffee itself, I suggest caffeine pills. A half pill is equal to a cup of coffee and you can get the equivalent of 200 cups for $10.


Wow, I literally cannot tell if this comment is trying to sarcastic or serious.


Same here. I read it 3 times and am still unsure. Leaning towards sarcastic, though. I think it's just really subtle satire.


What instant coffee brand do you recommend?


I hypothesize that every university main campus has, nearby, a small-business incubator building with individual offices for lease. And I suspect that a good percentage of commuter campuses have them, too. If those are unavailable, class B office space is readily available in single-story strip-mall form, and sometimes old industrial buildings get converted to class C.

Your startup business probably does not require couches, stocked kitchens, and wi-fi. It needs a mailing address, a phone number, a website, and a way for people to pay you. Those folding tables from Costco will still be useful after you can afford real desks.


You can get 90% of that for a half or quarter the cost at a B grade office building, and not deal with noisy neighbors or occupied conference rooms. It usually takes committing to a contract, but if you're not ready to do that you probably don't need office space.


Just to counter your point - I worked from home as a freelancer for about 4 years. I decided I wanted separation between church and state, as it were. Definitely wasn't ready for a contract, but have been in a WeWork for 3+ years now (and am still happy to not have to commit to location/broadband/cleaner/whatever). I'm sure I could have paid for cheaper work space (although, London) - but the money I've made from meeting people here and chatting over lunch / coffee that I didn't have when I worked from home and attended meetups has more than covered everything I've spent. Not to mention my productivity increased noticeably.


Except there's no free beer anymore.

Which should tell you something's up with their finances.


  As part of an investment round for WeWork in 2014, he was 
  granted Class B shares that gave him 10 votes per share, 
  and now he has more than 65% of the overall share vote, 
  according to WeWork corporate filings.
These multi-class ownership structures need to be reformed. The SEC is already thinking about it [0].

[0]- https://www.sec.gov/news/speech/perpetual-dual-class-stock-c...


> he has more than 65% of the overall share vote

So when WeWork responded with

-"The board is aware of it and has approved it"

they probably meant

-"Neuman is aware of it and has approved it" right ?


Don't think so. Corporate boards still go with one person, one vote, not percentage weighted.


Who do you think selects the directors?


Why? Everybody who bought those shares knew exactly what they were buying.


Well, one could argue the more complex the ownership structure is capable of being, the more opportunity for abuse arises.

For example, by saying he has "special" shares that grant him 10x the votes of "normal" shares, he can sell way more than 50% of the company and retain 100% control.

This means shareholders are 100% along for the ride, and get no say in how he runs the business.

I could see a strong argument for the SEC coming down hard and saying "Okay, enough is enough. 1 share, 1 vote."


If a shareholder doesn't want to invest in a company with multi-class shares or defense industry ties or tobacco or whatever, they can opt out.


You can use the same reasoning to justify a large variety of predatory tactics, and scams.

"Buyer beware" doesn't absolve a practice of being, at the very least, scummy.


To be predatory it has to be deceptive or complex in a way that leads people to misunderstand. This is not the case here. It is crystal clear that a non voting share gives the buyer no control over the company, and if he buyer accepts that then he should get no such control.


What's complex is the ownership structure of any company with multiple classes of shares, especially with different voting weightings.

Simple would be "1 share = 1 vote".

-----

What's deceptive is the conflict of interest he created for himself that makes it unclear whether or not he is actually fulfilling his fiduciary duty.

Clear and conflict-free would be renting from someone unrelated, and renting his building out to different company.


I was made more likely to invest in Facebook and Google because of the multi-share structures. I believe that having control and financial ownership separate concepts can be a good thing, provided those with control have a stronger/better vision than the aggregate of the investors.

This is not some underhanded, secret dealing. It's very much publicized. That makes it "not a scam" IMO.


I never said that multi-class shares are a scam. This is a straw man argument.

EDIT: To clarify, almost every scam involves the victim doing something of their own free will. Either they do not have all the information they need, or they do something based on trust which is then betrayed.

So saying scams are okay because people can just not fall for them is completely asinine.

In this case, you could argue that WeWork's shareholders have been "scammed" because they trusted that the CEO would act in WeWork's best interest, not his own. However, one could argue that he violated his fiduciary duty in renting office space for WeWork from himself at questionable rent prices.

The reason he was interest and able to do that, profitably, was that he actually owns a relatively low % of WeWork's stock. So he can use his 65% voting power to decide to do this, WeWork loses on the rent each month, and he basically profits by over 80% of WeWork's loss.

He's in a position where if he steals $100 from WeWork, then his shares drop by less than $20. Because he has majority control, the board can't do anything about it unless they or the SEC decides he's gone too far and is into fraud territory.

What enables his insane margins there is the 10x vote weighting he gave his own shares. If it were 1 vote = 1 share then he'd steal $100 and profit $35. Still incentive, but not TRIPLE the incentive.

EDIT: To further clarify what I mean by "stealing" is this... let's say the rent would usually be $1000 a month for the space. If he's charging WeWork $1100 a month, he's stealing $100 a month from his own company.


I'm not opposed to the use of multi-class shares in private companies, but for public companies I think that they should be phased out in line with the proposal from the SEC commissioner's speech. The self-dealing in the OP is another matter entirely -- and potentially worthy of a shareholder lawsuit for breach of fiduciary duty.


There are two sides to the coin, a good founder/CEO that has a controlling interest in the company can make long term strategic plans without fear of repercussions from short sighted investors.


But you can be a good founder/CEO and have a controlling interest in the company without using multi-class shares if you simply retain the majority of shares.

Problems such as the one mentioned in this article start occurring when multi-class share schemes start allowing the founder to effectively sell off most of the company while still retaining total control.


Read the SEC commissioner's speech that I linked, seriously. He doesn't propose banning them entirely, just phasing them out over a period of time. Clearly there is a flipside to carte blanche founder control when the CEO/Founder is underperforming yet can't be removed (e.g. Evan Spiegel).

Do you think Mark Zuckerberg's children should retain majority control of Facebook after he dies?


Solution: Disallow inheritance of company shares.


Non-voting shares especially illustrate at least one of two things:

1. How divorced the financial markets are from the real economy.

2. How broken all our voting systems are.

Choose your narrative.


Both.

2008 didn't substantively re-tether the financial markets to the real economy.

Governance mechanisms are beginning to crack.


How about (active) investors? Why wouldn't they shy away from that kind of deal?


Too much VC money chasing too few deals. They didn't have a choice, he could have just gotten the money elsewhere.


Can someone introduce me to these desperate venture capitalists making poorly researched deals?


Make a company with a 47 billion dollar valuation and those "desperate" venture capitalists will introduce themselves.


Revenues and/or profit not required.


There is a competitive element when lots of VC money is chasing hot investments — the company has leverage to get investors to accept unfavorable terms. It is an aspect of our bubbly financial climate, like the boom in "covenant-lite" loans.

Also, there is a Ponzi-like aspect to VC funding in general, where incentives favor ever-rising valuations rather than the cultivation of sustainable, profitable businesses.


Yes, this will be really good to do.


It’d give even fewer incentives to take a company public.


Unnecessary, no one is being duped into investing in a business in which they have no say. If they deem it's worth the additional agency risk, then they should be able to afford it, if not, they and others will learn going forward.


But it still perpetuates a class system whereby having money and influence yields (potentially) more money and influence. Main Street investors who will have no say at scale should not be excluded from participating in the wealth creation.

Certainly this is not a natural or easy problem, it requires a values analysis of our goals and principles. But if we truly want the market to evaluate a company, we must ultimately allow that market to change the fate of a company. The dual class shares prevent that, which I agree should be listed differently or restricted.

For example, if dual class shares were always subject to a confidence vote by the other shares once per 5 years, this is fine. Or you say that after 20 years the dual class must be dissolved. Allow the use for initial listing, but not forever. I think the author of the linked speech painted a very good picture of this.


There seems to be an archetype in silicon valley today of people viewing companies basically just as convenient extensions of themselves rather than distinct legal entities with separate interests.

Why would a WeWork object to paying Neumann's rent? WeWork is bascially Neumann anyway! Why would Tesla object to buying Musk's other companies? Tesla is basically Musk anyway! Why wouldn't levandowski just employ his own company to supply components he was procuring for Google? Why wouldn't Shkreli pay his hedge fund investors back with cash from one of his other companies?

It's amazing how often 'innovation' and business success turns into corrupt self-enrichment. Unfortunately justice tends to only come once someone suitably senior gets screwed. With Levandowski that was Google, with Shkreli that was the government. I suspect with WeWork the law suits will come the second the investment value drops - investors won't do a thing until they start losing money, rather than just making less money than they otherwise would have.


Not just in silicon valley by a long way.

MG Rover: https://insolvencyandlaw.co.uk/why-didnt-insolvency-service-...

BHS: https://www.theguardian.com/business/2018/mar/27/philip-gree... / https://www.theguardian.com/business/2017/feb/28/philip-gree...

