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Austan Goolsbee: Good evening. Thank you, everyone here in the audience and at home, for joining us for the spring 2022 Meeting of the Minds event. This event series is a collaboration between Chicago Booth and the Institute on the Formation of Knowledge. We bring together faculty to explore how the commonalities and differences between business and the humanities can lead us to a richer grasp of the economic human being. Tonight, we have a virtual audience, a large one, turning in from around the world, and we are pleased to welcome a special group of alumni, students, and friends here, in person, at the Gleacher Center for the first time in two years.

Tonight’s topic is entitled Corporations, Secrecy, and Ethics. The discussion will focus on the power of corporations and their influence over public policy. How do they influence what is declared legal or illegal? What are the true ethics of corporations? How important is transparency? And things like that.

We have the privilege of listening to this discussion from some of Chicago’s esteemed professionals in their field who have explored this. First, we have Hal Weitzman, who is an adjunct associate professor of behavioral science at Chicago Booth. He is the editor in chief of our Chicago Booth Review. He is the host of The Big Question, which is Booth’s video panel discussion series. He was reporter and editor at the Financial Times from 2000 to 2012. His new book, What’s the Matter with Delaware?—don’t tell the president—it explores that state’s outsize role in the US corporate landscape.

Next, Kimberly Kay Hoang is an associate professor of sociology and the director of global studies at the University of Chicago. Her books and articles have been awarded over 18 prizes from several different professional associations. Her forthcoming book, Spiderweb Capitalism: How Global Elites Exploit Frontier Markets, explores the old Panama Papers and the behavior of large companies in emerging market economies.

Tonight’s conversation will be moderated by none other than Bethany McLean herself, contributing editor at Vanity Fair, columnist for Yahoo Finance, contributor for CNBC, and author of several of the classic books about corporate corruption, corporate influence, including books on Enron, on the financial crisis, on the mortgage finance industry. She serves as the cohost of the podcast Capitalisn’t, the collaboration between Chicago Booth Review and the Stigler Center at Booth, where she is also a board member. She is currently working on a book about the economic consequences of the pandemic.

Our speakers will discuss and debate these topics of corporate ethics for about an hour. Then at 7:30, we’re going to open it up to a half hour of questions from the audience. For those of you, almost 800 of which are joining virtually, please submit your questions using the Q&A module that you see on your screen. For those of us in the room tonight, please scan the QR code on your name badge, whoa, and follow the prompts to submit your questions. On behalf of the Institute on the Formation of Knowledge and the University of Chicago’s Booth School of Business, we are thrilled to have you joining us this evening. Now, I will turn it over to the one and only Bethany McLean.

Bethany McLean: Thank you, Austan. Welcome everyone. I’m thrilled to be here with all of you, those of you who are here in person, and those of you who are joining us virtually, and I’m really excited to be here with Hal and Kimberly. Both of whose work, I think, gets at, in different ways, subterranean structures—things that aren’t really visible or obvious to the naked eye, but that influence our world in ways big and small and particularly the financial world. Kimberly, I wanted to start with you. Your first book was called Dealing in Desire, and on the surface, there wasn’t an obvious connection to markets. You worked in four different hostess bars, but you explored the intersections between intimacy and high finance. I’d like for you to elaborate on that a little bit and tell us how that led you to this next book about spiderweb capitalism.

Kimberly Kay Hoang: Yeah, that’s a big question. Thank you. The first book, it was an ethnography of the sex industry in Vietnam, and I worked as a hostess and bartender in four different bars that catered to male patrons of these bars. I was a gender globalization scholar, really interested in looking at these different niche markets. But what turned out, at the time there was the 2008 financial crisis, and I was bored in these bars, as you could imagine, and I learned a lot about the financial crisis because it turned out that many of the clients, particularly the Western businessmen, had lost their jobs ... they were former Lehman Brothers folks, and so I learned a lot about mortgage-backed securities and credit default swaps.

But then what I was seeing was that a lot of the deals that were being done at the time were not with Western businessmen, which was surprising to me. It was primarily with businessmen from East and Southeast Asia, so Hong Kong, China, Taiwan. And I started to see this connection between the sex industry and foreign direct investment. Because in a country where people don’t have faith in rule of law, trust is brokered oftentimes in hostess bars through handshakes.

Bethany McLean: Fascinating.

Kimberly Kay Hoang: And so that led me, I mean, the second project, I started with a pretty small question. I was really interested in how do foreign investors navigate these markets that are highly corrupt, where corruption is kind of widespread and par for the course. And particularly, how do Western investors and East Asian investors navigate this terrain when Western investors are constrained by the Foreign Corrupt Practices Act and East and Southeast Asian investors are not? And so I thought, oh, go to Vietnam and go back to the place that I started and interview people coming from different places. And what I uncovered in the process was a story of offshoring, which I wasn’t really looking for, which is that most of these investments were managed by sort of offshore structures in Hong Kong and Singapore. And so I went to Hong Kong and Singapore and realized that those were just subsidiaries of much wider sort of structures. And so that’s sort of how ... I kind of fell into Spiderweb Capitalism and started theorizing it. Yeah, I think that’s the story.

Bethany McLean: That’s fascinating. I love that there’s an element of serendipity to this too, so we can add serendipity to subterranean. Hal, on the surface, your book is much … Delaware is a little bit more prosaic than a sex bar in Vietnam. Yet Delaware is in plain sight, but it’s also hiding. All of these companies, like Amazon and Google, that we think of as being California companies or Washington State companies are actually registered in Delaware. What made you start asking these questions? What made you interested in Delaware?

Hal Weitzman: Yeah. Well, thanks for the question. I said to Kimberly last time we met that when she was writing her book, she got to go to Myanmar, to Hong Kong, to Vietnam, and I got to go to Wilmington. Yeah, but I thought Wilmington was fascinating. It is a story hiding in plain sight. My book is not a book of investigative journalism. It’s just a book of piecing the different parts together that haven’t really been strung together. Like you say, Delaware is, I say in the book, Delaware is everywhere. It’s obviously a very specific place, a very small state, the second smallest state in the union. It has a tiny population about the size of the Grand Rapids or Tucson metro area, so fewer than a million residents, but has 1.6 million companies registered there, including the companies you talked about, Google, Amazon, Facebook, Twitter, LinkedIn, etcetera.

More than two-thirds of the biggest companies in the United States are registered there, and what that means is that each of us interacts with a Delaware company multiple times a day. So Delaware is really everywhere. At the same time, Delaware is kind of anywhere. There’s nothing specific about Delaware, necessarily, as a place; it’s sort of Anywhere USA, and I think that’s enabled it to fly under the radar. I don’t know if you remember in Wayne’s World, the movie, there’s a scene where Wayne and Garth find themselves, does anyone remember? In front of a green screen? And they go to Texas and they’re cowboys, and then they go to California and they’re surfing, and then Delaware pops up and they freeze and sort of say, hi, I’m in Delaware. Because there’s no association. It’s kind of Everywhere and Anywhere USA, and I think that makes it possible for Delaware to kind of fly under the radar.

Bethany McLean: You’ve noted in your book that Delaware has more registered businesses than residents. It’s a pretty stunning fact. You’ve also said in various places that the answer to this is more complex than we might think, but can you give us a basic sketch of what the answer to that is?

Hal Weitzman: Of why there’s so many corporations in Delaware?

Bethany McLean: Why there’s so many corporations there?

