Legal Studies Forum
Volume 29, Number 2 (2005)
reprinted by permission Legal Studies Forum
CRIMES GONE BY
------------
Collected Essays of Albert Borowitz
1966-2005
GILBERT AND SULLIVAN ON CORPORATION LAW:
UTOPIA, LIMITED AND THE PANAMA CANAL FRAUDS *
--------------------------
If the name Gilbert is mentioned to the president
of a modern corporation he is likely to think of the brothers Lewis and
John and to wonder what shareholder proposals they may be preparing for
the forthcoming annual meeting. However, the title of corporate gadfly
extraordinary could with equal justice be awarded to quite another Gilbert,
W.S. Gilbert of the operatic partnership of Gilbert and Sullivan. In the
relatively little-known opera, Utopia, Limited, which appeared at
the Savoy Theatre in 1893, Gilbert delivered a sharply satirical assault
on business corporations (which the English call "companies"), and particularly
on the basic corporate concept of limited liability. The opera sketches
the development of a utopian society that organizes itself, its ruler,
and all its citizens as limited liability companies under the English Companies
Act of 1862.
The theme of Utopia, Limited has puzzled
its critics and received strange evaluations. W.A. Darlington, in his The
World of Gilbert and Sullivan (1950) makes the suggestion (which he
cautiously terms a guess) that "Gilbert, not being in any sense a businessman,
had never had any clear notion what a limited-liability company was" until
shortly before he wrote Utopia. In the light of his celebrated partnership
disputes with Sullivan, Gilbert may be denied a businessman's standing
only under the most subjective conception of that calling, but surely Darlington
would not have us forget that the author of Utopia was a lawyer.
It is apparent from Hesketh Pearson's description
in Gilbert: His Life and Strife (1957) that Gilbert's career at
the bar was spectacularly unsuccessful. It lasted four years, produced
about twenty clients and a total income of £100. His difficulties
seem to be fairly represented by his first brief, the defense of a female
pickpocket, who, upon being sentenced to a prison term, "threw a boot at
his head and continued to criticize his personal character until removed
from the court." The memories of this case are undoubtedly responsible
for Gilbert's little gem, the short story, My Maiden Brief. In that
story, the fledgling barrister, Horace Penditton, prepares for the trial
of his first client, who filched a purse on an omnibus, by trying out a
fanciful line of defense on Felix Polter, a barrister who occupies neighboring
chambers in the Inner Temple. When Penditton appears in court, he is shocked
to find that his opponent is none other than Polter, who calmly proceeds
to anticipate all his defenses in opening the prosecution's case to the
jury. When Penditton at the end of the story contrasts Polter's future
with his own,
[941]
we may be hearing a cri de coeur of Gilbert himself: "He is now
a flourishing Old Bailey counsel, while I am as briefless as ever."
Although Gilbert's years as a lawyer were
few, he had a very active and lifelong career as a client. In addition
to his disputes with Sullivan and D'Oyly Carte over the expense of new
carpets at the Savoy Theatre, and a defamation suit against a newspaper,
he filled his private hours with threats of litigation over grievances
real and trivial. If his correspondence with an adversary took an unsatisfactory
turn, he was likely to suggest that future letters be addressed to his
solicitor. However, it is to his credit that he saw the world of the law
whole by rounding out his functions as lawyer and client with able and
compassionate service as a justice of the peace.
It is odd that neither Gilbert's contemporaries
nor his biographers seem to have taken him seriously as a critic of business
law and morality. Doubt seems always to arise as to whether Gilbert had
strong roots in the real world. Of course, we have always enjoyed the game
of matching Gilbert characters with eminent and lesser Victorians, but
there has been no agreement that Gilbert was engaged by the social issues
that enveloped the individual figures he found suitable for caricature.
His biographer, Hesketh Pearson, ventures a psychological explanation for
Gilbert's preoccupation with fairyland and fantasy. Pearson believes that
Gilbert's childhood spent with incompatible and often feuding parents left
him "an internal discomfort, a desire to see things as they are not, born
of his early contact with an unpleasant actuality." Gilbert, on the other
hand, had a perfectly pragmatic justification for his specialization in
fairies. In his fairy tale, The Wicked World, he explained his choice
of theme. He did not write of fashionable life because he knew nothing
of fashion; nor did he write a medieval romance because this would require
too much research (which Gilbert detested and preferred to call "cramming").
