Shared Ownership & Business Partnerships: What is the Solution to Split Shareholder Voting?

Hands upI would like to begin this post by pointing to a difference between Hans-Hermann Hoppe’s 2014 lecture at the Property and Freedom Society and its subsequent publication in his 2018 book, Getting Libertarianism Right. In his lecture Hoppe says, “Absent, now, a perfect harmony of all interests, conflicts regarding scarce resources can only be avoided if all scarce resources are assigned as private, exclusive property to some specified individual or individuals.” (Emphasis mine) However, in the lecture’s publication in the Getting Libertarianism Right, Hoppe has carefully removed the “or individuals” to write, “Absent a perfect harmony of all interests, conflicts regarding scarce resources can only be avoided if all scarce resources are assigned as private, exclusive property to some specified individual.” Neither of these descriptions, as I will show, are incorrect. It is possible for rights over the control of some resource to be allocated between multiple individuals. Hoppe makes himself clearer in his 2015 lecture (which is also published in Getting Libertarianism Right) stating; “Logically, what is required to avoid all conflict is clear: It is only necessary that every good be always and at all times owned privately, i.e., controlled exclusively by some specified individual (or individual partnership or association)”.

The importance of this distinction is paramount for the libertarian. If we are to avoid human conflict, unrestricted title to some scarce resource cannot be assigned to two individuals. For if both Jones and Smith have the right to use some resource x as they please (i.e. have unrestricted title to x) this entails that Jones has the right to take x to Istanbul on Sunday at noon and Smith has the right to take x to Brussels on Sunday at noon, a logical impossibility. There are some libertarians who refuse to take this problem seriously. See here for a discussion between Walter Block and Bryan Caplan in which Caplan argues, “If you asked a married couple “Who owns your car?” many people would say “We both own it. Fully.” You can either berate them for self-contradiction, or interpret their statement charitably through the usual lens of marital property.” However, as Block correctly points out,

Two people can no more FULLY own a car than there can be two people in the same identical place. Married couples typically SHARE ownership in cars they don’t, they CAN’T, both fully own it.

Let me try again on this. Under libertarianism, rights cannot conflict. If there is any conflict, there is an improper specification of rights. But, if A (husband) and B (wife) each fully own a car, then there IS a conflict in rights. Each has a right to do with the car what he or she wants. Now, there may not be an ACTUAL conflict, if they both want the car used for the same purpose. But, there is still a conflict in RIGHTS. A wants the car used for washing it; B wants to take it on a trip. They both have a RIGHT to use the car for these incompatible purposes.

As Block notes, it is possible for people to share ownership. But it cannot be the case that two individuals have conflicting rights over the use of some resource. Let me illustrate with the following example: Suppose that I sell a car to both Smith and Jones. Smith has the right to drive the car every Monday, Tuesday, Wednesday, and Thursday, as long as he parks the car in the same spot every Thursday and Smith has the right to drive the car Friday, Saturday, Sunday as long as he parks the car in the same spot every Sunday. There is no problem with rights of use being assigned this way. As Block puts it, they share ownership.

The reason that the above example is a possible assignment of rights is because the rights of Jones and Smith do not conflict. Contrast this with a case in which Smith and Jones both had the right to drive the car on Thursdays. Here, there would be conflicting rights since both Jones and Smith would have the right to drive the car westbound and Smith to drive the car eastbound, something that cannot be performed simultaneously. As Block also points out, it need not necessarily be the case the conflict does arise. It is possible that both Jones and Smith always prefer to have the car driven westbound on Thursdays. Recall Hoppe’s words; “Absent a perfect harmony of all interests…”. In this case, no actual conflict would arise since the interests of both Smith and Jones would be in harmony. An absence of harmonious interests is what Frank van Dun refers to as “diversity” which is one of the four necessary and sufficient conditions for human conflict.