Maplin: https://www.taxresearch.org.uk/Blog/2018/02/28/40831/

(fundamentally in a capitalist society that recognises no moral restraint on money and it's not illegal ... why not? Surely you take as much money from the investors as you can and pocket exactly as much as you can get away with without being prosecuted? Anything less would be economically inefficient! /s)


It's worth noting that luminary capitalists like Adam Smith were very much concerned with privately enabled rent seekers in addition to government enabled ones.

There's nothing inherently capitalist about corruption. It's a property of power, not capitalism.


Thought this was fascinating when I read WON.

Worth mentioning, Smith was primarily concerned when anyone had an unfair market advantage that would ruin the state of equilibrium.


And in reality, when/where can we find an actual state of equilibrium where no one has an unfair market advantage?

Here's an anecdote: I've received hundreds of thousands of euros from my parents (in my early 30's), they fully paid my education in a well-known private lycée, a nice "classe prépa", an expensive French business school. They paid everything until I get a highly paid job in a European startup, incl. some student exchange programmes abroad. I'm getting dozens of €K a year as gifts (with absolutely zero taxes). I own a big flat in one of the most expensive city in the world (where prices keep rising), and tones of shares on the stock market (4x in a few years, thank you Wall Street). My gains on the sale of these stocks are taxed far below my salary, so I'm not working too much (I'm already saving 2/3 your yearly revenues, and own ~6x the median wealth in my country). etc. You probably get the point. I'd be glad if anyone can explain how I'm not taking advantage of an extremely unfair advantage, and what Smith (or any other liberal economist) suggests to reach a state of equilibrium where I have to compete fairly with my fellow citizens.


There may have been more actual equilibrium in Smith's time. Mayer-Schonberger (Oxford) pointed out that, "...price is compromised by the very fact that it abridges the information available to the market." The conclusion, of his interesting but incomplete argument, is that price (traditionally understood) becomes increasingly untethered to reality as the digital economy overtakes the physical.


One could argue that looking far enough back, certain types of unfair advantage might only get reset by mobs with torches and pitchforks (or, more recently, yellow jackets).


I agree with you. Another way of saying this is that corruption is a property of human nature.

It seems that the most persistent problems we face often are. We can change our system of economic organization and politics but in the end the system is made up of individuals. Individuals who have all the same sort of flaws and who struggle with their human nature. It takes a lot of will and effort for a person to behave honestly and ethically. The interaction of peoples behaviors and the system they are in is a two way street.

I guess what I am saying is that we need to do the hard work of behaving better ourselves if we want to make our industry, community etc a better place.


> I agree with you. Another way of saying this is that corruption is a property of human nature.

Although this may be correct, it could also be the case that some systems nurture such "corruption" more than others. Changed societies produce changed people. For example, the widespread desire for fame only arose around the start of the 15th century but it really does seem quite natural to us now. A famous economist once wrote,

>Economists have a singular method of procedure. There are only two kinds of institutions for them, artificial and natural. The institutions of feudalism are artificial institutions, those of the bourgeoisie are natural institutions. In this, they resemble the theologians, who likewise establish two kinds of religion. Every religion which is not theirs is an invention of men, while their own is an emanation from God. When the economists say that present-day relations – the relations of bourgeois production – are natural, they imply that these are the relations in which wealth is created and productive forces developed in conformity with the laws of nature. These relations therefore are themselves natural laws independent of the influence of time. They are eternal laws which must always govern society. Thus, there has been history, but there is no longer any. There has been history, since there were the institutions of feudalism, and in these institutions of feudalism we find quite different relations of production from those of bourgeois society, which the economists try to pass off as natural and as such, eternal.


It is not a property of human nature. It is endemic in human societies. That hair splits easily, if your knife is sharp enough.

We tolerate the corruption that comes with certain societal structures, because we gain more by having them than we lose from the corruption. You can't scale anything to national or international size without introducing a principal-agent problem.


It is not a property of human nature. It is endemic in human societies.

Pardon me, but I'm not immediately seeing the distinction, maybe I've read the statement wrong and found the wrong conclusion. Can you clarify/unpack that statement a bit? If it's not a property of human nature, how is it then endemic in human societies?

Does not the second sentence you're offering here completely betray the first?


The moral constraints on a human person are not the same as those on a human society. To say corruption is a property of human nature is to suggest that everyone is willing to be a source of corruption, rather than to suggest that everyone can be made to support the corruption of others under certain conditions.


Assume, only for the purposes of argument, that 10% of all humans would betray trust for personal gain.

In a close-knit, tribal society, limited by the human brain capacity for maintaining personal relationships, where everyone knows everybody else, it is not very profitable to betray a trust. After the first time someone does it, many of their peers revoke their trust, and that person then has to re-earn enough of it to reneg again. Each time, it becomes harder to get ahead.

In order to grow societies of larger sizes, we instituted trust-by-default relationships, just to make goods move from the loading docks. If human nature is 90% trustworthy, this is 90% safe. The remaining 10% can be dealt with via retaliatory mechanisms: bond revocation, lawsuits, arrests, etc. As long as the individual responsible can be identified, and punished, there is significant disincentive to reneg.

To grow larger still, we instituted pseudo-anonymous legal fictions. We started doing business with companies, instead of people. This provided an opening for the renegade 10%. They could let the company establish trust, take control of it or a portion of it, betray the trust for personal gain, and let the corporate shell take the brunt of retaliation--if anyone ever even found out about the betrayal. The type of person who would become corrupt is drawn to positions that are corruptible: the bosses of businesses and bureaucracies, and the cronies and collaborators of those corrupt bosses. The ultimate goal of a corrupt person is to be the fox in charge of a henhouse--nay, in charge of a whole poultry farm.

Whenever we rely on structure rather than people to manage societal complexity, the structures may be attacked whenever no one else is looking. The corporation cannot refuse to do as the CEO demands, as it has no will of its own. You can't watch everyone all the time; we just can't afford the costs of that kind of labor, that only humans can do. And whatever human oversight mechanism you may institute can then be infiltrated by the corrupt 10%, who can collude to profit from failure in oversight.

Qui custodiet custodes? It's corrupt cop-watching cops, all the way down.

It's like an auto-immune disorder. How can your body possibly defend itself from its own immune system, at the same time as all the foreign pathogens? So the corruption becomes endemic, because there are not enough people watching to keep everybody honest all the time.

If you put out a tray of goods with a price label and honor box, 90% of people will pay the correct amount if they take something. It only takes one renegade to empty the tray, break open the honor box, and ruin the whole thing for everyone. Or even just to take goods from the tray without paying, one at a time, until the profits are all gone. It's not worth paying someone to watch one tray. So set up a camera to watch it. That just adds a separate camera-disabling step for the renegade. Put up a camera-watching camera. The renegade tapes a photo of the tray-watching camera over the lens, disables it, then loots the tray. It's an arms race. The only way to win is to put another human in the loop, and the instant you do that, you have to pay them, and then your profit margin is shot. Besides that, there's always the 10% possibility that the person you pay to watch your tray is a corruptible individual, and they'll just go halfsies with the tray-looter.


Capitalism, as a class, is only meaningful in the sense that it provides some sort of constraint on free enterprise, otherwise capitalism doesn't mean anything at all. If it fails to apply a constraint on free enterprise that fails to address some fundamental corruption, then yes, that is a failure of the constraint.


"Capitalism produces corruption" is not the same as "there's something inherently capitalist about corruption".


I was responding that power produces corruption. There's no incorruptible alternative to capitalism because any alternative still gives people power to abuse.


I think there is still room to explore "less corruptible" alternatives. It is easy to fall into the "law of excluded middle" trap. If we are only willing to accept an incorruptible alternative to a current system then we are not likely to make progress.


I mean, this is how we ended up where we are today: we've been iterating on the set of laws and regulations surrounding the economy finding the best tradeoffs and we're yet to find something perfect. The problem is that that discussion tends to get into rather technocratic, wonky territory pretty quickly and bores people a hell of a lot more than making crazy eyes at the audience and ranting about political revolutions.


If it's a matter of degree, it generally seems like alternatives to capitalism perform worse (world wars, Stalin murdering 16 million, Mao's five year plan). Capital is a rather decentralized form of power, and typically to make any of it, you must put your own assets, resources, or time at risk. Except in edge cases which might not really be capitalism (slavery, central banking e.g.) you also can't accrue more capital without at least exchanging for something someone else wants, making it non-zero-sum and distributive, which is not the case for say political power.


> it generally seems like alternatives to capitalism perform worse (world wars, Stalin murdering 16 million, Mao's five year plan).