Gilbert noted the possible objection by an acute reader that if the author
knew nothing of fashionable life, he must know still less about fairies.
He offered a reply that is unanswerable: "Exactly. I know nothing at all
about fairies -- but then neither do you."
Perhaps the fantastic settings of Gilbert's
plots have obscured his interest in legal issues. In some instances the
reluctance of drama critics and audiences to listen to his more serious
voice impeded his forays into criticism of prevailing legal principles.
This was clearly his fate when he attempted to deal in his works with controversies
in the field of criminal law. In Gilbert and Sullivan's Iolanthe,
as first performed in 1882, the young shepherd Strephon, on admission to
Parliament, delivered a speech attributing crime to circumstances of birth
and upbringing:
[942]
Take a wretched thief
Through the City sneaking,
Pocket handkerchief
Ever, ever seeking:
What is he but I
Robbed of all my chances --
Picking pockets by
Force of circumstances?
I might be as bad --
As unlucky, rather --
If I'd only had
Fagin for a father!
Leslie Baily in his admirable Gilbert & Sullivan Book (1952)
notes that the critic of the London Times attacked Gilbert's expression
of anger, "a passion altogether out of place in a fairy opera.'" The offending
song was later cut from Iolanthe.
Gilbert's final dramatic work, the one-act
play The Hooligan, produced in 1911, the last year of his life,
was a completely serious treatment of capital punishment. Inspired by his
fascination with the celebrated Crippen murder trial of 1910, Gilbert's
play presented the last moments of a condemned murderer in his prison cell.
The criminal is reprieved from hanging only to die of heart failure occasioned
by the agony of waiting for death. Some of the spectators who expected
laughs from Gilbert were puzzled and hissed.
Gilbert's literary reflection of his interest
in criminal law is pretty much limited to the two examples given above
(unless we are also to refer to his portrait of that great penologist,
the Mikado of Japan). However, throughout the pages of his opera librettos
are many signs of his perennial absorption in the behavior of corporations
and businessmen. It is likely that his contemporaries cared as little for
his views on business as they did for his assessments of criminal law.
If we are to follow their pattern by assuming that Gilbert's comments on
business morality have no application to our own time, we will probably
be drawing upon some false feeling of comfort.
Gilbert's first satire on corporations appeared
appropriately in the very first opera he wrote with Sullivan, Thespis.
In this opera, Thespis, the manager of a theatrical troupe performing for
the Olympian gods, sings the earliest Gilbert and Sullivan patter song;
it lampoons the chairman of a railroad's board of directors who undermined
his own authority and ruined his company by being too affable to company
employees. I suppose that even the most democratic of executives would
feel that the chairman went to extremes in his personnel policy:
[943]
Each Christmas Day he gave each stoker
A silver shovel and a golden poker,
He'd button-hole flowers for the ticket sorters,
And rich Bath-buns for the outside porters.
He'd mount the clerks on his first-class hunters,
And he built little villas for the road-side shunters,
And if any were fond of pigeon shooting,
He'd ask them down to his place at Tooting.
The employees, surprised by the chairman's favors, assumed that his behavior
was due to an odd quirk of humor rather than generosity, and attempted
to respond in kind by diverting any train on which he happened to be riding.
The employees' vein of practical joking appeared to please the chairman
more than the railroad's customers or shareholders:
This pleased his whim and seemed to strike it,
But the general public did not like it,
The receipts fell, after a few repeatings,
And he got it hot at the annual meetings . . .
Undeterred by shareholder pressure, the chairman continued to indulge the
employees in their merry pranks, with the result of business failure for
himself and the investors:
The shareholders are all in the work'us [workhouse],
And he sells pipe-lights in the Regent Circus.
The first corporation song of Gilbert's is obviously
less concerned with business practice than with an important tenet of Gilbert's
conservative personality, namely, that excessive egalitarianism is fatal
to established order. However, the song of Thespis also reveals two points
that are crucial to an understanding of Gilbert's lasting interest in corporations.
The lyrics show first his tendency to connect observations on corporate
administration with theatrical management, a field in which he was to spend
his life and where he was to encounter a great deal of difficulty in reconciling
the conflicting interests of manager, investor and employee. A second characteristic
theme that the early song shows in germination is Gilbert's emphasis on
the responsibility of corporate management to the public, including those
whose investments they have called upon and those with whom they do business.
