I get what you're saying, but limited liability has been a thing for quite a while now. It would be hard to find a few billion dollars to make a new car plant if you could lose more than you put in. But also there are already "piercing the veil" laws where you actually are liable for your business if you commit fraud.

Perhaps it's worth a rethink, as it's been a while since the 1800s when capital was scarce.

So who is paying who? Am I just transferring money from my 401k to someone else’s and then they transfer it back since we both own shares in index funds?

Going to $0.00 is plenty of incentive for shareholders to demand accountability. It makes no sense to me to somehow go even lower than that. And why would shareholders be specifically punished but not creditors? If there is some liability claim how are shareholders not just equally responsible as everyone else including creditors? If Joe down the street buys a share of Enron he’s going to get sued? If Jane who works as the company nurse owns stock is she now getting sued? How does she with her 10 shares effectively make management “less fraudulent”? What leverage?

C’mon.

When a company goes bust or bad things happen, shareholders everywhere lose their investment. That’s a big enough deal as it is.

> If everyone involved with the company would be personally liable...

Liable for what? Are creditors suing shareholders for losses? I guess banks won’t hold shares of companies because then they’d just be suing themselves.

If a company “does damages” and the government failed to regulate the company properly can we sue the government too? What about suppliers? Why draw the line at shares? Maybe everyone who was ever paid by the company should be held liable?

What you’re proposing here could use some work. You’re trying to create a system of infinite liability that just doesn’t make much sense.

> And why would shareholders be specifically punished but not creditors? If there is some liability claim how are shareholders not just equally responsible as everyone else including creditors?

FWIW I also believe that creditors should take more responsibility on the credit they give. We saw in the financial bubble of 2008 that there are many incentives for creditors to provide credit to persons and companies that _they know_ won't be able to pay.

> Am I just transferring money from my 401k to someone else’s and then they transfer it back since we both own shares in index funds?

Putting your 401k into stocks and index funds is a choice you make. Nobody forces you to do that, and you, e.g., put them in bonds instead for lower returns and lower risks, or if you are willing to take more risks, there are Index funds and ETF for pretty much any criteria you can imagine. I personally think that using a 401k with index funds on stock is a great choice given how the market has grown the last 100 years, but many countries actually don't have 401ks (e.g. most of Europe doesn't have them) and they do jut fine.

> What you’re proposing here could use some work.

That's a really positive and kind way to put it, thanks. It was just a thought.

The system of "a company is only liable with its assets" is what we have had for a very long time. There are many scams that exploit this, and a continuous stream of gross negliglence or malice that shows up every now and then when those at fault are able to just walk away and do it again.

Thanks for your thoughtful response here. I want to really dive into something here which is your comment about 401ks and bonds.

Unless I misunderstand what you are intending with your original post (and obviously that can be subject to reinterpretation, modification, etc. - i.e. I don't hold anybody to the original idea when there is room for evolution) - if you put money into your 401k into something like, let's say a total stock market index fund - you could be sued for any company doing anything negligent. Right?

Now you might say - well that's the point. You should do your research. So let's say you're risk-adverse to being sued as a shareholder and only buy stock in the S&P 500.

So the S&P 500 Surely those are good companies, right? Sure. Except now there's only a small exclusive group of companies that get investor dollars. You're funneling money straight into the dominant companies. How could a smaller company ever raise capital?

You may recall that index funds and ETFs are made up of individual companies - actual shares. So to the extent that you have to research every company and know it inside and out so that you aren't exposed to potential lawsuits effectively eliminates all individuals from the capital markets. Only the wealthy would have ownership stakes! 401ks are just a convenient vehicle to help regular people save money - many in Europe and elsewhere opine for such a thing (spend some time on the investing subreddit).

Part of the whole point of this exercise is that you want regular people to share in the success of companies. If you open them up to liability, you defeat that. Jeff Bezos and Marc Andreesen can afford liability lawsuits. You and I can't. The rich get richer.

I'm also not sure why bonds would shield you from liability. You're still giving the company money to do these bad things, why does it matter if you have ownership? Hell, maybe companies just issue high-dividend paying bonds and avoid the whole "ownership" liability thing?

I think you're on point with regard to accountability - but that's a current failure of government, not corporations. I'm also not sure about the potential externalities that are caused by making any shareholder liable for a company's bad behavior. From a philosophical standpoint there are a lot of things to consider and I think we'd really have to nail down what specifically the issue is. Certainly workers who work at bad companies should be punished just as much as shareholders, right? Shouldn't the be personally liable even more than shareholders since they make the whole company run? And why would that not extend from management down to the janitor?

> I'm also not sure why bonds would shield you from liability. You're still giving the company money to do these bad things, why does it matter if you have ownership?

Sorry, should have clarified "government bonds" here.