> Except in edge cases which might not really be capitalism

Oh well then those weren't real communism either. /s

You aren't wrong, but it's worth noting that the US protection of capitalism (more or less) was a pretty awful force throughout the 20th century.


absolutely. "War is a Racket" is on my desk right now. But literally everything was terrible in the 20th century. Still yet, as a proportion of world population things in the 20th century were arguably better than before, and the sins of state-sponsored capitalism were vastly vastly smaller in magnitude than state-sponsored "alternatives-to-capitalism", without even taking credit for the huge swaths of population whose quality of life has risen from subsistence due to it. Would you rather have one Stalin or five x (US invasions of Haiti, Nicaragua, and Iraq)? I know which I pick, every time.

Moreover, in its idealized form, capitalism has less of the state, whereas in its ideal form, marxism/communism has strong involvement of the state, versus classical socialism/anarchism in the Proudhon/Benjamin Tucker sense. There's even an essay by Tucker from the 19th century where he predicts the rise of leninism, gulags, venezuela-like conditions etc, as a natural consequence of Marxism, long before they even happen.


It's interesting you mention World Wars in reference to alternative systems. "Merchants of Death", in the case of the US and capitalism, instantly comes to mind.

Otherwise, there are many contemporary examples of concentration of capital. Whether it is distributive isn't the question, but more the trends of distribution.

It's also quite interesting you mention central banks here, considering the substantial evidence of bulge bracket banks acting as an antithesis to your statement about risk (i.e "too big to fail").


Central banking is not a necessary component of capitalism per se, it's just a feature of our current iteration.


Isn't this the "no true Scotsman" fallacy? Socialism would also have worked, we just didn't implement the _true_ kind.

I think it's only fair to judge the entire reality surrounding an economic system.


The OP didn't say that it has to work perfectly to work. Capitalism just has to be better than the alternatives and society needs to do its best to fight back against the corruption and cronyism which corrupts it.

Too often people want to abandon markets and replace it with something that solves some of the problems but introduce tons of their own, instead of fixing obvious problems within the current system that was otherwise working well.

The better solution is a bunch of smaller experiments being run simultaneously in large economies (Ala at the state level) to see what works best. Instead of pretending we can have a one-size-fits-all best solution for the entire world.


Wouldn't the argument be the other way around, that capitalism is inherently corrupt?

Same as any other system which allows largely unchecked power.


>There's nothing inherently capitalist about corruption. It's a property of power, not capitalism.

That's the same argument that says "USSR/DDR/Cambodia/NK/etc was no real communism".

We might excuse a few diversions from a political/economic system, but after some point, like with anything else, capitalism is what capitalism does time and again.


Not sure this makes sense to me? There's corruption in every system, regardless of the ideology behind it. Are you saying there's no corruption in communism? Because I have news for you, if you do.

It seems like corruption is simply endemic to the human condition. It has nothing to do with capitalism/communism/etc. Whatever the system happens to be, we will find a way to corrupt it.


It doesn't appear to be what this person is saying. Rather, that we can't deflect from flaws in ideology having to do with the system in place, and the issues that stem from that.

Having said that, I find it to be rather unproductive and pessimistic to assert corruption is endemic to humanity and has nothing to do with ideology. Instead I would argue that the nature of the corruption has everything to do with the ideological foundations of said system.


> Having said that, I find it to be rather unproductive and pessimistic to assert corruption is endemic to humanity and has nothing to do with ideology. Instead I would argue that the nature of the corruption has everything to do with the ideological foundations of said system.

This kind of blank-slate, "New Soviet Man" idea has been tested and found lacking.


> Instead I would argue that the nature of the corruption has everything to do with the ideological foundations of said system.

How so? Is corruption different somehow depending on the ideological foundations of the system? Corruption is corruption. Every system has rules. When you subvert those rules for personal gain, that's corruption.


>How so? Is corruption different somehow depending on the ideological foundations of the system?

Of course.

Different systems enable, empower, and encourage, different types of corruption.

(Corruption being an abstract word, in programming terms there's no corruption "class", just corruption instances. So the nature of those corruption instances depend on the classes defined in the program -e.g. capitalism.c- you're running...).

(And of course share some basic corruption types, present in all societies/systems, e.g. theft -- the POSIX of corruption).


We're now pretty deep in this thread and you still haven't given a single example?


We've started the thread with concrete examples...

Check the @pjc50, @Traster etc comments at the top.

And @humanrebar already put this in abstract form: "It's worth noting that luminary capitalists like Adam Smith were very much concerned with privately enabled rent seekers in addition to government enabled ones"


> Check the @pjc50, @Traster etc comments at the top.

Those are specific examples of corruption here in the US. Are you asserting that you wouldn't be able to find the same corruption, for example, in China?

Please provide a single example of corruption that can occur under capitalism, but wouldn't occur under another economic system. Because I'm asserting they do not exist.

> And @humanrebar already put this in abstract form: "It's worth noting that luminary capitalists like Adam Smith were very much concerned with privately enabled rent seekers in addition to government enabled ones"

Yes, he was perfectly right to. There are always private parties. Even under communism.


>Not sure this makes sense to me? There's corruption in every system, regardless of the ideology behind it

I'm saying that some types of corruption are endemic to certain systems. And if we see these types of corruption time and again on a system, then the system enables that type of corruption.

>It seems like corruption is simply endemic to the human condition. It has nothing to do with capitalism/communism/etc. Whatever the system happens to be, we will find a way to corrupt it.

My argument wasn't about corruption in general (which we will always have under every system), but about a certain type of enterprise-related corruption, that can't be brushed away by "no true Scotsman/capitalism", as if 'truly adhering' to the ways of capitalism would eliminate it.


> a certain type of enterprise-related corruption, that can't be brushed away

If a system of government promotes X then there will appear X-related corruption. Capitalist governments promote enterprises, thus appears enterprise-related correction. Governments which promote the church will foster church-related corruption, etc. etc..

I don't see how this observation about capitalism is a particularly interesting one. Perhaps you could make some ground with "and capitalism uniquely allows this corruption to flourish on a scale never seen before" but that's not what I've seen in these kind of kneejerk criticisms.


Capitalist governments promote enterprises, thus appears enterprise-related correction. Governments which promote the church will foster church-related corruption, etc. etc..

Governments which are the party will promote party corruption. [looks at China] Yup. Checks out.


I wasn't making a no true capitalism argument. I was responding to the implicit straw man that ties capitalism to apathy or complicity about corruption. Capitalists care about private corruption. They always have. That's why there are laws and norms around fraud, nepotism, embezzling, and white collar crime in general.

Just because people are creative and invent new ways to be corrupt doesn't mean captilist societies are indifferent.

I would expect people skeptical towards corporations to see some common ground here.


It is. That's the whole point of having systems to regulate it. When those systems are overridden by, in effect, collective freeloaders, any system breaks down.


> We might excuse a few diversions from a political/economic system, but after some point, like with anything else, capitalism is what capitalism does time and again.

And by that standard, I'll take capitalism every day of the week:

https://ourworldindata.org/grapher/world-population-in-extre...


It's worth noting that almost no traditional anti-capitalist or Communist argument relies on doubting the extensive evidence that widespread lifting from poverty is the result of capitalism and even fewer would disagree with the fact that such development has occured under capitalism. Marx famously declared that workers must be "doubly free": firstly free to sell their labour how they like, and secondly freed from the means of production and the products they make.

A good deal of research justifiably focuses on what life is actually like and the nature of exploitation in capitalist societies, and especially under neoliberalism. I'd point you to the work of D.K. Foley, Dumenil and Levy, Roberto Veneziani, Naoki Yoshihara, G.A. Cohen and John Roemer on those points.


Yes, perhaps Marxism was done a disservice by trying to impose it on agrarian, aristocratic civilizations like Russia and China instead of industrialized, capitalist civilizations like Germany and the United States. The history of Soviet industrialization under Stalin almost reads more like a Marxist caricature of industrial capitalism. And it was probably also done a disservice by the fact that when it was imposed on industrialized countries, it was done so at force and after significant devastation and confiscation of any remaining valuable industrial equipment (e.g. East Germany). However, it's also clear that 19th century industrial capitalism never really led to Marxist revolution.


The USSR never had communism. The official party line always was that it is a socialist state, on the way to communism. And once they reach full communism things will be really good.


Yes, that is indeed the argument that coldtea is talking about.


I don’t know why I am downvoted, I only stated a fact. At least USSR were honest about it.


Coldtea was referencing the very protestation you cited uncritically, so your comment added little to the conversation and appeared to be missing the point.


It was offical party line and tought in schools though. It was in school curriculum that USSR was a socialist system which should eventually lead to a communist society but it was not yet communism but more of a staging area which should lead there in the end.


Right, but the argument from the other side is that "real communism" can't be reached. It's a myth. What you get with the Soviets is the real communism.

That sort of ignores the actual theory of communism, but so far it's a pretty accurate assessment.


The point is that exploitation (of the people, the system, etc) for personal gain has nothing to do with capitalism, or socialism, or any other system.

Some people will do that in any system, it's human nature.

Now, in a system that has the rule of law you cannot be prevented to do something that isn't illegal. This is actually the best (or least bad) system we've come up with.

It's childish to blame capitalism.


> Now, in a system that has the rule of law you cannot be prevented to do something that isn't illegal.

