Corporate Democracy And The Frum Investor

Abstract

"There are halakhic authorities who absolve the average shareholder of any responsibility for the actions of the companies whose shares he owns. The ultimate basis of the lenient position is the perception of the investor not as an owner, but rather as a creditor. Stock purchasers lend money to the company in return for a note - the stock certificate - which promises distributions of profits which are a kind of interest payment. The assets of the company are collateral on the loan. To a large extent, this gets the investor "off the hook;" after all, there is no general prohibition of lending money to individuals who may use it for purposes which would be forbidden to the lender himself. Of course this approach raises an obvious question: if the shareholders are not the owners - the ones who bear responsibility - then who is? Several answers are given to this question: A few authorities take the secular-law concept of a legal person at face value: the corporation itself is the owner. The halakhic justification for this is sought in legal-person- like entities such as the "tzibbur" (community) or "hekdesh" (Temple-owned property); in the authority of the secular law in monetary matters; or in the power vested in halakhic authorities to innovate new forms of ownership just as secular legislators do. (R. Dichovsky, Piskei Din Rabani'im Vol. X p. 273). Alternatively, the management of the company may be considered to be the "real" owners, who owe the shareholders a share of the profits. Or, if there is a controlling interest, then the controlling shareholders may be considered the "real" owners, leaving minority shareholders as run-of-the-mill creditors. R. Moshe Feinstein (Igrot Moshe, EH Vol. I, 7) inclines toward this alternative lenient view in the specific case of a small shareholder who is not interested in influencing company policy. The major halakhic authorities have not accepted the "legal-person" view of the corporation. R. Yitzchak Weiss (Minchat Yitzchak Vol. III, 1) cogently points out that even the secular law does not view the corporation's legal personality as entirely independent of its owners. We can give examples of this principle: The law views the managers and directors as trustees of the shareholders; they have a fiduciary responsibility to the shareholders as owners of the corporation. Some rights of shareholders are manifestly rights of ownership: the right to examine the books of the company; to sue the management on behalf of the shareholders; to propose resolutions to be voted on by all shareholders."(pg 2-3)