Hal Weitzman: If you ask people why Delaware, they’ll tend to give you one answer; people are very confident. If you ask a lawyer, they’ll say it’s because they have a chancery court—a court that handles business cases. If you ask the secretary of state’s office in Delaware, they’ll tell you it’s because they’re so efficient and fast at processing the registration, so we could set up a company—in fact, we could set up multiple companies, not at the same time—before the end of this event. It takes minutes. This, in fact, I learned recently—officially, it takes half an hour to set up a company, but I learned recently, somebody told me from Delaware, if you call the right person, it actually takes 10 minutes.

We could set up a company there. It is almost easier to set up a company in Delaware than it is to ask a question at this event. We don’t need to scan any fancy QR code. We just can go online. We don’t need to enter any identification. We don’t need to identify ourselves. We don’t need to have any kind of documentation, and we can do it almost in the middle of the night. The office stays open till midnight to accommodate requests. So there’s a great ease of doing business there.

Then if you ask transparency campaigners, they’d say it’s because of this anonymity, because you can hide in Delaware. If you ask tax campaigners, they’ll say it’s because there’s a kind of a tax dodge, which perhaps we can talk about, to do with Delaware.

Then there’s a lot of, just, nothing succeeds like success. There’s a lot of, well, you go to Delaware because you go to Delaware. If you are a foreign startup and you want to incorporate in the United States, to have a subsidiary in the United States, you cannot get funding, really, unless you are in Delaware. There’s kind of, just, lawyers know Delaware. There’s just a kind of almost a network effect that just makes Delaware, Delaware. People tend to give one of these responses, and actually, I think they’re all valid. If there are 1.6 million companies in Delaware, compared to fewer than a million residents, like you say, they range from Google and Tesla to Joe Schmo LLC. Well, there is no way that they have the same motivations to go to Delaware. Joe Schmo is never going to IPO.

I’m talking about a single person, almost a single-use LLC that might be used for a transaction and then is no longer in good standing, is not kept up. They don’t pay the annual fees. There are many, many, all these motivations are right, and they fit depending on the particular motivation, but it doesn’t take a lot of imagination .. given that this is a very efficient system, it doesn’t take a lot of imagination to see that it can be used, these company structures can be used, for nefarious ends. And of course they enjoy all the legal protections of the United States.

Bethany McLean: We’ll come back to that. I wonder if that multiplicity of reasons is both a competitive advantage of Delaware in an obvious way—it offers all of these things—but also a competitive advantage in a darker way, in the sense that it’s much harder to fix, right? It makes the problem much more diffused. Kimberly, if Hal’s book is very specific in place, is yours, are there geographic centers where we can look to?

Kimberly Kay Hoang: That’s such a great question, and I would say the answer is no. I’m an ethnographer, and so I go to specific places, and ethnography is about embedding yourself in one city or country or space and interviewing a ton of people. And I really had to innovate on the methods because for this book, I traveled over 350,000 miles interviewing over 300 people, so high-net-worth individuals and the financial professionals who manage their money.

I think what’s really interesting is that in the book, I really talk about this divide that we imagine between the first world and the third world, or developed economies, emerging markets. One which is clean and the other which is characterized by widespread corruption.

What’s interesting is that, as I was uncovering the ways in which the investments that I studied on the ground were subsidiaries of other entities in Hong Kong or Singapore, which were subsidiaries of entities in Seychelles, BVI, Panama, whatever, I was interviewing people who set up all of these, so lawyers, company secretaries, accountants—they always pointed back to Delaware. And they always said, the biggest gangsters on the block are Delaware. We learned it from Delaware, and it’s the United States. I never had the audacity to say that in my book, because I felt like I didn’t have the empirical data to back it up ... I mean, people just pointed me there, but I couldn’t crack it.

When I discovered Hal’s book, I just thought that’s so ... I mean, he says it, it’s all there, there’s the data. And it’s the kind of sister book to where I think my book ended and couldn’t pick up. And so in some ways, part of the argument for spiderweb capitalism is that it illicit, licit, first world, third world, they’re all interconnected in these webs now, and ultimately, they do lead to Delaware. And so that’s what I think is really interesting: How do we think of the United States, then, as a Western transparent democratic society, if all roads lead to Delaware in some sense.

Bethany McLean: That’s really interesting, the way in which roads lead into Delaware and roads lead out of Delaware. I wanted to pause on that a little bit more with you. How did your work about what was happening in emerging markets shed light on what was happening in more developed markets?

Kimberly Kay Hoang: I think what I uncovered serendipitously was that after the 2008 financial crisis, there was such an appetite for going into emerging markets. Vietnam in particular was one, and Myanmar at the time were two places where everybody wanted to get access to, because they felt like the time had passed in China and people were... There was such a rich appetite. What I realized from sitting in Vietnam is that investors had really no idea what was happening in Vietnam. There were accountants and fund managers that I was interviewing who would say, Yeah, they come in, they want to say that they have exposure to these new emerging frontier markets, but they’re betting on the development of the country. They’re being sold a story of the dynamism of the country.

There was a lot that happened there, which were tied to developed economies. The idea is that less-developed emerging economies would come in and kind of be the initial stage of investment for state-owned enterprises or small family-run businesses. They would put them through a process of professionalization, and then, their exit ultimately were Japanese or Western investors, right? It just, it kept going, and that was what was surprising to me, that they weren’t separate entities, or people that were making investments in mature economies were also making investments in emerging markets and corrupt economies. They just use these holding companies and special-purpose vehicles, and vintage companies, as Hal says, to transact.

One of the big mistakes that I made in my first book was I was looking at foreign direct investment from country A to country B, thinking, oh, the story there was that most of the investment was coming primarily from East and Southeast Asian countries. But if you go back, there’s a mistake in that book, which I correct in my second book, which is that 30 percent of those investments are coming through Hong Kong, Singapore, and BVI, which means that US investments are masked primarily through Singaporean vehicles, and investments coming in from China are masked through Hong Kong vehicles, which are also subsidiaries of others. And so there’s no real way of calculating or measuring FDI from country A to country B.

Bethany McLean: That’s fascinating. Hal, you wrote in your book or in one of the articles about it, that because of its outsize influence on corporate America, the second-smallest state in the United States also writes the rules for much of the world. When I mentioned that Delaware also goes, what happens in Delaware, also all roads lead out of Delaware, give some of the examples of why that’s the case. How does our problem create problems for everybody else?

Hal Weitzman: OK. Well, so I think it relates actually to what Kimberly was just talking about. An example is that Delaware will say … and I encourage everybody watching and everybody here to go and have a look at how they present it. Because I present my version and they have their own version of events, which is on the secretary of state’s website. For example, they have a Q&A section where they’ll say, Delaware’s a tax haven, isn’t it? And they’ll respond, obviously, saying, no, it isn’t a tax haven. But the language is very precisely written because Delaware clearly is a tax haven. It’s a domestic tax haven. In other words, it enables companies to save paying corporate income tax in one state by funneling so-called intangible profits, like money that they pay to trademarks, to another state. The particular rules that are written in Delaware are the rules of the corporate code, which spell out what are the responsibilities of CEOs to their shareholders.

And that sets the standard for everywhere else. Not only because so many companies are registered in Delaware, but because other states lack the expertise that Delaware has. But Delaware also sets the standard for the world in the fiduciary responsibilities of CEOs. But Delaware is connected to this system that Kimberly talked about. If you take the issue of tax, Delaware will say, we’re definitely not an international tax haven in the same sense that British Virgin Islands is. One of the things that we’ve talked about is when you think about things like secrecy havens, you think of the British Virgin Islands, you think of Cyprus, you think of Panama, but always places that are over there. It’s far away. It’s often exotic. Another movie reference, if you remember, like in The Firm, Tom Cruise, he goes to Cayman Islands, right?