The scenario I have sketched above is one way in which two or more individuals can share ownership of some resource: rights can be distributed upfront with all parties knowing which rights they have over the use of the resource. However, another solution can be and often is employed. The multiple parties claim the right to use the assets which are collectively owned by themselves only in ways which are permitted by a majority vote by all the parties. Roughly, this is the relationship between resource owners in a business partnership. Suppose, for example, that Jones, Smith, and Brown each own 33.3% of the assets of their partnership. If Jones and Smith vote to use their resources for purpose and Brown votes to use the resource for purpose y, then the only legal use of those resources would be for purpose x.

One can quickly see, there may be cases in which there is a tie in voting. Jones, Smith, and Brown may vote to use their assets for purposes xy, and respectively, leading to a tie in voting. So what can the libertarian theory of property do in this case? How can we, without creating conflict, resolve this issue? Below I want to outline a couple possible solutions.

 

Denying Partnerships that Allow for Split Voting

We could say that any contract which would bring about the possibility of this vote splitting are null and void and that all property titles revert to their original owners before the partnership was created. This applies only to partnerships in which there is no proposed solution to the case of split voting. If both partners agree before entering into their partnership that all split votes will be decided by coin toss, are always won by Smith, are always won by Jones, or have some other solution when a split vote arises, do not suffer from this shortcoming and have no need for an outside “solution”. But suppose Smith and Jones agree to some partnership in which Jones’ previously owned resource x becomes their shared property with each partner having 50/50 voting rights in exchange for $1,000 from Smith and there is no agreed upon solution for when split voting arises.  We could say that this contract is void and resource x reverts to being fully owned by Jones and the $1,000 reverts to being owned by Smith. We could, in line with libertarian title theory, say that contracts are only legitimate if they do not have conflicting rights built into them. Certainly we could not formulate a contract which gave unrestricted title of a car to two people at once, as is shown above.

One problem with this solution is that it does not account for instances in property was not originally owned by anyone but was instead homesteaded by two or more parties. Suppose explorers Jones and Smith homestead some fish which they catch together, who would we give title to if we consider their partnership void? There was no original owner of the fish. We could still limit contractual relationships in this way but if we can’t use it in the case, of two partners homesteading, then I think there is reason to believe that whatever solution that is used in the homesteading case, will also be preferable in the contractual case.

 

An Overarching Rule

Another solution that we might propose is that all partnerships that do not account for the possibility of split voting is to have an overarching rule which is always in place in the case of split voting. So, if shareholders A and B split their voting we can always defer to this overarching rule. What that rule might be could come about in at least two ways. First, it could be something discoverable about libertarian law. In three hundred years once applied libertarian legal theory has become the focus of most philosophers (a dream of mine) we might find that libertarian theory tells us exactly what to do in this case. Perhaps it is always the proposer of the partnership contract or the acceptor who always wins out. Or perhaps it is always that which does best for the common good. I don’t know of any libertarian theory that would tell us right now, but one day such a theory might come to fruition.

Second, it might be that no such overarching rule can be found in libertarian law, but instead, this overarching rule can come from ruling cultural practices. If this is the case, it may differ from culture to culture. Perhaps in a culture where age and seniority are viewed as important qualities to be respected, in all cases of vote splitting, it is the eldest of the partners who wins out. Or, in a matriarchal society it is the female partner who always wins out. Or perhaps if skill in games is important, a game of chess decides who wins. Or in a superstitious culture, a coin toss may be the solution.  While the above examples are random suggestions, we may be able to look at common law practices in order to determine which solution would prevail in different societies. Certainly this is a problem for our current understanding of business partnerships, not just libertarian ones and societies who have recognized some form of business partnerships would have to have a solution to this problem.

 

Conclusion

Unfortunately, I have no hard and fast answer to this problem and I am skeptical about the possibility of libertarian theory giving us one. However, split shareholder voting is a problem that does need a solution even if we are not living under a libertarian legal regime. Thus, solutions of the past may suffice for the libertarian answer. I hope that more libertarian theorizing may at least narrow the field for potential solutions. But for now, we continue to search.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s