In a systme that has the rule of law, the lawmakers can choose to make certain behaviours legal if or when they harm the society. For example, private and corporate tax loopholes can be closed, and corrupt behavior can be outlawed or a liability instituted that the harmed party can claim.

It's childish not to blame capitalist governments for allowing certain kinds of corruption that are left to fester.


Of course it is up to lawmakers to decide. Nothing to do with my point or capitalism, though.


Capitalism cannot function without people exploiting the system for personal gain. If some CEO decided to stop trying to make as much money as possible but rather commit their resources to providing some sort of public good, they would be succinctly ousted by the board. Or their firm would tank, because companies that don't put profit first can't survive on the market.

Jeff Bezos can amass $100 billion in wealth and donate it to philanthropic causes, but if he decided to open source AWS or pay his workers a living wage, or pay publishers a reasonable price for books, etc, he wouldn't have $100 billion in the first place.


> Or their firm would tank, because companies that don't put profit first can't survive on the market.

I would argue that this is not strictly speaking true. There are successful companies which don't (seemingly) put profit first. Examples include Morning Star (tomatoes, not the newspaper)[1], Mondragon[2] and perhaps most co-operatives in general.

[1] http://www.morningstarco.com/

[2] https://www.mondragon-corporation.com/en/


One aspect that is often overlooked is that it is necessary to balance the books. This is an universal requirement when resources aren't unlimited and it applies to physics, biology, and economics.

Capitalism very clearly and unapologetically forces this, while some people imagine that, somehow, that constraint does not apply in other systems.


> “Capitalism cannot function without people exploiting the system for personal gain.”

no, that’s too strong a claim. capitalism’s innovation is that it redirects greed into productive uses and allows personal gain in the process. so it explicitly accounts for our greed but doesn’t depend on it. it allows more pro-social forms of trade and competition as well.

the reason it seems so heartless/exploitative is that highly competitive markets push the competitors to extremes and money is used to keep score. and people cheat easily; some not to lose, some to win at all costs. (even in non-highly competitive markets this happens if status is highly sought by owners/execs)


> Capitalism cannot function without people exploiting the system for personal gain.

What national economic system can function without people exploiting the system for personal gain?


I often wonder about this, and here’s my (u/dys)topian vision:

The top 5% of children in some measure of ideal traits for just ruling are whisked away to a bubble where they are educated for the purpose of governing, with no opportunity to ever rejoin the general populace. They have absolute power but no opportunity to benefit themselves or their families.

That or we could tax externalities globally.


Socialism, ie a system whereby resources are allocated according to some sort of public good as opposed to mere expansion of capital


Are you suggesting that in practice under a socialist system corruption doesn't take place, or just in theory?


I'm saying a small number of people amassing a large amount of wealth through exploitation of the labor of others for personal gain is not what drives a socialist economy. Corruption and exploitation exists in all societies, but in capitalism it is a necessary element for the function to survive. There is no non-exploitative, fair capitalism.


Is there non-explotative, fair socialism?


Redistributing a shrinking pie. Sounds like a great plan.


Capitalism is the only system that limits the corruption. Unless the people are being forced to work/buy/sell with amazon, they are by definition not being exploited. Bezos is the richest person in the world because he provided a better service with a focus on long term profit. The world is different now because of it and people think its better because they are choosing to do it.


Bezos didn't build Amazon or AWS, his workers did. He contributed as CEO, but the work was done by thousands of smart, hard-working and talented people around the world, but they don't own the company. Bezos's salary is just $80,000 a year -- his wealth doesn't come from the work he does for Amazon but the fact that he is the one who owns the capital and reaps the profit.


such salaries are exhibit #1 for why we need to equalize taxes between capital and labor (e.g., recognize capital gains as ordinary income)


> Bezos's salary is just $80,000 a year

So he's not subject to max SSN and Medicare taxes?


There is no cap for Medicare taxation.


His workers would not have built it if he had not directed them to do it and provided them the resources to do it.


That's correct, but why does he have the resources to do it? Because he came from a rich family with capital to invest. Why isn't capital distributed evenly across all workers, not just of Amazon, but in an entire society, so that everyone shares in the profits instead of one man? What is exceptional about the fact that he had the capital to make an initial investment, why does that mean he should be a billionaire? We invested collectively in the technology that created the internet in the first place through publicly funded research, and yet we do not see the material benefits, only a small few do.


What would it mean for capital to be distributed evenly? Under such a system, what would be the advantage for someone to save and invest rather than consume? (After all, on "turn 2", the capital is going to all be redistributed so it's even again. Then again on turn 3...)

Could you sketch out your idea a bit more? At the moment, I'm not getting it.


>Unless the people are being forced to work/buy/sell with amazon, they are by definition not being exploited.

There are tons of ways to force people that don't involve putting a gun on their head...


>Unless the people are being forced to work/buy/sell with amazon, they are by definition not being exploited.

"forced" can happen in more ways than one. Workers in third world sweatshops aren't forced by law to work there, but they are forced by capitalism to work there to feed their families.

Also: Exploit (v)

2. To use selfishly for one's own ends.


Employees who freely take the best option available to them are not made better off if that option is removed.

I don't believe that Bezos or other employers are acting selfishly when them employ people, even when they make a margin on that labor. (In fact, if they don't make a margin on that labor, they would be better off to stop employing that person, meaning the situation where the employee and employer both make money on the deal is the most stable state.)


They are made better off if their wages are improved, ie if they organize and struggle for a minimum wage or a union. Employers will work their employees as much as possible for as little pay as possible, only the law and organized struggle prevents them from paying less. Capitalism encourages businesses to reduce their costs as much as possible, including labor costs, so obviously they will do anything they can to pay people less unless they fight back


> Capitalism cannot function without people exploiting the system for personal gain.

That's a baseless claim.


Well, at least it has history in its favor. There has been no counter-example...

If anything, empirically it's true. It's the opposite idea that's fairy tale baseless...


The claim is baseless and meaningless. Your reply is pure fallacious logic.


fundamentally I'd like to believe these are exceptions to the rule. There are capitalists like this but they're a sort and don't represent the lot of us.

A key differentiator between the two is perhaps those that complain about capital gains tax effectively "taxing them twice". oho, you are also the company?


Thats actually not the point they are making. They are saying that their income was taxed once when they made it, then after taking the risk of investing it in the market it is being taxed again if they earn a profit. It is still technically false but now that so many people see things like index funds as a sort of bank account it makes sense why they would feel they shouldnt be taxed again on it upon withdrawal.


Bank account interest is subject to income tax; brokerage accounts are only taxed on additional growth or dividends, and often at lower than income rates for stocks. So I'm confused why people would think that index fund income isn't taxed due to any similarity to bank accounts.


people make the complaint about divvies they've drawn in their own company that they've paid corp on which is a form of this conflation.


That's part of the deal of being a corporation. If you want pass-through taxation, that's what partnerships and LLCs are for. Of course, if you also want outside investors...

This is one of those instances where yes, of course it would be nice for you if you didn't have to give as much money to the government in taxes. But that's just not how it works.


fundamentally in a capitalist society that recognises no moral restraint on money and it's not illegal ... why not?

Capitalists are also concerned about conflicts of interest.

Anything less would be economically inefficient! /s)

Smart, far-seeing capitalists are able to see beyond mere legalities. Too much cronyism makes capitalism less efficient, because it starts to resemble centrally planned economies.


I understand with what you’re saying and agree that this can be useful, but it also amounts to a lawless “do whatever we want” attitude amongst highly privileged people that may run counter to democratic concerns. Wealthy people could say taxes are immoral and not pay them, which could lead to underfunding of schools and hospitals, for example.


Democracy and capitalism are orthogonal at best, and are often in opposition.

Without democracy, capitalism would quickly devolve into feudalism or autocracy.

From a purely capitalistic view, democratic controls are limitations to be overcome through backdoor deals.


With democracy, it takes longer.


> Smart, far-seeing capitalists are able to see beyond mere legalities. Too much cronyism makes capitalism less efficient, because it starts to resemble centrally planned economies

A smart, far-seeing capitalist realizes this is a collective action problem, and knows that there is no incentive not to practice cronyism as an individual.

They aren't choosing between having cronyism and not having cronyism... they are choosing between having cronyism and not participating or having cronyism and participating.

https://en.wikipedia.org/wiki/Collective_action_problem


> Smart, far-seeing capitalists are able to see beyond mere legalities.

This is exactly the argument that Marxist made. They weren't going to let traditional middle class morality hold them back, they had history on their side and new what was ultimately best for society. They had real examples where trashing norms and moral codes ultimately worked for the best, such as overcoming a restriction on vivisection to cure a horrible disease. Or ignoring FDA regulations to get a helpful blood test to market. The argument can always be made. It just tends to end badly.

Arthur Koestler wrote about this a lot in Darkness in Noon.


This is exactly the argument that Marxist made.