Eleven years later in Gilbert's great libretto
for Iolanthe, business practice had become the stuff of nightmare,
though of a comic turn. The lord chancellor, in his celebrated nightmare
aria, recalls a dream in which a distinctly small fellow with a Protean
inclination to change identities harangues a group of sailors on a new
financing he is pushing. The promoter, who appears successively as an attorney
and an eleven-year-old
[944]
boy, describes the purpose of the financing in terms which are recalled
by the delirious chancellor as follows:
It's a scheme of devices, to get at low prices
all goods from cough
mixtures to cables
(Which tickled the sailors), by treating retailers as
though they were
all vegetables --
You get a good spadesman to plant a small tradesman (first
take off his
boots with a boot-tree),
And his legs will take root, and his fingers will shoot,
and they'll
blossom and bud like a fruit-tree
--
From the greengrocer tree you get grapes and green pea,
cauliflower,
pine-apple, and cranberries,
While the pastrycook plant cherry brandy will grant,
apple puffs, and
three-corners, and Banburys
--
The shares are a penny, and ever so many are taken by
Rothschild and
Baring,
And just as a few are allotted to you, you awake with
a shudder
despairing.
Only the timely waking of the chancellor has saved
him from a disastrous investment. However, in spite of our regulatory advances,
the sales techniques of the undersized promoter are not unlike those of
present-day "penny stock" merchants, in whose sales pitch the projected
use of proceeds may be less important than the general impression that
the venture is new and that, in any event, there is likely to be some opportunity
for movement in the stock when the initial price is low.
In the figure of the Duke of Plaza-Toro in
The
Gondoliers (1889) Gilbert introduced a man who more than compensated
for his doubtful military talents with a real appreciation of the opportunities
afforded by modern business. The duke and his worthy spouse found considerable
profit in selling their aristocratic endorsements of worthless products
and securities. As the duke puts it:
Those pressing prevailers,
The ready-made tailors,
Quote me as their great double-barrel
--
I allow them to do so,
Though Robinson Crusoe
Would jib at their wearing apparel
--
I sit, by selection,
Upon the direction
Of several Companies bubble
--
[945]
As soon as they're floated,
I'm freely bank-noted --
I'm pretty well paid for my
trouble.
Both sources of endorsement income which were available to the duke remain
open to the notables of our day although subjected to increasing scrutiny
by the public. The duke did well by endorsing products which he did not
use and business ventures to which he lent only his name. In 1971 the Federal
Trade Commission had occasion to question whether veterans of the Indianapolis
500 had sufficient expertise in toy cars to justify their endorsements
for the Mattel Company. Government inquiries have also considered whether
certain franchise systems that invoke the names of heroes of the sports
world are actually engaging the time and energies of the great men.
But the Duke of Plaza-Toro is not only aware
of the profit to be drawn from business endorsements; he is also the first
Gilbert character to evince knowledge of the advantages of incorporation
under the Companies Act of 1862. That statute, on which Gilbert was to
lavish his satirical attentions, is often regarded as the source of modern
English corporation law and has been referred to as the "magna carta of
cooperative enterprise." Actually the act was not an innovative piece of
legislation but merely the recodification of a number of earlier nineteenth-century
statutory developments. The history of modern company law, to use the British
terminology, began in 1825 with the repeal of the Bubble Act. The Bubble
Act had been passed in 1720 in reaction to a series of fraudulent securities
offerings of which the so-called "South Sea Bubble" was the most famous.
Until its repeal in 1825, the Bubble Act generally prohibited the use of
corporations unless their formation was specially authorized by act of
Parliament or royal charter. By a series of separate acts beginning with
1825, the availability of corporate business forms was gradually expanded,
although the privilege of limited liability which is the hallmark of the
modern corporation was introduced only by the Joint Stock Companies Act
of 1856. The principal function of the Companies Act of 1862 was to consolidate
the 1856 Act with five statutes subsequently passed, and to elaborate the
provisions dealing with liquidation ("winding up") of corporations.
In The Gondoliers, the Duke of Plaza-Toro,
although very much a nobleman, is "unhappily in straitened circumstances
at present" and sees advantages in incorporation. Feeling that his social
influence is much more extensive than his personal resources, he has permitted
a syndicate to organize a corporation to exploit him. The company is to
be called the Duke of Plaza-Toro, Limited. An influential directorate has
[946]
been secured by the syndicate, and the duke himself is to join the board
after the original shares have been allotted.