We are hypothetically talking about changing the rules, so we could change them to whatever.

I think the fundamental problems here are a lack of oversight, and also a lack of financial incentive to avoid defaulting in the very long term (as a "mortal" investor, at some point you are going to cash out).

Thinking about the 401k, you mention the S&P500 index, but there are thousands of indices. There could be an S&P500 "proper oversight" index, that filters the S&P500 by some oversight metric. If that gives you 200 stocks instead of 500, and that's too little diversification for you, there could also be an MSCI ACWI IMI "proper oversight" variant as well.

Creating an exemption for 401 and pension plans in general could be an option, but TBH many index funds are big investors in companies, and they do often have a say.

> Sorry, should have clarified "government bonds" here.

Sure, no problem. But what about when the government does bad things and gets sued? At least something to think about.

I think some of the things you're discussing here are still fundamental government enforcement issues. You can create a "proper oversight" index but that doesn't shield individual investors. Facebook would have been part of that, for example, but now things have changed and the company could be open to liability for damages. I think the main issue here is there is too much risk for individual investors - they can't be experts in every stock or research every company - or get out if they start to see a pattern of fraud. So the only people who will own companies will be wealthy individuals and institutions that can fight lawsuits.

I also don't think this solves the concentration of wealth to the top companies. You can be a small, highly ethical company but not be able to raise capital in the public markets because investors are too risk adverse.

In my view, I think if you believe that there is a lack of oversight and a financial incentive to default, then you need to go back and look at how the government enforces rules that already exist before blowing up the entire capital markets for regular people. They seem to work pretty well, overall. Government bonds pay nothing now - if every investor had to exit the market (me and you) we'd just be stuck with useless dollars and no means to deploy them.

If you haven't read it, Fooling Some of the People All of the Time is a great, but also depressing read into this.

Thanks for the book, will give it a read!

Thanks for the interesting thoughts and discussion!

Do we prosecute the janitors, too? What about the admin staff? I'm fine with burning HR at the stake, but some fairer minded folks might point out their general lack of involvement in business decisions that affect the public, as a reason to spare them.

The kindest thing I could think to call your idea is naive and poorly conceived.

Do the janitors and admin staff hold shares? Ie do they benefit from the companies profits and do they have power over the board and executive teams?

If not the shareholders, someone in control of the company should be held accountable to avoid a "company in trouble? oh well, just shut it down, debt go poof, start again elsewhere, pocket the profits" situation or a situation where the company does something like damaging the environment. Too often do companies also get gutted to avoid paying out in lawsuits. There should always be people to go after. Probably it should be the board and executive team, rather than "I bought a single share" people. Ideally someone with skin in the game (so either being a shareholder, or maybe high salaries are sufficient too).

Shareholders already do get a penalty. The company gets fined which impacts future profitability and the stock price, thereby impacting shareholders.

Also, most often the shareholders of large companies have no knowledge of illegal behaviour because the responsible stakeholders/executives inside the org are hiding that information. Enron is an example.

What we need is more executive accountability. For example jail sentences to the HSBC execs that knowingly facilitated money laundering for the Sinaloa Cartel. Instead what we got was a mere fine which mostly impacted the shareholders.

Right now, as a share holder I don't really care about what the company does, only that the stonks go up.

There is no financial motivation for me to care. Sure, stonks can go to zero, but I still don't care. I have a very diversified portfolio (5k positions) because stonks go to zero all the time, even if companies don't do anything illegal.

If I were liable, I would have to care, because one position could bring down your whole portfolio. I would only invest in companies with a lot of oversight, etc.

I don't think a system in which the government is in charge of the oversight can work; there are just too many companies. I think every party financially invested in the company must be intrinsically motivated to perform a high degree of oversight.

I'm averse to making a big change like stripping limited liability when there's easier and less complicated first steps: much larger fine size and executive accountability.

Do they benefit from wages paid by the company? Why do you draw the line at shares???

Because shares are ownership.

Why does that matter? The workers are still profiting off of the company's bad actions.

I have non voting shares in 500+ companies due to index funds. I really don't think making me personally financially liable makes sense.

I get what you are saying, but you are the one that chooses which index fund to use.

Sure, one could limit this to voting rights, but most big Index funds have voting right on many companies because they own collectively many shares.

One could also limit this to "outside 401k / pension programs", etc.

But if you have a say in what a company does (or can sue them for damages as an investor), you also have a responsibility for what that company is doing.

I don't know what the right solution to this problem is, but in many companies, the shareholders tell the CEO what to do and have no liability. This encourages them to optimize for maximum profits, making smaller "Company sized" damages part of the operating expenses, but without regard for huge damages like in this case.

Which isn't fair either, since it means the damages to these people won't be payed by those who profited from them.

So you are effectively gambling on a speculative value of the company and not investing in it.