No it's not. Smart, far-seeing people observe what's broken in the system, and many of them can fix it while making money. Then, there are people who don't care about externalities, and exploit the flaws while causing others harm. Sometimes outdated laws can be modified, or phased out.

The proposal of Marxists is that they take things away by force.


I take "seeing beyond legalities" to mean ignoring the law, not changing it of phasing it out. Ignoring the law is bad, even if you think you are doing it for a good reason.

Modifying the law or phasing out a law is fine and smart people companies should do that. I felt like the OP was saying that when you think a law is wrong you should ignore it.

> The proposal of Marxists is that they take things away by force.

Breaking a law in most cases is taking something away from someone or some entity, whether it is rights or property. It is bad to take something away by force. But it is bad to take it away by stealing or cheating too.


I take "seeing beyond legalities" to mean ignoring the law, not changing it of phasing it out.

I originally meant that as doing more than the law mandated.


> The proposal of Marxists is that they take things away by force.

Capitalism is not possible without state application of force and coersion.

Consider land ownership, for instance. It is completely predicated on the use of force. The only reason you 'own' your land, is because someone a long time back used force to take it away from someone else (Or, if they were the original settler, used force to take it away from the commons).

"Ah, but now that we've divided all the land into various lots that people own, we can divorce ourselves from the original use of force! Going forward, we won't use violence to secure new ownership of land!"

Well, under Marxism, after a one-time use of force, whereupon productive property is transferred to the ownership of the state, it can also divorce itself from the original use of force. After all, going forward, it won't need to use force to seize productive property, either - because it will already have an owner - the state.

All ownership requires force. Ownership of personal property typically requires a continuous personal application of force. Ownership of private property (Land, productive enterprises, etc) requires a continuous application of state force.

Force is a red herring.


The efficiency of the capitalistic system is not something a capitalist strives to optimise. It is the personal utility that is the main benchmark of success.


Actually, success in a capitalistic system is being able to withdraw yourself from the capitalistic system.

Why do you go to work? To make money. So that you, or your children, don't have to go to work, and can pursue personal interests that don't have one whit to do with capitalism.


This sounds like a comic book's description of economic structures where everything is black and white and there are no ifs or buts.

> Too much cronyism makes capitalism less efficient, because it starts to resemble centrally planned economies.

Can you give an example of 'central planning' in the modern world that wouldn't also apply to large businesses that operate at scale, like agribusinesses or mining?


This sounds like a comic book's description of economic structures where everything is black and white and there are no ifs or buts.

Maybe I should write economic tracts for socialists and ancap Libertarians.

Can you give an example of 'central planning' in the modern world

I've seen what happens when huge companies start to mandate that, "All new coding will be in Java. All databases will be on Oracle..." That never works. Everyone figures out a way to drag their feet and bring that to a halt. What does work? Doing something like mandating that all systems will be accessible over Webservices. That opens up resources within the company interacting in new ways as they see fit.


> Smart, far-seeing capitalists

I.e., no one running a company today


I.e., no one running a company today

In that case, there's a huge market opportunity! (Why don't you throw your hat in?)


Yeah, he just has to pull a few million out of his ass and challenge industry leaders in their own back yard to a shit fight.


How does that follow? Why would there be?


How does that follow? Why would there be?

Left as an exercise to the student. (Advice: If you don't know the answer yet, don't throw your hat in.)


You have to have a hat to be able to throw it in.


Wrong. See my reply to foldr.


There's a prerequisite for being a successful capitalist. The clue's in the name.


The clue's in the name

No, let me give you a clue.

My grandfather was doing microlending in the early part of the 20th century, even when Korea was still occupied by Japan. Even people who are dirt poor can get their hands on enough capital to get the ball rolling. In many cases, Chinese immigrants start off poorer than the poor segments of the societies they move to, and yet have climbed into the middle and upper classes in a few generations. Often, this is done by pooling resources.

Look at history. The key ingredient isn't capital. Those who believe it is are precisely the ones who fail at capitalism. (Often they are the ones who take capital away from others by force, then see those industries fail and fade away.)


Nice anecdote, but anecdotes are not data.

The vast majority of small businesses fail; wealthier people are more likely to start companies and more likely to succeed. (For some intuition, they can afford the float, on their living expenses, if nothing else, for longer, until they find market traction.)

Capital is indeed quintessential to capitalizing on market opportunities through business. It is in the name for a reason.

You make a sweeping and inaccurate statement that people who understand the dictionary definition of capitalism are all socialists who want to start a red revolution, which is just ludicrous and broadly offensive.


Nice anecdote, but anecdotes are not data.

(The fact that I've revealed a truly remarkable bit of my family's history to you, for you to simply dismiss it, speaks volumes. You demonstrate no curiosity about it. It's simply something for you to "debunk." Just wow. Do you have any idea what my Korean grandfather had to accomplish within the Japanese occupied system to get into the position to microlend? Do you know what that meant for the farmers he was able to lend to? Do you have any clue what the North Korean communists who came into power would have made of all that? No curiosity about actual history, just partisan axe grinding. George Orwell was right about upper/middle class lefties. They don't care about helping the poor so much as about hurting the rich.)

The repeated climb of Chinese immigrants, going back over a thousand years, across different eras of history, in widely differing parts of the world, is not mere anecdote. If you include immigrants of other ethnicities, then the pattern becomes stronger, and the evidence mounts.

The vast majority of small businesses fail;

True. So one tries again.

wealthier people are more likely to start companies and more likely to succeed.

That's Pareto, not Capitalism.

Capital is indeed quintessential to capitalizing on market opportunities through business. It is in the name for a reason.

Yet time and time again, poor immigrants get themselves into the game and succeed, with little or modest access to capital. Contrast this with the numerous situations where industries are socialized, but into the hands of a different class/identity group, then proceed to decay. Capital is helpful, but isn't the key. Culture and knowledge are.

In this, there is hope, because culture and knowledge are transmissible.


I'm glad you're proud of your grandfather, but your emotional attachment to him does not strengthen an argument that capital is not required to start a business. I don't mean to be dismissive of his struggle in any way and I am aware that the Japanese occupation of Korea was atrocious.

> Contrast this with the numerous situations where industries are socialized, but into the hands of a different class/identity group, then proceed to decay.

Dude, I am not advocating socialism. You are repeatedly attempting to frame this as capitalism vs socialism and that is just not even related. I am pro-capitalism as much as I am pro-gravity but also pro-facts, truth, and realistic personal financial advice.


This happens even on the small scale. My SO was an exceptionally good paralegal at a law firm that was imploding due to issues like this, so after encouraging her, she convinced her boss to leave the firm and they started their own. It started doing well very quickly, and suddenly the lawyer she was working for became the very thing he hated in the first place. Doing stuff like spending 10-15k a month on the firms American express on hunting trips, spending so much time hunting he's in the office half the year, pulling multiple 5k "disbursements" a month for himself (on top of salary), to the tune of nearly 40k a month in personal expenses, and then for a few months had to take out a loan to meet payroll!

Thankfully she sees the writing on the wall and is about to get her CPA and bounce, and I'm going to laugh when it all collapses around him because she's basically running the firm, but lawyers have a racket so you can't do profit sharing with the non lawyer plebs (by law) like paralegals so she gets a fraction of the pay to do most of the work while he lives the high life, which is exactly what imploded the old firm!


How does the law prohibit a profit sharing plan at law firms? It's illegal to pay non lawyers bonuses?



"A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law."

Does anyone know the motivations and publicly stated reasons for this absurd restriction?


>> "A lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law."

> Does anyone know the motivations and publicly stated reasons for this absurd restriction?

Total speculation, but maybe it's to keep the profession controlled by its practitioners and not financiers? The exclusion of paralegals, etc. could just be a side effect of keeping investors out.

I do see some benefits for that kind of restriction. If your profession is bound by a code of ethics, it would help with compliance if all the top leadership were bound by it too. If they're just owners from outside the profession, there will always be pressure to compromise ethics to benefit the owner.


It enriches lawyers.

I'm sure they some other veneer for it.


The Bar Association is a cartel. The motivations should be obvious.


I'm more interested in the publicly stated reasons.


“It ensures that your legal work is done by professionals who have spent years to study the subject. The costs to making mistakes in this industry are high and we choose to maintain a high standard of quality by ensuring legal subjects are only handled by professionals with requisite experience”

Essentially, think of anyone who argues for certification.


That's fair. So this is just partnerships, then? Is a lawyer still allowed to take part in leadership of a company that has non-lawyer leadership provided it's not a partnership, specifically?


Law firms are typically structured as partnerships. I'm not sure if that's because there's another restriction against operating a law firm as a non-partnership or what.

If a lawyer was part of a company that wasn't a law firm, that would be fine. Actually, this happens pretty frequently--many sports agents happen to be lawyers, because sports agents are responsible for contract negotiations and legal skills are valuable in that situation--though they do not necessarily represent their clients as lawyers and hence the sports agencies they own and operate aren't treated as law firms.