Somehow, Gilbert always seemed to associate
the prospect of formation of a corporation with the ultimate possibility
of liquidation without full satisfaction of creditors. The duke's daughter,
who has been pronounced Queen of Barataria, expresses concern that she
"may be called upon at any time to witness her honoured sire in process
of liquidation." The duchess is compelled to acknowledge that possibility,
but turns aside her daughter's worry with a typical Gilbertian pun: "If
your father should stop, it will, of course be necessary to wind him up."
Happily The Gondoliers comes to a conclusion before the duke's company
has an opportunity to fall upon evil days. In fact, we learn in act 2 that,
although the duke personally is ninety-five quarters in arrear, he has
just been floated at a premium and registered under the Limited Liability
Act. We must, however, remain in doubt as to whether the success of the
offering would have changed the first reaction of the duke's daughter that
there was something "degrading" in the concept of "a Grandee of Spain turned
into a public company."
In Utopia, Limited, written four years
later, the comic prospect was to broaden into the panorama of an entire
society transforming itself into a public corporation under the Companies
Act of 1862. The opera tells of a tropical island country, Utopia, which
has had great difficulty choosing an appropriate form of government. After
unsuccessful experiments in democracy, it has hit upon a dangerous variant
of the notion of constitutional monarchy. The king of Utopia is trailed
around by a bomb-laden official, named the Public Exploder, who is authorized
to blow the king up upon "his very first lapse from political or social
propriety." The governmental form thus evolved is described by a courtier
as "a Despotism tempered by Dynamite." (One wonders, in view of the irruption
of violence into American political processes, whether our country is not
becoming a Republic tempered by Revolvers.)
An opportunity for a further reform of Utopian
society is provided by the return of its Princess Zara from England, where
she has taken a high academic degree. She brings home with her a delegation
consisting of representatives of the main bulwarks of British society whose
mission is to remake Utopia in the image of Great Britain. The delegation,
named the "Flowers of Progress," consists of a British lord chamberlain,
officers of the army and navy (including our old friend, Captain Corcoran
from the good ship Pinafore), a queen's counsel and member of Parliament
who represents both law and national government, and a spokesman for the
new county council system that had just been introduced in England. A leading
member of the delegation is Mr. Goldbury, a company promoter. He produces
the central idea for the restructuring
[947]
Gilbert reading Utopia to the cast at the Savoy
Theatre.
To Gilbert's right are Sullivan and D'Oyly Carte.
photogravure, Mansell Collection
of Utopia -- instead of remaining a monarchy, it should register as
a corporation under the Companies Act of 1862. In support of his proposal,
he launches into a song of praise of the corporate form, a song which among
its other virtues contains one of the finest working definitions of corporate
capital, at least from the point of view of creditors. Capital, according
to Mr. Goldbury, is "a public declaration to what extent they mean to pay
their debts." Since Mr. Goldbury's song is a great comic tribute to the
corporation and also an important key to Gilbert's corporate satire, it
deserves to be set down at length:
Some seven men form an Association
(If possible, all Peers and
Baronets),
They start off with a public declaration
To what extent they mean to
pay their debts.
That's called their Capital: if they are wary
They will not quote it at a
sum immense.
The figure's immaterial -- it may vary
From eighteen million down to
eighteenpence.
I should put it rather low;
The good sense of doing so
Will be evident at once to any debtor.
When it's left to you to say
What amount you mean to pay,
Why, the lower you can put it
at, the better.
They then proceed to trade with all who'll trust em,
Quite irrespective of their
capital
(It's shady, but it's sanctified by custom);
Bank, Railway, Loan, or Panama
Canal.
You can't embark on trading too tremendous --
It's strictly fair, and based
on common sense --
If you succeed, your profits are stupendous --
And if you fail, pop goes your
eighteenpence.
Make the money-spinner spin!
For you only stand to win,
And you'll never with dishonesty be twitted,
For nobody can know,
To a million or so,
To what extent your capital's
committed!
If you come to grief, and creditors are craving
(For nothing that is planned
by mortal head
Is certain in this Vale of Sorrow -- saving
That one's Liability is Limited),
--
Do you suppose that signifies perdition?