Imagine if he’d gone to Delaware, The Firm would not have been such an exciting movie, perhaps, if he ended up in Dover. But actually in my book, I talk about how one example is Chevron has used transfer pricing, which is a pretty standard way of avoiding taxes. Basically, one unit of the company pays another or lends money to another unit of the company and fiddles with the numbers to make sure that taxes are avoided, and they got caught doing that. Chevron got caught doing that with an Australian unit, but the US unit was based in Delaware. It is not actually clear at all that this is not an international tax haven. Economists who work on this will tell you that Delaware should be considered part of that system. So they do write the rules. As Kimberly said, other places look to Delaware as kind of an example of what can be done. At one time, Singapore tried to brand itself as the Delaware of the East.

Bethany McLean: Really? That’s fascinating.

Hal Weitzman: It doesn’t sound so glamorous here, but to them, perhaps if you’re in Singapore, it sounds very glamorous to be in Delaware.

Bethany McLean: It sounds glamorous if you’re a certain sort of person, right? If you’re a certain sort of corporation or you’re looking for something, then it sounds like very good branding indeed.

Hal Weitzman: I think it goes to the question of legitimacy and illegitimacy. If I can set up that company by the end of this event in Delaware without any identification and completely anonymous for really like $1,000. It’s so easy to do it. I can then say to another investor, but I’m a Delaware corporation, same as Google. It gives me this massive legitimacy. It puts a suit and tie on whatever I’m doing. That could be as true for foreign corporations as for local ones. Just one more point on this.

Bethany McLean: Please.

Hal Weitzman: Sometimes when you’re writing a story, you’re writing a piece of writing and you can’t quite believe that something’s true and all the sources are kind of biased in one way or another. And so I just wanted to check that I was right in saying that Delaware didn’t really know who was registering companies. So I just said to the secretary of state’s office, please just tell me what proportion of the 1.6 million companies registered in Delaware are foreign owned, are owned by non-US owners, and what proportion are registered by US residents. And they said, we do not know, and there is no way of knowing.

So they have this don’t ask, don’t tell type policy, which means they don’t even have the information, even if they wanted to get it. In cases like when we try to clamp down on Russian oligarchs, we don’t even have the data that we need to do that, because we don’t know who is using that and using that legitimacy. So it’s certainly part of a global system. The rules that we set here help determine what happens in the rest of the world.

Bethany McLean: Was the lack of transparency in what is supposed to be a regulated system astonishing to you?

Hal Weitzman: Yes, because it has …  so to go into how these rules are being made, which is something I don’t think anybody’s really written about, although it’s not a secret. Essentially, who writes this corporate code is a group of 27 lawyers in Delaware who sit in a private committee, write the changes to the corporate code every year, submit those changes to the Delaware legislature for scrutiny, for approval. Now, the Delaware legislature is a part-time legislature. They pay the lawmakers about $40,000 a year. There are four lawyers in that legislature—they’re not big corporate lawyers—so I think it’s fair to say that this is not a body that’s well placed to scrutinize changes to the corporate code, which are technical arcane-type rules. In fact, according to Pew, this is the least-educated legislature in America, which is giving oversight to the corporate code for the world.

Now, the lawyers from the Delaware Bar who write these rules don’t give any justification for why the rules are necessary. They certainly don’t appear in the committee. And they just give the rule, the changes they want, the rule is essentially rubber-stamped, because there’s no ability even to ask the questions that would help us to understand what the hell is going on. Then they go to the governor, and having spoken to one of the previous governors, I can tell you the governors aren’t that interested either, because we have experts writing the rules. Why do we need to challenge the experts?

I’ll just tell you one story that I thought was amazing, which is that there’s a legislator in Delaware who put forward a proposal. The proposal was to add to the corporate code a requirement that registering agents—who, by the way, could be big companies or it could be a mom-and-pop shop—that they should check the name of the company against a list that is kept by the Treasury, by the Department of the Treasury, called OFAC, which basically is a list of people who we consider to be, we, not me but the US government, considers to be terrorists or money launderers or whatever, drug traffickers.

He was asking that they change the code to require the agents to check against that list. Very noncontroversial. In fact, so noncontroversial that they actually introduced that a year later. But when he made this proposal in the Delaware legislature, he was asked in the judiciary committee, “Did you make this proposal? Or has it come through the process?” He said, “What’s the process?” They said, “Well, this has to come from the Delaware Bar.” He said, “Well, I’m a lawmaker. I’m proposing it.” They said, “No, no. All the proposals, all the changes to the corporate code have to come from the Delaware Bar.” In other words, an elected lawmaker has no power to change the law. Only this unelected group of lawyers in Delaware has the power.

So there’s a form of oversight, but it’s totally insubstantial, and that to me was quite worrying. When I’ve mentioned to legal experts, doesn’t this look like the fox guarding the henhouse, because those lawyers appear in court under the rules that they themselves have written. I mean, talk about Stigler. This is the perfection of regulatory capture. It’s institutionalizing regulatory capture. They control the whole process. They don’t even have to lobby anymore. They just write the rules themselves, and then they argue under the rules that they themselves have written. That was quite shocking to me. When I asked people, I got responses like, “Well, it’s very technical.”

I mean, there’s lots of lawmaking that’s very technical, but we don’t just sort of brush it away. They would say, “Well, people aren’t agitating on the streets about this.” Well, of course they don’t. Most people in Delaware have no idea what the hell is going on. Just like most people in Chicago have no idea what futures and options are, but we still trade. We’re still the world headquarters for trading those things. So that is not a measure of whether we should have scrutiny or not. I never got a satisfactory answer. Or people would say, “How do you think law gets made elsewhere?” All these answers seemed quite lame to me, so that was a surprise.

Bethany McLean: It ranks up there—"It’s very technical” might rank up there with “We guard our intellectual property,” as the Theranos answer, right? Run. I’m always fascinated by the ways in which a world that’s supposedly awash in information, the things that you most need to know are actually not … the information is not available at all. So Kimberly, tell me about how that affected your book. You’ve talked a little bit about foreign direct investment and how it turns out it’s actually impossible to track. What else surprised you in terms of the lack of transparency?

Kimberly Kay Hoang: I think what was really surprising to me, and this piggybacks off of some of the things that Hal said, was that under the Obama administration, there was all of this talk about cracking down on the anonymity of offshoring. Everyone kept saying, if you go into banks, if you go into company secretary offices in Hong Kong or Singapore, there’s KYC, like know your client. You have to know who the ultimate beneficiary is behind these shell companies. And certainly, there’s a game of designating nominees and having a paper owner and then you quickly legally transfer that paper ownership. But what was surprising to me in Hong Kong, Singapore, and even Switzerland was that if you hold a US passport, it was actually very difficult to open a bank account in any of these places. And because they’d been fined so heavily for all of this secrecy and money laundering.

Then if you want to open a company, like an LLC, it’s actually, I think, harder for a US citizen to register, unless you have a vintage company that’s been locked in for a long time, to register if you have a US passport. And so, what was surprising to me was when all roads led to Delaware, that Delaware had even higher secrecy practices than these other places that were now starting to self-regulate as a result of all of these fines that’ve been levied on them.

I never had the courage to do what Hal did. I study real, live people, right? And so, people that are... It’s not doc, I mean, so I think there’s a difference in terms of the research methods of our books, but I think the Trump administration really kind of saw this come to light, and a lot of the stuff that’s coming out around Jared Kushner now shows the ways in which the political and economic spheres, even in the United States, that are supposed to be separate are not. They’re so deeply intertwined. I think that’s been really surprising to me.

