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Will Purdue’s Bankruptcy Engulf Its Owners?

Tyler Cowen

(Bloomberg Opinion) -- The bankruptcy of Purdue Pharma LP lays bare a distinction that the internet is making it more and more difficult to maintain: that between a company and the people who own or founded it.

The Sackler family owns Purdue Pharma, the maker of the opioid OxyContin, which has contributed to a crisis that has resulted in the deaths of hundreds of thousands of Americans. There are numerous charges and more than 2,000 lawsuits against the company and its owners, and some recent joint settlements. The company has now declared bankruptcy, and wants to give control of Purdue to a trust run by the states, cities and counties that have filed suit against it.

But what about the personal fortune of the Sacklers, estimated at $13 billion or more? Under traditional corporate theory, there is a clear distinction between the assets of the corporation and those of the owners. The limited liability company can go under, but the assets of the company owners are safe — just as, say, holding shares of Volkswagen in your mutual fund did not expose you to any personal liability for the automaker’s actions in falsifying emissions data.

It turns out that this distinction is harder to uphold, if only in the eyes of the public, when a single family owns and runs a company. Last week New York State alleged that the Sackler family drained at least $1 billion from Purdue for the purpose of avoiding penalties against the corporation and thus shielding its wealth. If it looks like the Sackler family was trying to avoid legal penalties and fines, there will be strong political pressure, possibly backed by public opinion, to go after those additional funds.

More generally, if a company is endangered by lawsuits, and the suits are not settled, its owners have a rationale to extract money from the company and stash it far away. But doing so will elicit a legal and public response, and the distinction between the personal and the corporate will not always be respected.

Consider the Federal Trade Commission’s recent settlement with Facebook, under which some of founder Mark Zuckerberg’s personal assets are potentially on the line if Facebook does not respect its privacy agreements with the federal government. Some FTC commissioners suggested harsher treatment yet for Zuckerberg’s personal assets.

Or, to give another example, Senator Elizabeth Warren has been promoting the notion of personal criminal liability for corporate CEOs if the firms engage in wrongdoing. Her bill would extend corporate liability beyond the company itself, and of course most CEOs of major companies are also shareholders to some extent. Maybe the goal is to punish these individuals in their roles as executives rather than as shareholders. But such penalties would blur these distinctions in the mind of the public — and eventually, perhaps, under the law.

So how does the internet matter in all this? First, social media is very effective at drumming up outrage, and negative news seems to have a longer lifespan than positive news. The media’s pre-existing negative bias has been amplified, creating further animosity against any actual or supposed corporate villain.

More important, social media personalizes agency — in effect, making it easier to accuse particular individuals of wrongdoing. Mark Zuckerberg, Jeff Bezos, and the Koch brothers all have images or iconic photos that can be put into a social media post, amplifying any attack on their respective companies. It is harder to vilify Exxon, in part because hardly anyone can name its CEO (Darren Woods, since 2017), who in any case did not create the current version of the company. Putting the Exxon logo on your vituperative social media post just doesn’t have the same impact. With Bill Gates having stepped down as Microsoft CEO in 2000, it is harder to vilify that company as well.

This personalization of corporate evil has become a bigger issue in part because many prominent tech companies are currently led by their founders, and also because the number of publicly traded companies has been falling, which means there are fewer truly anonymous corporations. It’s not hard to imagine a future in which the most important decision a new company makes is how personalized it wants to be. A well-known founder can spark interest in the company and its products, and help to attract talent. At the same time, a personalized company is potentially a much greater target.

The more human identities and feelings are part of the equation, however, the harder it will be to keep the classic distinction between a corporation and its owners. As the era of personalization evolves, it will inevitably engulf that most impersonal of entities — the corporation.

(Corrects second paragraph to say that hundreds of thousands of deaths have resulted from the opioid crisis, not the opioid OxyContin, in article published Sept. 16.)

To contact the author of this story: Tyler Cowen at tcowen2@bloomberg.net

To contact the editor responsible for this story: Michael Newman at mnewman43@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tyler Cowen is a Bloomberg Opinion columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include "Big Business: A Love Letter to an American Anti-Hero."

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