For example, Drew Rosenhaus is a lawyer and a prominent sports agent, and his firm is neither a partnership nor a law firm. Rosenhaus is famous for a number of things, such as being the real-life inspiration for the title character in the film Jerry Maguire and holding a press conference with his famously difficult client Terrell Owens during one of the many controversial incidents he got himself into and responding to every question from the reporters with the phrase, "next question". He was also the agent of Chad Johnson, who famously legally changed his name to Chad Ochocinco for four years to get around league rules preventing him from putting that inaccurate Spanish translation of his jersey number on his jersey in place of his surname.


I see an exemption for "compensation", which I assume means "You can't pay out profits to non-managing non-lawyer silent partners, but you can do it for any non-laywer worker as part of their compensation arrangement."

>(3) a lawyer or law firm may include nonlawyer employees in a compensation or retirement plan, even though the plan is based in whole or in part on a profit-sharing arrangement; and


Do you know how that came about? It seems like a weird restriction. I can understand wanting to prevent shady firms from misrepresenting non-lawyers as lawyers to clients, but I don't understand why any of the rest of it follows.

This bit seems like a loophole:

> (3) a lawyer or law firm may include nonlawyer employees in a compensation … plan, even though the plan is based in whole … on a profit-sharing arrangement


I think it's per-state, but in Texas at least, it's illegal to do profit sharing with non lawyers. It is also illegal for a non lawyer to have majority or controlling ownership of a firm. I know because both my SO and my mother are best in class legal secretaries and we were investigating opening our own firm without the asshole lawyers taking all the money for 1/4th the work.


That's insane. How did such laws come to be? Lawyers lobbying?


It's meant to prevent investors from pressuring attorneys to prioritize profit over legal ethics. The thinking is that an attorney has their bar license on the line when making ethical decisions. If everyone's license is on the line they're likely to act in accordance with their ethical obligations. If a non-attorney invests in a law firm they could pressure the attorney to risk their license to generate more profit.

Accounting firms used to have the same rule (though they've relaxed it a bit to allow non-CPAs to own less than 40% or 50% as the accounting firms got more and more into "consulting"). The rationale is explained well here[1]. Large law firms are making a similar, though slower, transition to expanding their consulting services. Particularly with respect to data privacy and cybersecurity. I would expect the rules to relax over time.

The U.K. recently permitted non-lawyers to invest in law firms but it doesn't seem many investors have jumped in head-first. Law firms and accounting firms don't have much by way of "assets" so they can be quite risky. I briefly worked at Deloitte with a former Arthur Anderson partner. He was quick to warn all of the young staff about what a terrible investment his equity had been. One rogue partner can sink the entire ship and leave the rest without much ability to recoup the money they put in.

[1] http://archives.cpajournal.com/old/14469513.htm


Which really cracked me up, having consulted with firms on the IT side and knowing so many lawyers, I can say that one's that put ethics above profits are the exception, and so lawyers already violate the basic reasoning for that law in the first place!

Just seems like an excuse to maintain a racket to me.


When men spend money like that it generally increases their perceived status (the fact that they can).

You ought to watch out for your SO and this fella :P


Ah, the cartoonish bro-science version of evopsych strikes again.


As in "he can use the social status to blacklist her from other firms"?


I read it as "she will become attracted to him because of this signaling".


Seems like such a shitty thing to say to someone.


The insinuation is, as his high-roller life elevates his social status, he becomes very attractive to her.


I think part of the "high-roller life" includes hiding the source (or obstructing) of your wealth. So I doubt that OP's SO will fall for it as she sees the source herself.

It would be like someone trying to impress someone with a fake Rolex that the other person knew was fake.


Money is money, and status is status, especially to women. You think even criminality changes that?

You know how many girls have said "I can't stand him" to my friends and then slept with me instead of them?

Come on guys get real. Women aren't angels - quite the opposite.


Among the ambitious and entrepreneurial, this sort of behavior is nothing new.

In his autobiography, Benjamin Franklin relates how he found himself as a government official for the colony of Pennsylvania and then proceeded to hire his own printing shop whenever his office needed to publish a widely circulated document or pamphlet.

BTW, that autobiography is a great read. you can find it for free on Project Gutenberg: http://www.gutenberg.org/files/20203/20203-h/20203-h.htm


I think the perception has changed a great deal since then. Note that the USA government hired on a spoils-based system until 1883: https://en.wikipedia.org/wiki/Spoils_system

It would be brilliant to see an analysis of how commonplace this and other types of corruption were historically and geographically.


If he lived in 2019 he would have just dropped it on an S3 bucket. What with your government being all like shut down and all.


It’s funny when companies do things that harm the public directly or indirectly, we get high minded passionate economists or whomever telling us how companies have a sacred duty to maximize shareholder value, blah blah blah.

When you see countless companies get looted and crushed by private equity takeovers, to the point that middle schoolers can predict with accuracy when a company will vaporize, you get analysts with nonsensical stories about turnarounds, etc.

But when self-dealing management use the company to enrich themselves in a way that is at best ethically questionable, you don’t hear too much.


If it isn’t harming the public directly or indirectly, why should we care? If a bunch of VCs want to enrich WeWork’s CEO, why should I care?

Once mutual funds and pension funds start investing in WeWork, then I’ll care.


Incubating a culture of corruption has some obvious negative impacts.

There's also a variety of complications, from pension funds that do invest in VC funds, to national security implications of foreign principals funneling investments to individuals. You also have disruptive market behavior if we allow the boys with access to VC capital the ability to do whatever, while publicly traded real estate trusts need to meet regulatory requirements that prohibit that type of activity.


"Once mutual funds and pension funds start investing in WeWork, then I’ll care."

there is a good chance that pension funds have already invested in WeWork, directly or indirectly. Where do you think the money is coming from? The VCs aren't putting in their own money.


Pensions funds currently invest in venture capital funds. They also invest in REITs which are directly impacted by WeWork's business model.


> Once mutual funds and pension funds start investing in WeWork, then I’ll care.

“all is mine which is not nailed down and nothing is nailed down that can be pried loose.”

Cultures, laws and traditions aren't set in stone and can be changed. If society and culture simply look the other way and the media simply rehash press releases, then the day will come when acting like this becomes the norm.


Who do you think are the LP's in a venture fund?


It lets WeWork's CEO shape our world. Those with money can build buildings and fund businesses and ventures that affect the reality of thousands or millions, ie the public. We would like that power to be granted appropriately.


When those vc's sell the company to your mutual there is a phrase they use as they light a Monte Cristo with a 1000 dollar bill in an infinity pool: "That guy from the mutual? We ripped his face off."


Bad investments hurt everyone and increase inequality.


Why would a WeWork object to paying Neumann's rent? WeWork is bascially Neumann anyway!

A CEO being the landlord strikes me as a big potential conflict of interest. For example, if the company needs to move to a larger space to grow, the CEO might want to delay to avoid losing income. Perhaps the company might have a prospective buyer who'd want to relocate everyone to their campus. In that case, there would be an external incentive for the CEO not to make the deal.

Why wouldn't levandowski just employ his own company to supply components he was procuring for Google?

The way this used to work, is that the employee would become aware of a market need because the current company had that need and would be a great customer, so the employee spins out her own business, then leaves to run it.


Some people say that McDonald's Corp is not a restaurant, but a real estate company. They get other people to own and run the restaurants, but they buy and lease the land to them at a profit.

So how is this different than WeWork's CEO owning the building and leasing it to WeWork?

He's essentially acting like Ray Kroc.


In that case, McDonald's still owns the real estate, not Ray Kroc. Here the interests of the corporation and Ray Kroc (as shareholder of McDonald's) are aligned - McDonald's has no incentive to overpay for the real estate, because that would reduce its profits.


Did Ray Kroc personally buy real estate and then lease it to McDonalds to sublease it to franchisees? Was he on both sides of the transactions, leasor as owner of the property and leasee as CEO of the company signing the first lease?


McDonald's are basically profit engineers. There franchisee terms here is Aus:

• 20 year minimum lock-in for franchisee.

• A monthly service/royalty fee based on a percentage of the restaurant’s gross sales (currently 5%).

• A monthly rental being a fixed base rent and a percentage of the restaurant’s gross sales

• A monthly advertising contribution of not less than 4% of gross sales.

• All Outgoings including rates and utilities.

Also a metric butt-tonne of start-up costs.


We're seeing it with Sears too.

Chairman of the board (the former CEO) just approved a $5.2 billion deal of some sort from EHL, the fund he is the owner and manager of.


That is not what happened. The Chairman was buying Sears out of bankruptcy using his fund. He didn't approve it, an independent law firm did (they rejected his first bid), and it still has to be approved by a bankruptcy judge, which isn't a foregone conclusions, since Sear's unsecured creditors are going to fight it.


I think their point isn't about the recent bankruptcy, but that he bought out controlling shares of Sears, sold himself the retail property of Sears and KMart, and then started charging rent to the public company.


Right, and he didn't approve any of those real estate deals. They weren't sweetheart deals.