Bethany McLean: One of the concepts I’ve always been interested in is what I came to call legal fraud, which is the idea of things that are perfectly legal, but nonetheless corrupt or not in the public interest. And I’d love for you to talk a little bit about that. What to you is the bigger issue—that which is explicitly illegal, or that which is perfectly legal yet corrupt, immoral, secretive, etcetera?

Kimberly Kay Hoang: The language that the participants in my book used was illegal or illicit, or no, sorry, legal but morally reprehensible. That was the language that they kept using over and over. Part of the reason why people were willing to talk to me was that no one saw what they were doing as illegal or criminal, but they would say, “It’s legal. Remember, it’s legal. Everything I’m doing is fairly legal,” and they would go through this whole process. “But yeah, it’s morally reprehensible.” As a sociologist, I started to return back to the people in terms of, I mean, I was always interested in how do people at a basic level, how do people make money and move money? And what kinds of relationships facilitate this movement of money?

And so what’s the relationship between lawyers, bankers, company secretaries, accountants, financiers? But what I had to return to in this morally reprehensible was how do people make sense of the kinds of activities that they themselves believe to be morally reprehensible? And so the book goes into the sort of, it starts with this macro story, but it goes into how people make sense of this and how they draw boundaries around what is acceptable to them, or what’s not; how that changes across geographic space, but it’s certainly something people reflected a lot on, themselves. Particularly when it came to instances of theft and fraud and things that were outright egregious, but also the sort of sex stuff came back in my book in a way that I thought, oh, I finished that with my first book. I don’t want to go back to it.

But even sort of the dynamics of deal brokering that requires sort of the labor of women’s bodies in hostess bars to help facilitate deals was something people talked a lot about—drinking, drugs, sex—because what it does is it creates a relationship of mutual hostage. Actually, we saw this under the Trump administration with everything that came out about Jeffrey Epstein. And so in some ways, as I was uncovering this there thinking, oh, it’s something that happens over there in these less-developed economies, in a parallel way, I was also seeing glimpses of this in a very developed, clear, transparent state.

Bethany McLean: Can you give us a story about how people do make sense of that? I’m always fascinated by that question.

Kimberly Kay Hoang: I mean, I think that there are some people that see this as sort of the ultimate family sacrifice—that what they’re doing is securing wealth for future generations, and this is sort of what they have to do to secure that. I think other people draw hard lines and say, I just don’t participate in that. And so, they create markets where markets don’t exist, so they steer away from the kinds of business transactions that are tied to the state, like natural resources, and rather than doing something like that, they go into tech, where everything is just set up offshore to begin with. I mean, the offshore both sort of conceals, but it also enables, in that, by getting around the state, you’re cutting out a lot of these kinds of shady styles of deal-brokering too, and that is also a part of the story in the book.

Bethany McLean: Hal, it sounds like what you’re describing is a system of using the legal system both as a weapon and as a shield. Is that fair? How much of what you write about do you think is actually illegal, and how much of it is this stuff that is actually perfectly legal, yet not in all of our interests?

Hal Weitzman: Yes. I mean, it’s much like the stuff that you’ve written about over the years, because a lot of the stuff that you’ve written about, Bethany, some of it is outright illegal and fraud, and some of it is pretty gray, right? Even in the case of like Enron, some of it is very much fraud, and some of it is not so clear. It’s funny, when I was a financial journalist, if somebody said to me, “It’s perfectly legal,” my ears immediately pricked up because I knew there was a story there, because that’s a terrible justification. We saw that, if you remember the Panama Papers, which were the first—since then we’ve had an even bigger leak, the Pandora Papers, which funnily enough was a bit of a damp squib maybe because everyone’s kind of already bored and knows that people are hiding money everywhere—but the Panama Papers was a big hit.

If you remember, there was a big political fallout from that. I think the Icelandic prime minister had to resign, which is an example of, not because he was doing anything illegal. In fact, Mossack Fonseca, the company behind the Panama Papers, was there to help people do legal things. There’s all these legal companies that help, there’s all these law firms that help wealthy, usually ultra-high-net-worth individuals—the really mega rich—to defend their wealth, which basically means avoid paying taxes. And they do so. I mean, they’re law firms, so they’re hired to help them do so in a legal way. The question is when that gets out, are they going to stand up and say, yes, not only is it legal, but I’m perfectly happy to say that’s the way that I’m doing it? Your book raises exactly that question, about somebody distinguishes between what I should be doing and what I’m allowed to do.

There was a case recently in the UK that made me think of this, I’m British, Rishi Sunak, who is the chancellor, like the finance minister of the UK. His wife is a very wealthy Indian heiress, and she was found to have what’s called nondomiciled status, which essentially means she’s paid £30,000 to avoid ... Is that right? Don’t quote me on that. She paid a sum, which was relatively small, in order to avoid paying a bigger sum, which is the actual taxes that she owed. When this information came out, she recanted and said, I will now pay the taxes that I was supposed to be paying all along. Legality is an interesting concept, but it gets more murky, I think, in the case of Delaware, because as I say, who’s writing the laws in the first place?

To go back to your Capitalisn’t work, which is a fantastic podcast. If you haven’t heard it, it’s the Stigler Center, so it’s all about regulatory capture. It’s all about this very University of Chicago idea that the regulators would essentially become lobbyists for the industries that they are overseeing because of the flow of information back and forth. There are many examples of that in Washington, but this system is perfecting that because as I say, they just write the rules themselves. It’s as if the farm lobby didn’t lobby, they just wrote the rules for the farm subsidies. In some cases, you could argue that we do have that system in the United States—for example, our policy towards Cuba, which has been written by a very small group of people—but it’s not a satisfactory way of doing it. You wouldn’t say that’s ideal. So there’s a huge gap between what is legal and what is ideal. And we all know that the rules of the game are shaped by lots of different interests, and often those interests do not have the broader public interest at heart.

Bethany McLean: What I found chilling about your book, actually, was both the lack of transparency and the lack of transparency in what the policy is, because the policy is determined not by policymaking in the light of day, but rather by more shadowy means. Did you find that true too, Kimberly, in your research? Did you find that people were not only benefiting from this gray area between what’s legal and what’s illegal, but also helping themselves to establish what that gray area is?

Kimberly Kay Hoang: Yeah, I mean, actually the original title of the book was Playing in the Gray, and the only reason why that’s not the title is because gray is spelled differently in the US and the UK. But the structure is spiderweb capitalism, and the answer to that structure, the way that structure gets built, is by playing in the gray. And so many of the quotes—and this is something I also wasn’t looking for but that just keep coming up over and over again in the interviews—was just that, in these kinds of emerging markets, there’s no data, you can’t develop these fancy models to predict risk, to predict return; the returns are all about playing in the gray.

It’s about a gut feeling. It’s about the relationships. It’s about having proprietary relationships. I think that what relates back to Hal’s work, in some ways of what Hal was just saying that I thought was really surprising was because ... And the book really gets at the friction between what’s legal, illegal, licit, illicit, is in many ways people... The book ends, and when I’ve given talks on the book or formal talks on the book, people always ask, well, what do we do? The answer I say, and I think it goes back to what Hal just said, is that it’s like asking the regulators to regulate themselves.

In emerging markets, literally there would be a panel of investors or potential investors, and in the audience, it would be state officials saying like, tell us what we can do to help encourage investment. And lawyers in the audience, and they were basically writing law, and I thought, oh, this is emerging markets, this is just how it’s done in emerging markets, and it turns out that actually, that’s how it’s done here too. That was really surprising to me.

Hal Weitzman: I think if I can just add one thing.

Bethany McLean: Yeah, please.