If so you're but a monetary
dunce --
[948]
You merely file a Winding-Up Petition,
And start another Company at
once!
Though a Rothschild you may
be
In your own capacity,
As a Company you've come to utter sorrow --
But the Liquidators say,
'Never mind -- you needn't pay,'
So you start another Company
to-morrow!
The gospel of the corporation, as recited by Goldbury,
at first sight strikes the king of Utopia as dishonest but he concludes
that if it's good enough for virtuous England, it's good enough for his
own backward island. The royal court, given the green light by its monarch's
approval, takes up Goldbury's project with enthusiasm and, in fact, act
1 of Utopia, Limited concludes with what may be the only choral
tribute to a corporation statute in all the pages of opera:
All hail, astonishing Fact!
All hail, Invention new --
The Joint Stock Company's Act --
The Act of Sixty-Two!
The second act shows the far-reaching effects
of incorporation on Utopia's economy and political life. Mr. Goldbury,
flushed with his success at turning the monarchy into a corporation, carries
the reorganization to its logical conclusion. Discarding the theory of
the 1862 Act that there is magic in the number seven (the number of individual
incorporators required under the Act for formation of a corporation), Goldbury
has constituted every man, woman and child in Utopia a limited liability
company with liability restricted to the amount of his declared capital.
Princess Zara asserts that "there is not a christened baby in Utopia who
has not already issued his little Prospectus." The princess's favorite
Flower of Progress, Captain Fitzbattleaxe, marvels at. the power of a civilization
to transmute, by the magic word of incorporation, "a Limited Income into
an Income Limited."
Universal incorporation, as Gilbert portrays
it, proves more attractive to the promoters than to the corporations' creditors.
Scaphio, a judge of Utopia's Supreme Court, has been moonlighting as an
apparel supplier. He contracts to supply the entire nation with a complete
set of English clothes (so that they may be Anglicized externally as well
as within). When he sends his bills, the customers plead liability limited
to a declared capital of eighteenpence and apply to have the debt discharged
by corporate liquidation under the winding-up provisions of the Companies
Act. In Gilbert's "corporate state," the king has no jurisdiction
[949]
over grievances such as Scaphio's, but must request him to lay his complaint
before the next Board meeting of Utopia, Limited.
The device of incorporation also profoundly
affects the relations of the king with courtiers (including the disappointed
Scaphio) who plot his death. Since the king is no longer a human being
but a company, they can no longer blow him up; at best they can only seek
to "wind him up" by corporate liquidation proceedings, a small source of
emotional satisfaction for the king's violent foes.
Towards the end of the opera, the Flowers
of Progress, by their Anglicizing programs including universal incorporation,
have achieved such a stable society that they alienate those who thrive
on disorder. The opponents of "progress" then decide to overthrow the works
of the reformers by introducing the one overlooked force in English government
which will assure permanent chaos -- party government. With the introduction
of party government the regime of Monarchy, Limited is transformed in a
wink into a Limited Monarchy.
Even this brief overview of Utopia should
provide convincing proof that Darlington is wrong in supposing Gilbert
to be ignorant of the nature of corporations. It is of interest, however,
to consider why Gilbert found corporations to be a worthy object of satire.
There is no doubt that the "magic" of incorporation
particularly appealed to Gilbert's penchant for fantasy. Just as he could
never get over the belief that a magic love potion transforming a stern
clergyman into an impetuous lover was the most humorous of plot devices,
so he found worthy of laughter the legal device that permitted the transformation
of individual businessmen into a corporate entity. How he would have roared
with laughter had he learned with us that Howard Hughes by a legal assignment
to the Rosemont Corporation reciting $10 consideration could literally
transform his life and all biographical rights into a corporate asset!
But if we pause to focus on Gilbert's view
of the corporate idea as a false denial of the uncertainties of human life,
we will have come to an understanding of a deeper layer of his criticism
of the corporation. Gilbert's most personal view of life, at least as he
grew older, appears to have been strongly pessimistic. The king of Utopia
summarizes the human condition in as dark a color as the final chorus from
Verdi's Falstaff. The king laments:
Ill you've thriven --
Ne'er in clover;
Lastly, when
Three-score and ten
[950]
(And not till then)
The joke is over!
