Salomon Redux: the Moralities of Business

Publication year2012
CitationVol. 35 No. 04

UNIVERSITY OF PUGET SOUND LAW REVIEWVolume 35, No. 4SUMMER 2012

Salomon Redux: The Moralities of Business

Allan C. Hutchinson and Ian Langlois(fn*)

"A good reputation is more valuable than money."

-Publilius Syrus

I. Introduction

Trade and commerce are as old as human society itself. People have bartered and sought to enrich themselves for millennia, and they have sought more efficient and profitable ways to do so by devising various schemes and structures. Commonly, for example, traders and entrepreneurs banded together in partnerships with the hope of obtaining a collective advantage. The idea of a "corporation" as we know it today was a long time coming. The corporation, which is derivative of the Latin corporare for "form into a body," has roots in Roman law and the state-sponsored colonial organizations such as The East India Company and the Hudson's Bay Company of the seventeenth century.(fn1) But recognizing the distinct identity and legal persona of a collective entity or institution, independent of its participating members, is a recent development.

In the British Commonwealth, many consider the nineteenth century case of Broderip v. Salomon to have cemented the modern corporation at the centre of today's social and commercial life.(fn2) The Salomon case began in the filthy backstreets of Dickensian London, where the Salomon family struggled to keep its boot-making business afloat. From these humble beginnings, the laws of corporate governance now facilitate the immense growth and influence of today's mega-corporations. Many attribute Salomon to establishing the corporation as a legal entity separate from its owners and imposing a veil between the corporation and its shareholders.(fn3) At least, that is how traditional scholarship would have it. Yet, upon closer inspection, the whole Salomon saga is revealed to be about much less and much more. For all but the corporate lawyer, Salomon is more helpfully understood as a decision that is less about the legal status of a corporate entity and more about the morality of business practices, including but not limited to, incorporation. In its commercial and social context, the case has little to say about incorporation and its legal consequences; the issue was more merely a pretext for the litigation than anything else. Rather, the case speaks more to the underlying issue of what counts as fair business dealing between people. The fact that the judicial inquiry into the Salomon business centered on the legal dimensions of incorporation does not detract from the essentially ethical basis of the decision about whether Aron Salomon acted with appropriate decency to people with whom he did business, especially his creditors. When understood in this way, Salomon opens up a very different range of topics for discussion. Rather than being reducible to a series of dry legal questions about the early history of modern incorporation, the case obliges us, as contemporary commentators, to confront the most basic of moral dilemmas: how do we handle keeping our moral obligations to others when doing so will result in catastrophic consequences for ourselves?

In this Essay, we revisit the Salomon case and its related litigation not only from a legal standpoint but also from a broader moral perspec-tive.(fn4) In the second Part, we offer a detailed context for and account of the Salomon litigation. The third Part focuses on the historical roots of the corporation and the judicial arguments in Salomon. In the fourth Part, we explore the moral and legal consequences of the Salomon decision. Throughout the Essay, our ambition will be not only to give the Salomon case a more contextual and richer spin but also to tackle the relationship between legal principles and moral obligations in the commercial world. Taking our cue from Ambrose Bierce, we explore whether the corporation is merely "[a]n ingenious device for obtaining profit without individual responsibility," or whether it can be appreciated as something in which individual responsibility and profit-making can be combined.(fn5)