Hal Weitzman: One thing I found fascinating about Kimberly’s book is this playing in the gray thing is getting ahead of rules being written.

Kimberly Kay Hoang: Yes.

Hal Weitzman: Right. It’s very much like, I know the rules are about to be written, so either I can make a bit of cash quickly and get out, or I can help them be written; shape how they get written. In Delaware, the rules are written. There’s no gray in that sense, right? You’re not getting ahead of anything that’s about to catch up. It’s like they’re written, and it’s not a secret. It’s just that it sort of appears to be sort of boring or technical or that’s just the way it works, and nobody bothers to dig into it. In a way it’s much less exciting, but to me much more outrageous. It’s not a Wild West. It’s a very, very well-developed, crafted, beautiful office space that nobody would question.

Bethany McLean: Yeah. It’s a fascinating difference between your books and the difference in kind of secrets, right? They can be hidden in plain sight behind boring technical language, and they can be hidden because they’re actually hidden in dark shadowy places. It’s an interesting question as to which is more pernicious.

Another one of my pet topics is this idea of capitalism in theory is supposed to be a race to the top. People are supposed to compete to make the best product that does the best thing for consumers that helps create the most efficient markets. Yet, and tell me if this is right, you both may react negatively to this, the systems that both of you describe are not races to the top—they’re races to the bottom, where the actors that can create the most secrecy, shield themselves the most, are the ones who win. Is that fair? And does that tell us something more broadly about capitalism and about markets? Kimberly, I’ll start with you.

Kimberly Kay Hoang: I think that’s such an interesting question and one that I thought a lot about while I was in Southeast Asia and the time that I also spent in China, because I kept thinking about how is it that you’re seeing this rapid economic development and this super dynamic economy and a market that everybody wants to have some access to, with this widespread corruption. And the way in which people sold the market was that they were selling the story of the country. They were selling the story of Vietnam. They were selling the story of Myanmar. They were selling the story of rapid economic development that everybody wants to have access to. But they were also selling exclusive access. Access to inside deals that weren’t open to the public, that they had unique access to. And sometimes when I traveled with people, as they were kind of making pitches in Newport Beach and Seattle and Vancouver, it was like they were showing photos of themselves, displaying sort of their political ties, and saying, we have unique access to these deals that you can only get by partnering with us.

And so that was in some ways, but however, I say that to say that people who play totally to the bottom also lose out on bigger deals to come. So I think there’s some balance here of both the inside access while also being profitable, and everybody’s looking for that sweet spot in those economies and possibly even in the US. It’s not an area that I studied, but it was always about sort of how much can you siphon off the top through kickbacks. What’s that percentage while still being profitable and generating returns to the investors?

What was interesting on the sort of limited partners and general partners who were investors from outside was that they kind of understood that there was this baseline of activity that happened that was sort of set aside in a different vehicle that handled those bribes or whatever. But as long as they were generating returns, didn’t care about that. So that was the kind of sweet spot that they were all looking for. I think that was the part that was most interesting.

Bethany McLean: That’s fascinating. Hal, do you think Delaware fosters a race to the top, a race to the bottom, or both?

Hal Weitzman: I think it’s both. I actually think what you just said hits exactly on it. I’ve always thought, I mean, there is a big academic literature in law, in legal scholarship, about whether there’s a race to the top or bottom. I’m no expert on that. But I think what Kimberly said captures it perfectly. It’s both, because they measure different things. The race to the top typically measures what are the returns, and the race to the bottom typically measures what are the standards? Those are two different things. In fact, I could have poorer standards and that will enable me to pay shareholders better dividends, right? I mean, there was some scholarship about the Delaware effect, the Delaware dividend, and you can pay, I mean, if you think about it from a very basic level, the less that you bother management and let it get on with its stuff, and the less scrutiny there is, the more opportunity there is to return capital to shareholders, because you’re not going to get tied up in explaining to the legislature what the hell the corporate code is all about.

It certainly makes it more efficient, and efficiency is great for shareholders, but it’s not great for governance because you don’t have any oversight. For example, one thing I talk about is companies tell us they want to have a social purpose. Let’s go back to Delaware, to this corporation council of the Delaware Bar, the 27 lawyers who write the rules, who are the 27 lawyers? Well, one of them is a professor at the University of Delaware, so let’s park him to one side, but the 26 working lawyers either work for companies or they work for shareholders, for activists.

So we’re assuming that this is a binary system. You’re either an activist or you’re a shareholder, but nowadays there are stakeholders. Where do stakeholders fit in? Where do the workers fit in? Where does the environment fit in? Where does society in general fit in? Well, they are not represented. They are not part of the rules. So the companies on the one hand tell us they want to have a social purpose; they want to be measured on their social purpose. But they don’t incorporate that into the legal infrastructure that they set up by which we can judge corporations. In fact, they don’t even allow those lawyers to come in and give any comment or observe or hear about what the rules are that are being written. So they enable a certain kind of standard to prevail. I don’t know if it’s a race to the bottom, but the governance is not as tight as it could be, obviously, because they cut out the political part, which is the most annoying part for them.

Actually, there is some interesting legal scholarship where they’ll be quite open and say, the reason that Delaware’s the best is because we don’t have any political uncertainty. I read that and think, political uncertainty, that means oversight. That’s just a byword for a company saying the SEC is going to regulate us. That’s political uncertainty, because we don’t know exactly what the SEC will say. Of course, when you cut that out, that’s better for shareholders. You have a race to the top because they get another two cents on their dividends. But it means that the governance standards deteriorate, so I think it’s both.

Bethany McLean: I also wonder if those negative possibilities ultimately converge in the sense that when you look at the mortgage crisis, what appeared to be a race to the top for shareholders, which was making more money by selling consumers’ terrible mortgages, was for a short term, but ended up being a race to the bottom, both for consumers and for the companies who were involved in this business. It’s an interesting question as to whether the race to the top only looks that way for the benefit of the bottom line until it doesn’t.

I wanted to talk a little bit about the external costs in all of this. Hal, you note in your book that revenues from Delaware’s business formation industry account for two-fifths of the state’s budget and have helped keep the tax burden on its residents among the lowest in the United States, so that looks great. What’s wrong with this system? I mean, Delaware people are doing great. Who absorbs the costs of this?

Hal Weitzman: Yeah, you’re right. Well, it is great. I was just going back and forth to someone on LinkedIn today who was saying, but my taxes are so high in Delaware because personal income taxes are high, but they don’t have any sales tax, and they have very low property taxes, so the overall effect is they’re pretty much the second-lowest tax burden in the US. They call it a … and let me get my colors right, they call it a blue spending state with red taxes. Every politician’s dream, right, Austan? Spend as much as you want and don’t tax people. That’s what every politician wants, and they’ve achieved that in Delaware. So it’s great for the residents of Delaware.

What are the costs? Well, there have been some horrific cases that have used Delaware companies: cases of money laundering, drug trafficking, kleptocracy, arms trafficking, child sex trafficking, most famously through Backpage, which if you remember was a classified-ads company that was basically enabling child sex trafficking. At one time, it was responsible for three-quarters of all the child trafficking in the United States—or not—wasn’t responsible, let me be careful, was enabling that by running ads, which they knew were from child trafficking and didn’t do anything about it. The company was closed down.

There’s a huge cost to that. I mean, I talk in the book about all these high-profile cases—dictators who’ve stolen money from their countries and have just laundered it through Delaware. We both discussed 1MDB, which is a famous case in Malaysia where billions of dollars was pilfered from public funds, ended up funding another movie, which I love, The Wolf of Wall Street, right? That was funded by money stolen from the Malaysian treasury. There’s a huge cost globally. This is a global story. There’s a huge global cost, which happens because of corporate anonymity, which is not just a Delaware problem, but is principally supported and aided and abetted by Delaware.

