To better understand the drivers of corporate complexity, the project developed an algorithm that captures ownership and accounting data from corporate subsidiaries around the world. The data is used to construct an image of a corporate organization. We call these imaged, equity mapping or EM in short. The project produced circa 250 EMs of the largest corporate groups in the world. The CORPLINK team then devoted considerable time discussing the resulting visual maps with corporate lawyers and accountants to learn about specific schemes embedded in these maps.
We have learned that an important feature of corporate law known as ‘entity law’ whereby each corporate subsidiary tends to be an independent legal person subject to the rules and regulations of a licensing authority, is having a momentous implication for the development of modern capitalism. A corporation is a legal entity licensed by a sovereign authority. A corporation cannot be multinational and the so-called multinational corporations are in effect network of separate companies held together through equity ownership. Professional services known as ‘business planners’ construct corporate groups in such a way that they can avoid or even evade national rules and regulations. Tax is only one such rule; there are prudential rules (such as financing rules); liability rules, reporting rules, and the like, and all can be arbitraged.
We concluded that modern MNCs are not simply avoiding rules, but through the use of arbitraging techniques, they create in effect their own preferred regulatory environment. An ability to shape an environment rather than being shaped by it is a form of power, arbitrage power, pervasive, yet poorly understood. Through a series of publications (some forthcoming), the project was able to illustrate empirically how MNCs employ this powerful tool.
Who benefits from this power? In a series of publications and forthcoming publications, the project demonstrates that arbitraging help to shape and coalesce the wealthiest elite nowadays, a rule-based transgressor elite that can use the rules of the game of society to its advantage. The project also shows empirically that some sophisticated governments e.g. the U.S. were able to employ arbitraging techniques to advance geo-political goals.
