Chris Cook’s critique of trusteeship and trust law
Peter Barnes once wrote that:
the trust is to the commons as the corporation is to the market
Chris Cook argues trusts are not an adequate governance mechanism:
“It’s not the concept of a “Trust”/ Steward / Custodian I have a problem with: it’s (judge made) Trust Law or “Equity”.
I prefer (consensual) partnership law – the Japanese approach is very much along these lines: as the lawyers say…” there are as many Sumo wrestlers in the the US as there are attorneys in Japan…”
(a) Trust law is complex, laden with Latin arcana, and hence beloved of lawyers (paid by the hour, not the outcome);
(b) there is a management issue – since those who manage a “Trust” typically cannot benefit, and the entrepreneurs who set up “Social Enterprises” as “Not for Profits”/ “Trusts” find they get divorced from management of them, unless they are prepared to starve in a garret;
(c) an entrepreneurial Trust is a contradiction in terms;
(d) investment in productive assets by “Not for Profit” “Trusts” is difficult, since they have no “Equity” and require either secured loans (putting them at risk) or grants (which may detract from the purpose).
and so on.
I believe that in creating the UK LLP, the UK government inadvertently reinvented the “Corporation” in an “Open” and optimal form, allowing new financing options I call “Open Capital”.”
He adds that:
“Trusteeship is based upon the positive control of a ‘Trustee’ on behalf of a ‘ Beneficiary’, and one of the key problems is that in order to actually DO anything with assets held in trust it is necessary to employ managers as agents, whose interests are conflicted with those of both trustee and beneficiary. This intractable principal/agency conflict also applies to all Companies, whether or not operating ‘For Profit’. It also applies to States/ Public Sector organisations. The P2P architecture I advocate is based not upon ACTIVE control of assets, but passive custody where the custodian has negative rights of control. ie he may say what may NOT be done rather than what SHALL be done with productive assets. The use of such custodians is already routine in the financial system. Virtually all institutional share trading takes place in respect not of the shares, but of the economic interests in the shares which are immobilised in the hands of a custodian. So it must be IMHO in order to achieve a practical real world P2P system, where undated credits in respect of the use value of productive assets (eg rental value, energy value and intellectual value) hldl in custody may be exchanged within a suitable framework of trust.”