So that’s one big cost. There’s a cost to us, as I’m guessing that most people in the room and perhaps many people online are taxpayers in a state that is not Delaware. So if you’re a taxpayer in a state that’s not Delaware, there is a dodge called the Delaware loophole which enables companies that have locations in lots of places to funnel, to pay themselves for the use of their own trademarks. A famous example I talk about in the book is Home Depot. Home Depot transferred all its trademarks to a Delaware holding company, then paid that Delaware holding company for use of the trademarks—which, by the way, it had been using all along for free, but suddenly decided it had to pay itself—funneled billions of dollars a year through this company, which basically employed one person in Delaware and three assistants in Delaware.

So the rest of us, our states lose taxes, and that means that if you live in Illinois, you know that the state of Illinois is not doing too well in terms of collecting taxes. In fact, that is a national story in the US: the corporate state income tax revenue has collapsed over the past 50 years, largely because of dodges like this. So the rest of us, at one point, we’re going to end up paying for it.

I mean, that’s why people are leaving Illinois, partly, in droves, because at some point we are going to be responsible for a massive debt because we’re still paying out retirement to public servants. That’s another cost. And there’s a cost to oversight, like just the costs to our system. It undermines our democratic system that we don’t have any oversight of this aspect of our corporate sector. I mean, we still have, of course, the SEC, but this particular aspect of the fiduciary responsibilities of managers is the sole responsibility of Delaware, and if they’re not providing any oversight, that’s a cost to all of us.

Bethany McLean: Kimberly, the spiderweb enriches its participants. It makes people rich. What’s wrong with that?

Kimberly Kay Hoang: As Hal was talking, I was thinking about this question, because I think the cost ultimately is that there’s no ... I teach this class called States, Markets, and Bodies, and in the class we go through the 2008 financial crisis. And students walk through that and think, wow, that was really egregious. Then I teach the story of 1MDB right after, 10 years later, and ask the question of how is it that we witnessed this, the largest global heist that involved the most legitimate firms like Goldman Sachs and the prime minister of Malaysia and using all of these offshore entities? When I think about that, I kind of think … and so the story that I sort of tell in Spiderweb Capitalism is that it’s hard to identify one culprit, the way we did with the 2008 financial crisis, where you have the names of Wall Street executives that were kind of the villain of the story.

In this story, because it’s global and because it spans the whole web, it’s very hard to identify one culprit. In fact, after collecting all of this data, because I interviewed live, real people that are embedded in this system, I presented the early findings to a handful of closed-door sessions to some of the folks that I interviewed. I was nervous, because I thought, oh, maybe they’re going to help me find the piece of yarn that’s going to unravel, the thread that’s going to unravel the whole ball of yarn that’s going to make me go back and collect more data. The reaction that I got actually was surprising to me, which was, oh yeah, that’s very brave that you did this.

I never thought about it this way. I always thought about like this specialized thing that I did in my sphere. I never thought about how I was connected to all of these other people and entities. To me, that’s the scary part, which is that there’s no culprit. It’s systemic, and it’s a system. And I don’t know how you dismantle a system where both political and elites around the world and high-net-worth individuals are kind of embedded in the system and mutually profiting off of it together.

Bethany McLean: Which leads to a good final question for both of you before we open it up to lots of questions from the audience, which is a little bit of a spin on the theme for this event. But how did your reporting and thinking for this book change the way you thought about how corporations, but more in your case, financial interests, influence public policy?

Kimberly Kay Hoang: I wish that I didn’t say this, but when I talk about this with my students and when I teach about it, I feel very dystopic. I have a daughter who’s 19 months old, and I keep saying like, OK, I’m teaching you this. Now, you solve the problem. Help me fix this, help us fix these problems. But it feels very dystopic because it feels like it’s so hard to imagine a way out or a way to think about putting in better regulatory structures or systems of real governance or transparency. There’s just such a huge lack of transparency. And so I think that it’s made me far more cynical and dystopic than I could have ever imagined.

Bethany McLean: The lack of a villain is also a really interesting theme in your work, because when there’s a villain, then we know what to do.

Kimberly Kay Hoang: Yes.

Bethany McLean: That was one of the nice things, right, about the Enron story: there was a villain, even if that perhaps was a little too easy, but there was a villain. And when there’s not, in the stories both of you tell, it’s far more complex. What do you think, Hal? How did this book influence the way you thought about how corporations, the amount of control corporations have over public policy?

Hal Weitzman: I mean, they do; I don’t know that that’s a surprise. I mean, not to undermine the whole event, but I think that’s pretty well accepted. Actually, I feel like when you write these sorts of books, partly because of the success of your books, Bethany, people are not surprised. Like, oh, it’s another corporation that I deal with every day, that’s dodging taxes. It’s almost like who cares. It’s funny, 10 years ago now, I wrote a prior book about South America, where I was a correspondent. Again, there were some companies doing not very nice things there, and I don’t really blame the companies. I mean, the companies operate, and individuals operate, in the systems that they’re given. And any rules have loopholes, and lawyers are paid to find those loopholes.

It’s depressing that so many of our brightest minds—you asked about the costs? I mean, here’s a cost. So many of our brightest people in our society spend their time finding ways for companies to dodge taxes. That’s a little depressing. Like in classical times people were ... Pythagoras, whatever, doing amazing things. And now Pythagoras is working at a consulting firm, dodging tax. It’s a little depressing. But on the other hand, the companies respond to the environment that they’re given. To me, what was amazing about what I was researching was not that companies were doing things that were dodgy. It was that Delaware was kind of dodgy—that we had this system, and people were sort of shooing me away, saying that’s not a story, which again is like, ah, my ears pricked up.

The system is so taken for granted and is so weak in this particular aspect. That’s, to me, the most interesting part. I mean, it’s the most prosaic, most mundane, the most kind of Delaware of the stories that I tell in the book, because it’s just about a committee that meets in probably some windowless room in Wilmington, which is not a location for a movie yet, until they make a movie out of my book, which I’m interested in if anyone’s watching, but it is kind of mundane. There is a story I have, if I can just be very quick, about Mossack Fonseca, which again is the law firm that in Panama, its papers were leaked, how it was helping all these wealthy people around the world hide their money.

And so the story I have in the book is that in the ’80s, when Manuel Noriega was still the president of Panama, an American investigative journalist went down there to try and trace how offshore was being used in Panama. He was introduced to, at the time, a young lawyer called Ramón Fonseca—who, by the way, there’s a movie about this called The Laundromat, which I enjoyed, with Antonio Banderas plays Ramón Fonseca. He said, he had interviewed Ramón Fonseca about offshore finance, and then at the end of the interview, he said to him, “So you help wealthy people hide their money all over the world. Where do you keep your money?" And quick as a flash, Ramón Fonseca said, “In Delaware. They’ll never find it there.” You know what I mean? It’s like the system is so designed to hide stuff. I don’t really think it’s corporations doing terrible things or even wealthy individuals doing terrible things. I mean, my kids were very disappointed that—now I’ve forgotten the name of the actress, Hermione Granger from Harry Potter, Emma, I can’t remember her last name ...

Bethany McLean: Emma Watson.