II. Coming of Age

A. A Foul Drain

Whitechapel, in the East End of London, is still a hubbub of commercial enterprise marked by both ethnic diversity and commercial ingenuity. But in the later decades of the nineteenth century, it was also a site of devastating poverty and dire squalor. If the old saw of "where there's muck, there's money" has any truth to it, then Whitechapel was a very rich place. For all its industrial wealth, it was more a cesspit than a Silicon Valley. It brimmed with breweries, tanneries, sweatshops, and abattoirs. The streets stunk with all manner of industrial effluence and moral decay: drunkards, prostitutes, and urchins, but also traders, entrepreneurs, and Salvationists. Alexis de Tocqueville's words hit the mark: "From this foul drain the greatest stream of human industry flows out to fertilize the whole world. Here humanity attains its most complete development and its most brutish, here civilization works its miracles and civilized man is turned almost into a savage."(fn6) At this time, residents of Whitechapel and a cast of local characters fed off each other. For example, the gruesome murders by Jack the Ripper baffled the authorities and plagued the nightmares of local denizens, the carnivalesque exploitation of Joseph "Elephant Man" Merrick captured public attention, and the socialist political beginnings of George Bernard Shaw and the Fabians and the revolutionary education of the exiled Vladimir Ilyich Ulyanov (Lenin) were fostered. It was a time of great historical consequence, but for many in Whitechapel, the constant grind of daily life muted the ex-citement.(fn7)

One unheralded member of this group of East Enders was Aron Salomon. In 1859, Salomon was a young man in his early twenties when he arrived in this latter-day Gomorrah from Velbert in Prussia (near today's Dusseldorf). As an Orthodox Jew, he soon became part of White-chapel's strong religious neighbourhood and married a local girl. Around this time, Jews were no longer encumbered with any particular legal or formal prohibitions on carrying out business or participating in the community; the first Jewish Lord Mayor of London, David Salomons, was elected in 1855, and Lionel de Rothschild was permitted to take his elected seat in the House of Commons in 1858 when the oath of office was amended to include non-Christians. Nevertheless, there was still a strong current of anti-Semitism in London that pervaded business and, especially, the legal community elite. Aron Salomon was to be painted by some as the stereotypical "grasping merchant."

Despite the tough circumstances, Aron established himself in the community and began to operate as a boot and leather merchant. By 1862, Aron and his wife, Schoontje, had their first child, Emanuel. The couple added to their family at regular intervals, and there was a brood of six children-four boys and two girls-by the mid-1870s. As his merchant business thrived, Aron brought his sons into the business as they grew up. As a testament to his improved standing in the local business community, Aron was able to obtain the sponsorship of four local worthies and become a naturalized citizen in 1873. Buoyed by government contracts, "Salomon and Sons" was now a reputed boot and leather merchant and had become a fixture of Whitechapel High Street; they were no fly-by-night operation.

Over the next twenty years or so, Salomon's business went from strength to strength. Under the managerial initiative of Aron and his sons, it expanded and established itself in Northampton, the traditional center of England's leather industry. Rather than trade under the Salomon name alone, the family developed a couple of local firms, Fitzwell and Davy Brothers. The exact connection between Fitzwell and Aron Salomon himself remains hazy, and Davy Brothers was the later incarnation of the Northampton factory that was run (and technically owned) by Aron's son, David. The precise interrelationships of the family-owned group are unclear, but later suspicions of surreptitious money-shuffling complicated the controversy in which the Salomons would ultimately become embroiled.(fn8) By the 1890s, however, the family-named business alone was valued at over £10,000 (over $1 million in U.S. dollars to-day).(fn9)

The business was probably so successful because the Salomons prided themselves on making high-quality products. In 1890, the firm won the highest award for their military apparel at the Royal Military Exhibition in Chelsea. Indeed, when another manufacturer was chosen to supply the East End Jewish Boot Fund, Aron wrote to the Jewish Chronicle to complain that if he had been invited to tender for the role, he would have provided a superior product at cost price.(fn10)

Moreover, in an age that was notorious for "sweat labour" (i.e., overworked and underpaid workers), the Salomon enterprises, while not without flaws or failings, stood somewhat apart from other exploitative employers in the leather trade because they did not overwork or underpay their employees. As devout Jews (and active in local synagogues), the Salomons made a practice of philanthropic giving to alleviate the tribulations of local indigents. Consequently, although the family was no friend at all to the nascent trade-union movement, Salomon and Sons could claim a sincere commitment to being an honorable...

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