Personally you could never convince me that this sort of Sears situation wasn't engineered by people following exacting legal advice.



Thank you for this link


Shouldn't that be a case of corruption straight up? Seems like entire system is in cahoot.


There's no clear motive. I guess he's keeping the company alive long enough to sell off more of it's assets, but it seems like a relatively low yield operation to me.

Perhaps he's operating on a level we can't comprehend


Strip the assets beyond the bankruptcy code's 2 year fraudulent conveyance lookback period. Fix the problem by extending it to 10 years for corporate fiduciaries or something.


There is a pretty clear motive to me, tons and tons of prime real estate in the heart of pretty much every community that has more than ten thousand residents.


Yeah, this is not just in SV. Conflict of interest seems to be one of those things, in the last 20 years or more, that people do not give a shit about. I've seen it in a lot of places, and when I have conversations about it with smart friends, I don't get a rise out of anyone. I can only imagine what the average, working-class Joe/Jill think. If I had a conversation with them, they'd probably think I was some kind of nut.

To me, this smells like American culture just being corrupt.

EDIT: typo


It's been sold in the media for years, if you're successful then everything is permissible because "job creators". If you constantly glorify crime, that's how you get more criminals.


The fish rots from the head, and there's a pretty big precedent at the head of the US government in terms of conflict of interest.

It's also worth noting that the US maybe 20 years ago was somewhat exceptional when it comes to conflicts of interest. In other cultures, personal relationships and personal vested interests that we would consider "corrupt" are a load-bearing part of the social structure. So perhaps we're reverting more to the global mean on this point.


This type of behavior is nothing new. Years ago, I worked as a developer at a very large silicon valley based company. Everyone here would recognize their name.

It was common knowledge that the "corporate art" on the walls of the buildings was owned by various members of the "C-Suite" and leased back to the company.

Don't even get me started on the private loans given to members of the C-Suite and Board then subsequently "forgiven".

I used to rage about it every time they published their financials.


Reminds me of Galt's Gulch, where all the good guys name companies after themselves, and all the bad guys name themselves something generic like "Associated Steel".


At least you know who is putting their skin in the game rather than some generic name.

Also Tesla is not named Musk, or Amazon, Bezos.


If:

(a) you have FU money

(b) you'll get to keep having FU money (perhaps drastically less, but still FU money) whatever you try

Then you don't have "skin in the game" anymore like a normal person does.

If Bezos fortune goes from 100 billion to 5 billion due to bad bets, he still hasn't suffered anything more significant than some damage to his ego (meanwhile Amazon employees could see their lives and finances ruined).


I’m sure he would feel like he’d just gone from $1000 to $50 though.

It’s a fairly significant difference.


$1000 in the bank is enough to feel like you can cover rent, bills, and meals. $50 is not. Do you think he would feel like he wouldn't know whether he'd have a roof over his head next month, or whether he should start skipping meals entirely?


Would he, though? Really?

Functionally what is the difference in quality of life and power between the two?

The only thing I can think of is he'd no longer be astronomically one of the richest ten humans alive.


I'll bet it's really nice to have major cities beg you to move there.


That's a function of him being the CEO of Amazon, though, yeah?


I'm sure state income taxes on dividends off $100B don't hurt either. (If AMZN paid dividends, or Bezos diversified his stock portfolio.)


Yeah but he would have no skin in the game. Or much less than ordinary person. You need to be in a position where if your bet goes awry you’ll end up in some sort of worse state (not having few less zeros in the bank account but your actual lifestyle and quality of life affected in a meaningful way).


Ego difference. No lifestyle difference. And no life and death difference.


No, he wouldn't. Either way he has more money than he can realistically spend. Money has drastically less value the more of it you have.


My comment was not about WeWork's CEO, but rather in reference to the Galt's Gulch (Atlas Shrugged by Ayn Rand)comment. They made a comment that the heroes in Atlas Shrugged used their own names as the monikers of their companies. I was simply stating that the comparison didn't carry over to Tesla = Musk. That was all. It seems to have triggered some to respond to their own interpretation. Skin in the game was putting your name on your company, not a more ambiguous one to hide behind. I would argue that unless you can change your name, you are putting skin into the game by naming your company after yourself.

I also refrain from the concept of FU money, all that it connotates, and that someone else can determine how much I can have.


Why are they putting their skin in the game? What sort of decisions could WeWork, Tesla, or Amazon make that would ruin the personal finances of Neumann, Musk, or Bezos? There is still a corporate abstraction, so while profits turn into bonuses, losses don't turn into personal misfortune for the founders. (Although they may turn into personal misfortune for laid-off employees.)

(And yes, the real world is not a fictional caricature.)


Musk has said and shown repeatedly that he'd put his last dollar into SpaceX (and probably Tesla), so he's not a great example here.


Not sure about that. He maintains very luxurious lifestyle. His continuous investment in Tesla could be seen more as an effort to maintain full / majority shareholder control of the company. I don’t think he would sell his house and invest the money in Tesla. He would still be rich even if Tesla goes bankrupt. Plus he has billionaire family members as a fallback.


Who are Musk's billionaire family members?


His brother is a billionaire also I believe (not as rich as Elon but still that’s a nice safety net to have).


It puts their reputation on the line. If you destroy the brand $Lastname you can't use it again.

"I stake my personal reputation on the reputation of the company I run"


What do you need a reputation and a personal brand for if you have two billion dollars?


What if you need $10B to reach your goal? You'll need to raise money somehow, and reputation is the deciding factor for many investors.

Also, once you become fabulously wealthy, you want something more than financial security, you want to be remembered. Look at the flip Bill Gates did with becoming a leading philanthropist. He doesn't want to be remembered as the evil, anti-competitive CEO of Microsoft during the 90s, he wants to be remembered for his work in the Bill and Melinda Gates foundation. Trump didn't want to be remembered as the shrewd personality on The Apprentice, he wanted to become President of the United States. Some just want to be extraordinarily rich to make "richest people in the world" lists (that's where I place Larry Ellison).

$2B is far from enough for most people to "be remembered".


So either way, it's all ego. Why should I care at all if I'm "remembered" after I die? I'll be dead. Conan O'Brien's NYTimes interview the other day captured this sentiment exactly. https://www.nytimes.com/2019/01/14/arts/television/conan-obr...

"I had a great conversation with Albert Brooks once. When I met him for the first time, I was kind of stammering. I said, you make movies, they live on forever. I just do these late-night shows, they get lost, they’re never seen again and who cares? And he looked at me and he said, [Albert Brooks voice] “What are you talking about? None of it matters.” None of it matters? “No, that’s the secret. In 1940, people said Clark Gable is the face of the 20th Century. Who [expletive] thinks about Clark Gable? It doesn’t matter. You’ll be forgotten. I’ll be forgotten. We’ll all be forgotten.” It’s so funny because you’d think that would depress me. I was walking on air after that."


With some people, it really does take a long, long time for them to be forgotten. How many people don't know the name of Nero, after all? It's been roughly 2,000 years and people still know about him.


Sure, because the Walton family is such a bastion of good policies and personal responsibility


> Why would a WeWork object to paying Neumann's rent? WeWork is bascially Neumann anyway! Why would Tesla object to buying Musk's other companies? Tesla is basically Musk anyway!

The shareholders do mind, because these actions may violate the CEO's fiduciary duty to act in their best interest. They can sue him for violating said duty.

Less relevant in WeWork's case, but very relevant in Tesla's case, since it's a public company, and in fact Tesla and Musk have been sued for neglecting their duties before:

https://www.reuters.com/article/tesla-musk-lawsuit/tesla-ceo...


>The shareholders do mind, because these actions may violate the CEO's fiduciary duty to act in their best interest. They can sue him for violating said duty.

Yeah, and how well is that going to work out for them? They should have known better than to invest in this company in the first place; companies like that are cults of personality. It's like investing in Sears under Eddie Lampert; you have to be a moron to put your money into Sears stock when it's obvious the guy is solely working to drain as much money out of Sears and into his own bank account as possible. And a lawsuit, even if you win, isn't going to net you much money.


> Yeah, and how well is that going to work out for them? They should have known better than to invest in this company in the first place; companies like that are cults of personality.

So you are saying the investors (who are the current shareholders) stupidly bought into Neumann personality cult.

So now they are paying for their idiocy.

This isn't some failure of capitalism: it's the failure of large, wealthy, sophisticated investors to properly assess their own investment.


Exactly, yes. It's the investors' job to research their investments, and company stock investments have no guarantees (unlike a CD or savings bond, for instance). Personality cult companies can actually be good investments; it just depends on the personality. Investing in Apple while Jobs was running it before he died was generally a very good and profitable investment, for instance. This company doesn't appear to be that way, and I'm saying that as someone who hasn't researched it, I'm just going on what a few negative news articles I've seen about them and their leader. The signs appear to all be there that this company is not a good long-term investment like Apple or Oracle (another company basically run by one guy), it's more like investing in Theranos.