Hal Weitzman: Watson. Thank you. My wife had told me off because I said to the kids, everyone’s doing it, Emma Watson’s doing it. They were horrified. Because of course my wife told me off afterwards and said, don’t say that to the kids, because it’s not Emma Watson doing it, it’s through an army of lawyers. She probably has no idea where her money is, right? There’s a whole industry of people who are set up to exploit this weakness in the system. I do think that there’s good reason to be optimistic. I think partly, unfortunately, because of Ukraine, there is a renewed effort to address these issues. I give credit to Janet Yellen and the administration in the US for trying to set a minimum corporate tax rate around the world to stop capital flight. So I think it’s moving in a positive direction.

Bethany McLean: That’s interesting. I was thinking when you were talking that we should update that old saying “the devil is in the details” and say, maybe there’s a better way to say this, but “the devil is in the accumulation of mundane details,” right? So I wanted to turn it to some questions from the audience. And so, as I read out these questions, why don’t both of you just look at me and tell me which one of you would like to start with them? But this is an interesting one, it’s from [unclear], and he asks, “What is the moral and ethical compass that drives corporations?” Do you think there is one?

Kimberly Kay Hoang: I really struggled with my book because I felt like it had no soul. When I finished my first book that was on sex workers, the sex workers were kind of the soul and heart of the book. I think this book took me two more years than I would’ve liked because I just couldn’t find it. And finally, one day somebody, one of my research subjects said to me, capital has no soul. There is no moral compass. I think that’s a bit extreme. I think there’s a lot of variation there, and the book tries to capture some of that, but I think that’s part of the story.

Hal Weitzman: I mean, I would be interested to hear your views on this, Bethany, because you’ve covered a lot of companies, and so maybe I can throw the question back to you. What would you say?

Bethany McLean: I think it depends on the company, and I think it depends on the leader. And I think unfortunately, it can change very rapidly with whoever is in charge. I think the company itself has no natural moral or ethical compass, but the leader can instill one. But unfortunately, or fortunately, when that leader changes, so can that compass, and it can change very, very quickly.

Hal Weitzman: I mean, the companies are telling us that they do have a moral purpose, so I didn’t make that up. Companies have been telling us, particularly in the past three or four years, they want to have a moral compass. They want to have purpose. They want to move from shareholder capitalism to stakeholder capitalism. I mean, in the past few months, in particular, there’s been a big backlash against that, but still, that’s the predominant thing. We want to have a moral purpose. The most obvious example of that, we were talking about before this event, is environmental stuff. The companies have just said, we don’t want to be big polluters anymore. They’re telling us they want to have, I don’t know if it’s moral, but they want to have some kind of purpose beyond just making money, just making cash for their investors.

A lot of companies that are being more friendly with the amount that they pay workers, with giving leave to workers and other kind of conditions, which has, what’s the word, accelerated because of the pandemic. The kind of paid time off or unlimited time off type rules. They’re telling us that they care more about workers. Of course, because of the Great Resignation, they have to tell us that. They’re telling us they care more about the environment. In some cases, they’re telling us they care more about society, because they’re putting Black Lives Matter on their Twitter feed and whatever else.

Now, there is a lot of research that shows that all of this is nonsense, that they’re not actually doing anything substantial beyond someone in the social media team posting something, but that’s what they’re telling us that their moral compass is. I’m just saying, is the system holding them accountable at all to that? I think there are very smart people working on things like measuring environmental impact, but we’re not quite there yet. I would say, we need to look to ourselves to sort of hold them to the standards that they have told us that they want to be held to.

Bethany McLean: I think it’s a question of measurement, in the sense that bottom-line profits are a very easy thing to measure, and all these other things that we’re talking about are not very easy to measure. And until we decide on a way to measure them, it is … the words are probably pretty meaningless, no matter how well intentioned the companies might be.

Hal Weitzman: Well, the SEC is working on that question right now—of how to measure environmental impact—so hopefully we’re moving in the right direction.

Bethany McLean: But I also think you’re right that as the ground rules change, as the moral code of the country changes, so do companies change with it. Here’s another interesting question that probably plays to some of your thinking—that many people are shocked to hear that corporations are legally persons. Despite its long history, should that designation be retained? Is corporate personhood a good idea? Was it ever?

Hal Weitzman: I’m not sure I’m an expert on particularly on what ... Yeah, I don’t think I know what the advantages would be if they weren’t considered people. I’m not sure.

Bethany McLean: OK.

Kimberly Kay Hoang: I don’t feel like I have any thoughts about that either.

Bethany McLean: OK. Let’s see. We will move on to … there was another question here. Aha. And this goes to the idea of any sort of, we’ve talked a little bit about this, but any sort of hope we have for change in the future. This is a question from Sue Klaus: “What is a realistic plan or goal for unwinding the fraud, greed, power, and corruption that has overtaken our society today, starting with corporations?”

Kimberly Kay Hoang: I think my students give me a lot of hope in this way, because when I think about regulatory capture, when I think about the ways in which these systems are in fact embedded, not just in developing economies but all around the world, public shame has done a lot. I think that’s come from a younger generation who are kind of fearless in this kind of public shaming of what they see as egregious. I think about all of the ways in which they’ve been disruptive to the current systems that are in place, and there are different ways that they’ve done this and different types of movements that have been mobilized around or through social media, and for better or for worse in some senses, but I do think that there’s a certain kind of accountability that we’re beginning to see, because this is all coming to the surface.

Hal Weitzman: Yeah. I mean, I can report on the corporate anonymity front, there is definitely some developments I can quickly update you on, which are that in 2020 Congress did pass a bill called the Corporate Transparency Bill, I guess, which then became the Corporate Transparency Act. It’s currently … the rules are being written, but it’s a big step forward in the sense that from now on, every company in the United States will have to identify its so-called beneficial owners, which means its true owners, to a unit of the treasury that’s called FinCEN, which is a financial crimes unit. So that’s good. I have a lot of problems with the legislation. For example, they’re going to create a registry that’s not going to be public, so we won’t be able to access it. We won’t be able to use all sorts of fancy gadgetry; it won’t be machine readable and available.

So that’s unfortunate. It’s also not completely … I’m going to chat with my friends in the Treasury in a couple of weeks. I want to be careful before I hear from them, but I’m not very confident that they will be able to process tens of millions of corporate registration documents, which they haven’t received up till now. If you know anything about the Treasury, Janet Yellen was recently in Congress talking about it. They are really under-resourced to deal with these kinds of issues. Of course, every agency in Washington wants more money. In this case, though, we are saying, you’ve got to do a lot more work, but very few extra resources, a little bit more, but not really enough. I think I read that America has about the same number of people in its financial crimes enforcement unit as Australia does. There’s a lot more companies in the United States, a lot more population, so it is not at all where it could be. Let’s put it that way.

So it’s kind of a small step forward. I’m not that confident that it’s going to make a big difference. I mean, in the UK, just to go to a different advanced economy, one that I know very well, they’ve long had a system of open corporate registration called Companies House, where any of us can go on the website and search. Unfortunately, a lot of the information is missing, which recently came to light because of the Ukraine issue, trying to combat Russian money. And so people have been buying yachts and property in London using corporate structures that have turned out to be anonymous, even though there is supposedly a registry. They are trying to beef that up.

There are some efforts in individual states. In New York State and in Alaska, there are proposals before the legislature. Unfortunately, the New York session just ended because they’re also part time, but there are proposals to improve transparency there and get all companies to register in addition to whatever they’re doing at the federal level. So there are efforts. They’re not very joined up. Just to give you an example, even once the US has worked out the rules and implemented the rules—which hopefully will be next year, but could be delayed—on corporate transparency, it will still be possible to register an anonymous Delaware corporation. It just requires you two weeks later to register it with the federal government. While I’m getting on a flight to Scotland tomorrow, it’s as if I got on the flight to Scotland, landed in Edinburgh, then two weeks later had to show my passport. I mean, it’s a huge burden to those that are legitimate. Many people will be very happy to give their documentation at the point of registration. That would be the best way of doing it. For some reason, we are establishing a bifurcated system.

