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If something is legal, is it also ethical? Many ask this question when they hear about corporations that find legal loopholes and tax havens.

Chicago Booth hosted an event at Gleacher Center titled Corporations, Secrecy, and Ethics, the latest in the school’s A Meeting of the Minds series, cosponsored by the Institute on the Formation of Knowledge at the University of Chicago. Two panelists—authors of books that delve into the questions of ethics and legality—spoke of offshore deals, money moving in secret, and legal systems built for corporate desires.

“The language that the participants in my book use was ‘legal but morally reprehensible,’” said Kimberly Kay Hoang, associate professor of sociology and the college and director of global studies at UChicago. She’s also the author of the forthcoming book Spiderweb Capitalism: How Global Elites Exploit Frontier Markets (2022).

Hal Weitzman, adjunct associate professor of behavioral science at Booth and author of What’s the Matter with Delaware?: How the First State Has Favored the Rich, Powerful, and Criminal―and How It Costs Us All (2022), said that it’s no longer surprising that corporations hire some of the world’s smartest to find loopholes.  

“Many of our brightest people in our society spend their time finding ways for companies to dodge taxes,” Weitzman said. “That’s a little depressing. In classical times, there were people like Pythagoras doing amazing things. And now, Pythagoras is working at a consulting firm, dodging tax.”

At the event—the first in person at Gleacher Center in two years—Hoang and Weitzman discussed unethical corporate behavior and how companies could be made to improve.

Delaware Is Everywhere

In his book, Weitzman wrote about how Delaware, the US’s second smallest state, has fewer than 1 million residents but more than 1.6 million registered companies. Companies that have incorporated in Delaware include tech giants such as Google, Amazon, and Facebook, as well as subsidiaries for startups based outside of the United States.

“Each of us interacts with a Delaware company multiple times per day,” Weitzman said. “Delaware is everywhere.”

What explains this phenomenon? Some say that it’s because Delaware’s process is fast and efficient, Weitzman said—it can take less than half an hour to incorporate a company. Others say that it’s because taxes are lower there, while others say that Delaware is simply an established, unquestioned part of the corporate system.

Individuals who incorporate companies in Delaware can essentially remain anonymous, which has led to cases of money laundering, drug trafficking, and child sex trafficking, Weitzman said.

“It doesn’t take a lot of imagination to see that these company structures can be used for nefarious ends,” he added. “And of course, they enjoy all the legal protections of the United States.”

Then there are the instances of using Delaware to dodge taxes. In one recent example, Weitzman said that Home Depot transferred its trademarks to a newly created Delaware holding company, then paid that company for the use of its trademarks. And that tells part of the tale of the cost to this process, Weitzman said—other states lose billions of dollars in taxes.

A False Division

Hoang traveled 350,000 miles and interviewed more than 300 people for her book, interviewing high-net-worth individuals and those who manage their money. She found it to be a misconception that developing markets are corrupt whereas developed economies are clean. Instead, she said, the line is blurry.

Many of the investments Hoang researched in countries such as Vietnam were subsidiaries of other entities in Hong Kong or Singapore, which were subsidiaries of entities in Panama or Seychelles, all of which seemed to point back to the United States—specifically, to companies incorporated in Delaware.

“Part of the argument for Spiderweb Capitalism is that illicit, licit, first world, third world—they’re all interconnected in these webs now,” Hoang said. “I think it’s really interesting how we think of the United States, then, as a Western, transparent, democratic society, but all roads lead to Delaware in some sense.”

“Transparency aids capital formation, transparency aids price discovery, and it aids good supervision of markets, which is good for financial markets.”

— Hal Weitzman

What Must Change?

Moderator Bethany McLean, a contributing editor at Vanity Fair and cohost of Booth’s Capitalisn’t podcast, asked Hoang and Weitzman what they’d change about corporate ethics if they ruled the world for a day.

Hoang said that she’d want the most talented students to work on the side of regulators and help develop strong systems to hold firms accountable. Most people are recruited to lucrative careers doing the opposite of that. “We just need to have talent going in this other direction too,” Hoang said.

Weitzman said that he would end corporate anonymity. Congress took a step toward this in 2020 when it passed the Corporate Transparency Act, which means every company in the United States will eventually have to disclose its true owners to a financial crimes unit in the US Treasury. But the registry won’t be public, he said, and the unit itself is understaffed.

“Transparency aids capital formation, transparency aids price discovery, and it aids good supervision of markets, which is good for financial markets,” Weitzman said. “It’s good for capitalism. . . . 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.”


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