To Gilbert the corporation and the doctrine of limited liability are symbols
of artificial endeavors to insulate the individual from the ever-present
possibility of disaster in his affairs. As Mr. Goldbury comments in his
song of corporations:
For nothing that is planned by mortal head
Is certain in this Vale of Sorrow -- saving
That one's Liability is Limited.
More narrowly, the corporate idea to Gilbert was
faulty in that it shielded the incompetent and the irresponsible man from
the consequences of his own failure. It is for this reason that Gilbert
leapt with special delight on the provisions for discharge of corporate
obligations through the liquidation or winding-up provisions of the Companies
Act of 1862. We can be reasonably sure that he was thinking in this connection
not only of the business world at large but also of his own world of the
theatre. In his short play, Actors, Authors, and Audiences, he deals
with failure of a theatre manager in much the same manner as he attacks
corporate liquidation in Utopia: "[Theatre management] is a very
easy profession to master. If you make a success, you pocket the profits;
if you fail, you close your theatre abruptly, and a benefit performance
is organized on your behalf. Then you begin again." Compare the words of
Mr. Goldbury in Utopia on the delights of corporate winding-up:
As a Company you've come to utter sorrow --
But the Liquidators say,
'Never mind -- you needn't pay,'
So you start another Company to-morrow!
Perhaps Gilbert's identification of corporate problems with theatre management
had been strengthened by the fact that Utopia was written shortly
after his famous quarrels with his partners, Sullivan and D'Oyly Carte,
over the administration of the Savoy Theatre. The equivalence between corporation
and theatre survived in the last Gilbert and Sullivan opera, The Grand
Duke (1896). In The Grand Duke, Gilbert unsuccessfully mimicked
Utopia
by describing a conspiracy by a group of actors to overthrow a dukedom
and remodel it along the lines of a theatrical company.
The most interesting element of Gilbert's
criticism of the corporation, however, lies in his suggestion that the
privileges of incorporation, public corporate financing, and limited liability
are undeserved unless accompanied by compliance with high standards of
responsibility by
[951]
corporate management. The corporate form, for the promoter Goldbury,
is a device for raising funds from the public for doubtful schemes, and
with minimal risk of accountability. To the populace of Utopia it becomes
a means of buying goods for which it has neither the means nor the intention
to pay.
The force of Gilbert's attack on corporate
morality appears to have been lost on even perceptive observers. George
Bernard Shaw, reviewing Utopia as a music critic for London's Saturday
Review, wrote that he "enjoyed the score of Utopia more than
that of any previous Savoy operas," and that "the book has Mr. Gilbert's
lighter qualities without his faults." However, he scantly summarized Gilbert's
"main idea" as "the Anglicization of Utopia by a people boundlessly credulous
as to the superiority of the English race" and made no reference to the
satire of principles of corporate law and practice. Punch, unlike
Shaw, was extremely critical of Utopia. Its 1893 review of the new
offering of the team that Punch was addicted to calling Gillivan
and Sulbert (in tribute, one would hope, to the uncanny blending of their
gifts) made no substantial comment on the book except to accuse Gilbert
of plagiarizing a scene presenting a court reception in the semicircular
stage arrangement popularized by the Christy Minstrels.
Even with the advantage of historical retrospection,
twentieth-century critics often apparently fail to see that the corporate
law satire was firmly rooted in the business scandals in Gilbert's times.
Thus W.A. Darlington writes of Utopia: "It would be interesting
to know just why Gilbert fell foul of the Joint Stock Company Act of 1862
at this particular period in his life, more than a quarter of a century
after the act had become law." Clues to the answer to Darlington's question
are provided for all to see in Mr. Goldbury's song. Mr. Goldbury sings
of the management of the spanking-new, thinly incorporated firm:
They then proceed to trade with all who'll trust
em,
Quite irrespective of their capital
(It's shady, but it's sanctified by custom);
Bank, Railway, Loan, or Panama Canal.
These lines reveal that Gilbert was not merely attacking the concept of
limited liability as an abstraction, but that he was well aware of frauds
that had been perpetrated on the public by unprincipled men using the advantages
of corporate form.
The reference to banks in Mr. Goldbury's song
might have awakened memories of a number of bank failures in England in
the latter part of the nineteenth century, but it is likely that Gilbert
intended to allude to the Glasgow Bank fraud case of 1878. The closing
of the City of Glasgow Bank in October 1878 led to criminal proceedings
resulting in the
[952]
conviction of five directors and the bank manager on charges relating
to the falsification of balance sheets. It was charged that the directors
had produced false balance sheets and declared large dividends in order
to cover up the insolvency of the bank. The bank's downfall had been contributed
to by improvident loans including those extended lavishly to the defendant
directors and their firms.