Some investors have decided that the best returns come from companies that have CEO's/leaders that run them like sole proprietorships. This works best when the CEO is actually the founder of the company. Investors with this philosophy would like to have that person have majority ownership of the company, but this rarely (never?) financially possible. Some companies have stock step ups that let the founder(s) keep voting control even though they don't have the majority of the stock. Google, Facebook, and Snap are some companies like this.

Other very successful companies that have/had a single person that basically runs the whole place as their own company are Berkshire Hathaway, Apple, Oracle, Microsoft, Amazon. The top five American companies by market cap are of this type. I would not say the this is such a bad thing as these people are looking out for the companies long term future. Compare HP before and after the founders left. Hewitt and Packard would not have focused the company around the evil idea building disposable printers that lock people into overpriced ink purchases. If society needs these huge corporations (maybe we would better of with out them?), I would much rather they be run by a single human than be a soulless bureaucracy with a figurehead at the top.

If Neumann fully owned WeWork, it would not be corrupt self enrichment to own the properties, just vertical integration. If the investors want them to work this way, is it really corrupt? I wouldn't think so.


>Hewitt and Packard would not have focused the company around the evil idea building disposable printers that lock people into overpriced ink purchases.

I'm not a big fan of HP, and I especially abhor the inkjet printer business, but I'd like to point out there's more to HP (and even their printers) than this. Their business printers are still pretty good AFAICT.

My simple rule when contemplating a printer purchase: "do not ever, ever, ever buy an inkjet printer".


Sorry for the naivete, but isn't that a solved problem in corporate governance, with standard procedures for making sure that company A isn't just a sockpuppet for shoveling money into company B?


You shouldn't apologize, because it was a mostly solved problem and times changed. Search "corporate opportunity doctrine". It became unsolved in the last 30-40 years.


Corporate Governance doesn’t help when either the board is just a rubber stamp for the CEO or the CEO still holds a controlling stake in the company.

And in the case of successful founders, even without a controlling stake, just their reputation makes it harder to go against the CEO. Could anyone on the board have challenged Gates or Steve Jobs 2.0? In the modern era, who would challenge a decision by Bezos or Hastings?


Is that necessarily a bad thing? If Gates or Jobs acted unwantonly despotic, then the checks and balances are in place for their removal. Sometimes, reputations speak for themselves and must be respected as a function of following a leader.


No it's not. I don't think anyone but Jobs could have made the deal with Microsoft that help save Apple[1]. Just like only Nixon could go to China.

Could any other CEO besides Hastings transitioned Netflix from a DVD business to a streaming media business, and on top of that spend millions of dollars developing a set top box and then decide at the last minute it wasn't in their strategic interest to sell it and spin it off (Roku). The same could be said about Bezos and Amazon.

[1] No the money MS "gave" Apple didn't save them. Continued software support with Office and IE helped a lot.


Not only today, not only Silicon Valley, not only startups

Check Carlos Ghosn's ongoing story for example


Main difference being that Ghosn is currently sitting in a jail cell in Japan, awaiting trial...


Ghosn was believed to be a God in the car business. In France, he still is. Dangerous thing to be told you're a God.


Didn't the CEO of Sears own a hedgefund that became landlord of all Sears retail space ? My point is it is just not Silicon Valley.


Yes, he sold property that Sears owns to companies he controls to fund stock buybacks from himself (and his companies), becoming Sears' landlord in the process.


>Why would a WeWork object to paying Neumann's rent? WeWork is bascially Neumann anyway! Why would Tesla object to buying Musk's other companies? Tesla is basically Musk anyway! Why wouldn't levandowski just employ his own company to supply components he was procuring for Google? Why wouldn't Shkreli pay his hedge fund investors back with cash from one of his other companies?

Don't forget Michael B. Rothenberg:

>The SEC’s complaint alleges that over a three-year period, Rothenberg and his firm misappropriated millions of dollars from the funds, including an estimated $7 million of excess fees, which Rothenberg used to support personal business ventures he claimed were self-funded and to pay for private parties and events at high-end resorts and Bay Area sporting arenas.


I think its a clear conflict and shareholders should protest, but this happens at every level of the economy. I used to work buying small businesses. Its common for business owners to also own the building in a separate LLC. And its great to hear them complain about how they always get paid last, when they have been paid every month through rent.


In the Phoenix metro area we have BASIS schools that use a similar tactic… with public education funds. The school and foundation are non-profit, but they use a for-profit management company that's owned by the founders of the schools. No transparency is required for the private business which provides teachers(!) and other back-office services.

Of course, the founder is living meagerly like most educators (including the ones he employs or the one's he's taking funding away from)… wait, no, he's raking in the cash.

That said, BASIS provides an excellent environment for students that are compatible with its education model (read: students who would have been successful anywhere).


This isn't just a silicon valley archetype. It's a cultural archetype. Ownership is the religion we're indoctrinated with.

To paraphrase James Madison, the Senate ought to protect the minority of wealthy owners from the majority. Deference to wealth and ownership is in the DNA of the country.

America is a tacit caste system, heavily indoctrinated to believe it's a freer place than it is. While there's a stronger guarantee of freedom of speech/expression than other countries, who owns our time/effort is rarely ever discussed and the realities of it questioned. The owners do, of course, and direct it to their desires.


Actually, Shkreli got in trouble even though all of the plaintiffs had ultimately profited big time... but with some delay and period of uncertainty.

Which shows that outcome is not all that matters, legally.


I couldn't read the full article since I am not a WSJ subscriber, so forgive the naivete, but what inherently is wrong in Neumann leasing a building that he owns ? I mean, he could have rented that building to someone else, instead he is leasing it out to WeWork.

How did get get the money to buy that building - if he is siphoning money from WeWork revenues and using that, that's illegal I suppose. If he used Wework stock options as collateral to finance the building, that could be some grey area I guess.


Is WeWork paying market rent to Neumann, or is it paying more? Did Neumann negotiate vigorously with Neumann for the best possible rate? With real estate, how could you tell?

CEOs have a fiduciary responsibility to the other stakeholders of their companies. That's the problem here.


I agree with you, not only that, this kind of thing often happens with privately held companies.


But is Neumann is the sole shareholder? Musk certainly is not Tesla's sole shareholder. If Musk pays himself through some juicy Tesla contract, he is fleecing other shareholders.


Only if the contract terms are worse for Tesla than another equal quality option in the market.


Right, but even then it raises a conflict of interest, and probably shouldn't be handled by the CEO directly.


No, he is not. He is the controlling shareholder.



>There seems to be an archetype in silicon valley today of people viewing companies basically just as convenient extensions of themselves rather than distinct legal entities with separate interests.

I'd rather this was the case completely -- privately owned, extensions-of-oneself companies and we had no BS like boards and stockholders...


>There seems to be an archetype in silicon valley today of people viewing companies basically just as convenient extensions of themselves rather than distinct legal entities with separate interests.

100% with you here.

When companies grows so much ego becomes part of the game.


> people viewing companies basically just as convenient extensions of themselves rather than distinct legal entities with separate interests

I think it goes beyond that, by people viewing whole states as such extension


The person screwed in this transaction is the investor. They should sue.


But the investor (Softbank) is the one that bestowed its $47 billion valuation on the company. There are a few billion reasons why he wouldn't sue.


Well I mean that's the consequence of capital ownership isn't it? It's not like these people are operating under some kind of constitutional obligation to their staff or anything.


They are screwing (the other) shareholders.


Well sure, but chances are you're enriching the majority shareholder in this case. It's a per-share system not a per-person system.


What's your point? He is still violating his fiduciary duty to the corporation by looting it to enrich himself personally.


It is a product of personality. It takes a certain amount of risk aversion to risk everything to start a company, but that isn't what this is about. This is about investment and it takes selling yourself to convince people to give you money. A good sociopath lives for convincing people to give them what they want without reasonable limits.

Fortunately, most people are not sociopaths, but unfortunately most of these people will not achieve the successes you described.


Maybe they would, if the sociopaths wouldn't assimilate many of those "successes". I consider a certain number of successful businesses to be a relatively stable statistical certainty in a society which provides the necessary environment for them (stable legislation, infrastructure, workers, a market to sell stuff etc.). The sociopaths now don't increase the total number of these successes, but they tilt the distribution of successes towards themselves as a group, thereby making non-sociopaths less likely to achieve a success.


> It's amazing how often 'innovation' and business success turns into corrupt self-enrichment.

Isn't business defined as enrichment of the shareholders?

So (depending on who owns the shares) it really shouldn't be amazing, right?


The risk to the CEO here is pretty small.


What does Shkreli have to do with Silicon Valley?


Shkreli was trying to to good, and it was a personal issue, and it was kind of the right thing to do.


Let's not look at Shkreli like that. He's a guy who opposed FDA approval of a drug. Not based on its effectiveness, or medical benefit, but because it would interfere with his profits from a competing, inferior drug.

This is not someone who has a strong history of "the right thing to do".


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