Eduardo Saverin and the “Social” Contract
Published: May 21, 2012
Author: David Rodnitzky
Last week Eduardo Saverin – one of the founders of Facebook – gave up his US citizenship. He was 100% legally entitled to do so. When asked why he was renouncing his citizenship, he noted: “I was born in Brazil, I was an American citizen for about 10 years. I thought of myself as a global citizen.” Of course, some commentators suspected that there was another reason Saverin suddenly decided to ‘go global’:
“Saverin, as you may have heard, has renounced his U.S. citizenship and will avoid paying capital gains taxes on windfall profits after Facebook goes public tomorrow. As the company’s co-founder, Saverin’s 4 percent share of the company is worth around $4 billion, give or take a few shekels.”
We may never know what was in Saverin’s heart, but let’s assume for the sake of discussion that his decision was motivated by a desire to save money on taxes. Is there really anything wrong with renouncing your citizenship if it might save you close to $400 million?
The Social Contract
In Saverin’s case, in exchange for taking advantage of the United States’ incredible higher education system, its protection of free expression, and encouragement of innovation, he agreed to pay the country back by paying taxes on any gains he incurred. Now this is where the difference between a legal contract and a social contract becomes a little sticky. Legally, he was entitled to renounce his citizenship prior to having to pay $400 million in capital gain taxes, but socially, when it was time for him to repay his country for all the support they provided him, he broke the contract.
Think of it like this: you go to a fancy restaurant and spend several hours dining with your spouse. The wait staff is perfectly attentive and the food is incredible. When you are finished, you ask to speak to the manager. You tell him that the food was horrible and you are going to write a scathing review on Yelp if he doesn’t give you 50% off the bill. Reluctantly, he agrees. You leave without giving the waiter a tip.
Legally, you are perfectly in the right here, but socially, you’ve violated two contracts with the restaurant: first, that you will pay for the food that you enjoyed and second, that you’ll subsidize the cost of the restaurant’s staff by leaving a tip. Imagine what would happen if every patron who came into a restaurant acted like this; most likely, the price of food would increase by more than 100% – to cover the expected 50% discount on the food and to cover the anticipated lack of a tip to the waiter – and some restaurants might even ask for pre-pay before a patron receives food (like gas stations today).
And this is basically what might happen as a result of Saverin’s “stiffing” of the US government. Already there is proposed legislation that will force ex-pats to pay up if they ‘dash and dine’ like Saverin did.
Is Man Evil or Good?
It strikes me that Saverin only came to this decision as a result of two factors: first, because he had a lot of money, and second, because he had talented lawyers and accountants on his payroll to make this happen. To put it another way, the greater your wealth or power, the easier it is (and the more likely you are) to break the social contract (you can argue about whether this is true for legal contracts as well, I suppose).
Michael Moore starts his movie Capitalism: A Love Story with images from bank security cameras of bank robberies, and ends the movie by putting up police “do not cross” yellow tape around a block on Wall Street, declaring it a “crime scene” as a result of the mortgage crisis and subsequent bailout of Wall Street banks. The contrast is somewhat obvious: rob a bank of $10,000, and you go to jail; defraud a country of billions and get bailed out.
His point is this: there’s bipolar argument today about crime – on the one hand, politicians get elected with a “tough on crime” stance, specifically when it comes to crimes like drug dealing, robbery, and murder. Philosophically, this approach could be labeled as Hobbesian in nature: man is inherently evil and we must create laws that assume the worst in man. On the other, politicians argue that we must “deregulate” big business, which will free them to “create jobs” and level the competitive playing field against other countries. This approach is more Kantian, in which it is assumed that man is inherently good and will make the right choices for society, given the opportunity to do so.
In fact, however, as Saverin, the big banks, oil companies, chemical companies, and countless other wealthy entities have proven, when it comes to money, the greater the wealth, the more likely it is we should assume the worst in mankind. Give anyone an army of lawyers and accountants and apparently it is impossible to resist the urge to break the social contract. It’s a very Hobbesian conclusion: man is inherently evil, but it’s only when he has the necessary resources does this evil manifest itself!
The Social Contract and Online Marketing?
Since this is an online marketing blog, wouldn’t it be nice if there were a way to seamlessly steer this discussion back to actual Facebook advertising, as opposed to tax evasion schemes of former Facebook founders? Fortunately, there is! It turns out that the social contract is highly relevant to our everyday lives in online marketing. Consider these situations:
— When an agency does great work for a client, bills the client at the end of the month of work, but the client asks for a discount based on false premises of dissatisfaction;
— When as a marketer, you are asked to promote a product or service that is perfectly legal, but which goes against your own ethical standards;
— When an agency takes on a client that they know will be unsuccessful but will pay the agency a lot of money (there’s an episode of Mad Men that covers this topic)
These are all perfectly “legal” situations, but they break the social contract. And inevitably, the bigger the client (or from the client perspective, the larger the bill), the more tempting it is to break the contract and reap a windfall. And with each incident of a broken social contract, the legalese in advertising contracts gets longer, the distrust between agency and client widens, and the marketing world becomes more Hobbesian and less Kantian. Sometimes fulfilling the social contract means optimizing to a result that benefits the greater whole and not your bottom line. Certainly that’s a rule that everyone in the online marketing world should strive to follow!
– David Rodnitzky, CEO