The City of Glasgow Bank had lost no time
in incorporating under the Joint Stock Company Act of 1862 in the very
year of its adoption and Gilbert may be forgiven for doubting whether the
insiders had in their stewardship justified the protection given to them
by the new legislation. Major Arthur Griffiths's account, in his Mysteries
of Police and Crime (1899), of the behavior of one of the directors
prior to the bank's closing could hardly have been bettered by Gilbert's
own pen:
One shareholder in September, a month before
the failure, called at the office of Mr. Stewart, saying he had heard unpleasant
rumours about the bank. Mr. Stewart, a director, who . . . was largely
in debt to the bank, answered that there were always rumours current about
everybody. Then Mr. Stewart went out and did not return, being clearly
anxious to cut short an inconvenient interview.
The most recent business scandal referred to in the quoted lines of Mr.
Goldbury's song was the welter of criminal charges growing out of the failure
of the Panama Canal construction program undertaken by the French-controlled
Panama Company. In February of 1893, eight months prior to the opening
of Utopia, the aged Ferdinand de Lesseps, hero of the building of
the Suez Canal, his son, and two others were found guilty of fraud in an
1888 bond issue to raise funds for the canal project, of attempted fraud
in another aborted bond issue, and of misappropriation of company funds.
The fraud charges, expressed in the elegant language of French statute
as the use of fraudulent means to raise hopes for the realization of a
chimerical event, rested on misrepresentations made by the defendants with
respect to the cost and likely completion date of the canal and levels
of expected revenues. Although the conviction was upset on appeal (on the
basis of the statute of limitations) before Utopia opened, the facts
of the case lingered.
In March of the same year, five French legislators,
the former public works minister and his private secretary, and the younger
de Lesseps, faced a bribery trial in which it was charged that the public
officials had been bribed by the Panama Company in an effort to secure
favorable legislation and governmental action in connection with the Company's
financing plans. The legislators were acquitted but the other defendants
were found guilty.
[953]
The allegations of misconduct, which were the
subject of these trials, only singled out from a bizarre pattern of financial
behavior those acts with which the criminal law of the time could most
easily come to grips. Very little of the procedure used in the Panama Canal
financings bears any resemblance to what might be considered permissible
under the regulatory system of our own Securities and Exchange Commission.
In addition to the alleged attempts on the integrity of the French government,
the administrators of the Canal Company made widespread use of company
funds to pay newspapers for publishing favorable stories on the progress
of the canal. Far from considering such payments to reflect doubtful business
morality, the Canal Company reported such payments in its financial statements
under the wonderfully euphemistic account heading "publicite." Apparently,
the newspapermen were even less shy about the payments than the Company
and considered the amount of the payoffs to afford a measure of the value
of their editorial pages. Maron J. Simon reports in his study of the Canal
scandals that one editor sued the auditor for the liquidated company for
understating the amounts which the Panama Company had paid his newspaper.
The events in France were not lost on Gilbert
or on the English public. The London Times carried detailed stories
on the Panama enterprise and the litigation which resulted. Moreover, by
the spring of 1893 much of the passion and curiosity aroused by the Panama
affair had focused on the figure of a "mystery man" then residing in England
-- Cornelius Herz, an international charlatan, confidence man, and friend
of influential men in political and financial circles. Herz, who had been
accused of complicity in the Panama scandal, was during the whole of 1893
and for many years thereafter holed up in the Tankerville Hotel in Bournemouth,
England, where he waged a successful battle against extradition to France
on the basis of his medical condition. The French legislators, in their
eagerness to talk to Herz, resolved that if illness would not permit him
to come to them, they would question him at his bedside. However, the interview,
which was scheduled for July 1897, never came off. Herz reneged at the
last minute and this disappointing news was transmitted to the group of
twenty-five deputies who were to visit him just as they were about to board
the channel steamer.
Although the Panama Canal case continued to
make history for many years, by 1893 it had already been assured a measure
of immortality in the words and music of Utopia, Limited. It was
an affair which supplied all the major elements of Gilbert's satirical
view of corporate finance -- the famous man whose name inspired investors'
confidence (de Lesseps); a securities offering based on unjustified claims
of bonanza; the "free bank-noting" of newspapers and others whose sponsorship
of
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the offering was desired; and finally the liquidation of failed corporate
enterprise.
