A Company with a Seal
In August 1926 a company with the modest name of United Lathing Company was registered in the Bronx. Lath, plaster, building work. Dull. Articles, a seal, seven directors. Nothing special. Unless you read who the directors were. Sitting there were the contractor Tommaso Gagliano, his fellow townsman Antonio Cecala, who had once printed counterfeit money for Morello, and Giuseppe Morello himself, former “boss of bosses” of the New York Mafia, out of federal prison a few years before.
Most of the shareholders, Critchley writes, had come over from Corleone. Townsmen chipped in, got their shares and elected a board. All proper, like decent people.
I’m not starting with this piece of paper to call every company a gang. Quite the opposite. The company was a stroke of genius, and that’s why everybody uses it: charities, crooks, men from Corleone and pension funds. One seal. Different fillings.
The Person Who Never Dies
What is a company? A person who doesn’t exist. It has a name, an address, a bank account, debts and property. It buys, sells, borrows. You can sue it, and it can sue you. But it doesn’t get sick, doesn’t get old and doesn’t die when its founder dies. It’s cut into shares and sold off in slices. And if it goes bust, the owners lose only what they put in. The house and the last shirt stay theirs.
Somebody, at some point, dreamed up every one of those features.
People were already pooling money in shares back in Rome. Tax farmers took contracts from the Republic: collecting taxes, supplying the army. To do it they formed partnerships. Researchers find shares and shareholders among them, and even mentions that shares were sold and were sometimes “very dear at the time”, which means their price moved. The historian Polybius wrote that in the second century BC almost every citizen had some stake or other in public contracts. A whole city holding shares.
But the company became truly immortal in Holland. On 20 March 1602 the Dutch East India Company received a charter for twenty-one years and the sole right to trade in Asia. The money was raised by subscription, and more than eleven hundred people put money in. They chipped in and sat back to wait. Under the original plan the company was to be wound up after ten years and the investors paid out their share. But in 1612 the authorities allowed it not to be. That’s how you got a company that lives until somebody closes it. An investor needs his money—he sells his share to someone else, and that’s that. The company lived for almost two hundred years. It was dissolved on the last day of 1799.
Limited liability was written into English law in 1855. Before that, if you put money into a company you risked everything: if it went under, the creditors could come to your house. After that you could risk a single hundred pounds and know the house would stay yours.
What We Never Had
Gambetta studied the Sicilian Mafia as an economist and asked himself an unexpected question: can a mafia “firm” be sold? His answer was that he didn’t know of a single case where such a firm had really been sold.
He explains it in business terms. Imagine a buyer comes to a boss and says he wants to buy his whole business, with the clients, the people and the connections. The boss agrees, they settle on a price. That’s only the start. Every client and every worker has to be told, and every one of them has to agree, because they’re tied not to the firm but personally to the current owner. Somebody won’t trust the new man and walks, others follow, and a month later there’s nothing left to sell. You can’t sign a reputation over to a new owner like a house. People earn it themselves.
Elsewhere Gambetta cites historians of Sicily: if anyone on the island did set up a limited company, it was only with relatives. Trust stopped at the family.
See the point? Everything a mafia firm lacks is exactly what the company was invented to provide. The company lives for ever, the boss only once. A share gets sold to a stranger, but you can’t sell personal loyalty. Instead of a man’s word—articles and a court. The company teaches you to trust strangers. The Family only knows how to trust its own, and that’s why it always stays small.
The Seal Doesn’t Take Sides
Back to the Bronx. Two years after United Lathing was registered, Gagliano and Monforte also opened the “Plasterers’ Information Bureau”. Officially it told its members the going rates. In fact, according to the court records, it knocked the whole trade into a cartel: prices fixed, clients divided up, and the bureau taking one to two per cent of every contract. In 1929 the arson started, and a plasterer was killed. Monforte went to prison. In 1932 federal prosecutors counted one million two hundred and seventy thousand dollars in unpaid corporate and income taxes. In 1935 Gagliano filed for bankruptcy: he owed three hundred and fifty thousand and change, and had less than eighty. Do the sum yourself.
But Critchley makes an important reservation. He found no evidence that these companies were set up with mafia money or served as a laundry for the proceeds of its other rackets. Nor did he see the Mafia “bringing order” to the trade. Gagliano was a contractor first and a boss only later. It was a mafioso’s business, not a mafia business. The company didn’t make him any more honest. Or any less. It just gave him a shape.
What do you take away about the legal person? Don’t fear it and don’t worship it. A seal doesn’t mean decent. No seal doesn’t mean crook. What a seal promises is something else: the business has an address you can turn up at with a lawsuit, a tax inspection and questions. The Mafia spent its whole life running from addresses. The legitimate world built a civilisation on them.
The Don Gets His Papers in Order
For forty years Don Vincenzo kept everything in his own name. The laundries, the contracts, the equipment—everything. He used to say he had one signature and it didn’t know how to lie. When we started trading olive oil wholesale, I suggested setting it up as a separate company and giving the mill owner a share. The Don said no. Three years later a restaurant we’d supplied poisoned a wedding with stale fish and tried to pin it all on the oil. The lawsuit came to the Don personally, with all the laundries thrown in. We beat it; the oil had nothing to do with it. But for a month the Don slept badly.
A week after the trial the oil trade became a company. The Don signed the articles with the face of a man listening to his own will being read. And then he said: “Before, I answered for the oil with the laundries. Now the oil answers for itself.” Nobody in my hearing has ever put limited liability better.
The Bottom Line
The seal doesn’t take sides: a pension fund hides under it, and so does a plasterers’ cartel. Before you trust a piece of paper, read who the directors are.