The short answer is we are doing some things. I think the impulse is there. I think we’re doing it in a little bit of a cack-handed way. And partly that’s because of the power of Delaware to say, no, no, we’re not going to force our agents to just ask the question, can we get identification? It’s easier to set up a company in Delaware than it is to get a library card in Delaware. To get a library card, you have to show one form of ID. You don’t have to show anything to set up a corporation. Of course, you don’t have to be in Delaware or even visit Delaware or show anything. So that system remains. So I think there are some reasons to be optimistic about where things are going, but there’s a huge amount more work to be done.

Bethany McLean: The library card anecdote is fascinating, and that goes back to your point about Delaware’s power to both write the rules and then enforce the way they’re written.

Hal Weitzman:  Just one more point in that. People might think, Delaware? I mean, Delaware has no power. Our then-senator Barack Obama sponsored legislation in the Senate to mandate corporate transparency. Carl Levin, the former senator from Michigan, pushed that legislation, and the secretary of state in Delaware, the current serving secretary of state, led a campaign to stop it and was able to do so. Barack Obama, as a senator at least, was not able to overcome the power of tiny Delaware.

Bethany McLean: Delaware.

Hal Weitzman: Yeah.

Bethany McLean: That’s fascinating. We have a bunch of questions along these lines, so I’m going to try to condense them, but here’s one that I think gets at it: “If certain policies and regulations are oftentimes seen as being in opposition to the bottom line, but for the greater good of public interest, what would make them more attractive? Is there really an opportunity that is being seized here? Is there no way out?” I guess the way I would expand on that question a little bit, and there are questions in here that expand on it, that basically say, well, what wins in the end? If you have this pressure to do things that are in the public interest, but not in a company’s bottom line, what’s going to win at the end of the day? And what should win?

Hal Weitzman: I would just go back to what companies tell us they want to do. Obviously, they want to return profits to their shareholders, and nobody would argue that’s not the duty of a company. The debate currently is about whether that is the sole duty of the company, as Milton Friedman may or may not have meant. That’s another debate that the Stigler Center has covered very well. But nobody would say companies shouldn’t be making a profit. There’s a famous story about Anita Roddick, if you remember her—the woman who started the Body Shop—and she was in one of the Body Shops, and she was talking to one of the employees, and they were saying, I love being here because of social impact.

She sort of stopped the woman and said, “Hang on a second. We’re here to make money; we’re a business.” That is perfectly legitimate. We want companies to be profitable, of course. I mean, I think it goes back to what we said earlier. They have to set the criteria by which they want us to judge them. But so far, it’s all been very smoke and mirrors, isn’t it? We believe in stakeholder capitalism, but they have not helped define what that is. But I mean, I think I am hopeful that at least in the environmental part of the ESG, I think it’s the most quantifiable area.

I obviously said a key word—ESG, and suddenly a horn goes off. But I think at least in that area, that we could quantify the impact. Whether they will then start including it in their annual reports, and saying, we are better because of this, I think they will, because what we’ve seen in the past few years is huge investor demand for this kind of offering. And so, currently the debate is about greenwashing. Are they pretending to do it, but not doing it? I am quite optimistic in the next few years, we will sort that out.

Bethany McLean: Kimberly, maybe the best way to filter this question for you is, are there things that would change those moral trade-offs that you talked about earlier, where people try to wrestle with this line between what’s illegal, what’s just wrong, but why they do it anyway? Can you see things that would change that calculation in their mind?

Kimberly Kay Hoang: I think it’s hard for me to answer that, in part because I feel like Hal’s the supreme optimist on the panel, and then I feel like I come off as the pessimist.

Bethany McLean: Don’t worry, I’m over here with you. It’s fine.

Kimberly Kay Hoang: But one of the things that I think a lot about, with what Hal was saying, and we’ve gone on a walk and debated this ourselves, is that, it used to be the case where the United States wrote the rules of the road for the rest of the world, and they don’t anymore. So I think what for me is challenging is that when people are making investments in emerging markets—and you’re talking about tax margins, where you’re converting what would otherwise be taxes into profits or return on investment in emerging markets, where rather than paying those taxes, you’re paying lower taxes or no taxes via bribes, it’s hard for me to imagine that balance. Because it assumes that we live in a world without geopolitical conflict—that Russia and China and the United States and all these Southeast Asian nations and other places are going to participate once these rules are written.

So while Delaware is one place where this is all happening, it could easily move, and I guess that’s the ... I don’t want to end with such a pessimistic view, but I mean, I’m like maybe Hal, you should end with something more optimistic, but I guess I just don’t have a lot of faith in the kind of rhetoric, because we see this a lot also with diversity, equity, and inclusion initiatives. It’s sort of like, OK, everyone says that they value diversity, they care about diversity, and what do they do? They bring in a diversity consultant, have a few workshops, read a few books, and then move on, but they’re not actually changing the inside of the company or the corporation. If they can’t even do that around diversity, how are they going to do that around issues that really affect the profit margins?

Bethany McLean: I guess if you were to be optimistic, you would say that the words have to change first and then the actions change next. And so maybe the fact that the words are changing, it’s not at all dispositive, but it’s at least a hopeful sign. But I do want to end on the note for possible optimism, which is, and this is a bit of a game show ending, but if you ruled the world for a day, what’s the thing you would change to fix the issues that you identify, or at least make them better, if not fix them? Is there something we could do if we had the motivation and the willpower to do it and the political power and the control over the world?

Kimberly Kay Hoang: I mean, I think that Hal kind of touched on this. If I could rule the world tomorrow, I would want my most talented undergraduate students to work on the side of regulators. To really develop strong systems in place that are holding firms and people who run these firms accountable. And I think we’ve lost a lot of that when the most talented people are very quickly recruited year one or two in their undergraduate career to very lucrative careers that are doing the opposite of that. And so I think that we just need to have talent going in this other direction, too.

Bethany McLean: Hal?

Hal Weitzman: Yeah. If I ruled the world, I wouldn’t change a thing because I would be able to use these anonymous structures to my own evil ends, of course. But if I had my druthers, as you say in the United States, I’d just end corporate anonymity. Transparency is not a liberal left-wing idea. Transparency aids capital formation; transparency aids price discovery, of course; it aids good supervision of markets, which is good for financial markets. It is good for capitalism. Better transparency would make the system work better. I also think it could improve trust in the system, which is a huge problem right now. So I think we should try to promote corporate transparency in as many places as possible, not worry about capital flight, because if we’re confident in the product and the laws and the surety that we provide in the United States and the UK and European Union, then people will come and do business there. And so I would end all corporate anonymity and make the information freely available and machine readable so people can spot patterns and find out what’s actually happening in the corporate world.

Bethany McLean: A quick closing note: Kimberly, it’s interesting that you mentioned regulators, because when I was a fellow at the Institute of Politics in the wake of the global financial crisis, I had Dan Mudd, the former CEO of Fannie Mae come in, and he looked around the room and he said, raise your hand, if you want to be a regulator. And the students looked at him, and of course nobody did. And that was his explanation for part of what had gone wrong. But I think one of my big takeaways from this is that we too often pretend there’s transparency when there really isn’t. And that, at least if we can start, as you two have done in your excellent books, by shining a light on the places in the world where there really isn’t transparency, I think that’s a huge starting point. Thank you both for being with us, and thank you all for listening and for being here, and let’s all have a lovely evening.

Kimberly Kay Hoang: Thank you.

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