Despite his jokes at the expense of the corporation
and limited liability, and his likely disillusionment with the business
practices of his own time, Gilbert shows such balanced judgment in his
works that we cannot assume he was proposing an outright repeal of the
Companies Act. Indeed, if he attacked limited liability in Utopia,
we must recall that in the earlier Pirates of Penzance (1879), he
had assaulted with equal force the notion of unlimited individual liability,
the observance of contract unmodified by protective considerations of public
policy. In that opera the young hero Frederic is mocked by Gilbert as a
"slave of duty" because he undertakes literal and strict performance of
his pirate apprenticeship until his twenty-first birthday as provided by
his indenture, even though the term of performance will last eighty-four
years since his birthday falls on February 29 in leap year.
In fact, I am not sure that Gilbert's critique
of the corporation is inapposite to the debate that continues in modern
governmental and academic circles as to the proper scope of corporate responsibilities.
In return for the protections and privileges of corporate form and the
opportunities of large business corporations to amass wealth and power,
the expectations for social contribution by corporations have greatly increased.
Discussions that decades ago turned on obligations of corporations for
charitable gifts and local community activity have broadened to include
demands relating to basic business policy, such as ecological and safety
concerns, minority group hiring, and corporate attitudes towards war and
colonialism. Nobody would hazard a guess where Gilbert would have stood
on the myriad of public issues faced by the modern corporation, but I think
he would have been at home with the notion that the responsibility of a
corporation may be far broader than its legal liability.
It is difficult to come away from a study
of Utopia, Limited and of Gilbert's other literary expressions of
interest in law without feeling that his work has suffered the double injustice
of having been denied "relevancy" either to the problems of posterity or
to the important issues of his own day. How much better we would do were
we to read his librettos in the spirit of the counsel given by the jester,
Jack Point, in The Yeomen of the Guard:
Oh, winnow all my folly, and you'll find
A grain or two of truth among the chaff!
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BIBLIOGRAPHICAL NOTES
Biographical and critical sources quotes in
the article are: Leslie Baily, The Gilbert & Sullivan Book 212,
213, 400 (London: Cassell, 1952); W.A. Darlington, The World of Gilbert
and Sullivan 173-174 (New York: Crowell, 1950); Hesketh Pearson, Gilbert,
His Life and Strife 19, 83, 264-265 (New York: Harper, 1957); Eric
Bentley (ed.), Shaw on Music: A Selection from the Music Criticism of
Bernard Shaw 216, 219 (Garden City, New York: Doubleday, 1955).
For the history of the Companies Act, see
Clive M. Schmitthoff & James H. Thompson (eds.), Palmer's Company
Law 5-9 (London: Stevens, 21st ed., 1968); William Holdsworth, A
History of English Law 49-59 (London: Methuen, 1965)(vol. 15)(A.L.
Goodhart et. al., eds.). For Punch's review of Utopia, see
Punch,
vol. 105, October 28, 1893, p. 204. Despite its critical rejection of Utopia,
there is evidence that Gilbert's corporate satire became a part of the
magazine's comic world view. A cartoon published three years later depicts
a proposed financing of the Ottoman Empire by the Western Powers. The Ottoman
Empire is shown being reorganized as a corporation under the name "Turkey,
Limited." Punch, vol. 111, November 28, 1896, p. 259.
For a report of the Glasgow Bank trial, see
William Wallace (ed.), Trial of the City of Glasgow Bank Directors
(Glasgow: William Hodge & Co., 1905)(Notable Scottish Trials). See
also Arthur Griffiths, Mysteries of Police and Crime 390 (London:
Cassell, 1899)(vol. 2).
An account of the Panama Canal scandal can
be found in Maron J. Simon, The Panama Affair (New York: Scribner,
1971). Many of the facts relating to the Panama case to which I make reference
are drawn from Simon's interesting book. For an eyewitness report of the
Panama trials, see Albert Bataille, Causes Criminelles et Mondaines
de 1893 1-314 (Paris: Dentu, 1894).
[956]
* This article was previously published in 59 ABAJ
1276-81 (1973) and A Gallery of Sinister Perspectives (1982). |
