Corporate veil

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In a formal legal context, the ontological fiction by which a corporate personality is distinct from the persons owning and running it. This is all great japes if your taste runs to jurisprudential conundrums.

In the dirty world of modern financial services, it presents itself in a different way: the difference between what your employees know and what your systems know. In this regard, the legal entity is short a rather ugly option — one which tries the patience of legal eagles, who have to row it back when, as inevitably it will, everything goes Pete Tong, and salespeople, who will find it utterly confounding that legal contracts never do what they’re meant to when you need them, alike.

For it is all very well crafting elegance disclaimers, exclusions, and restrictions on liability, but all of this amounts to a small heap of potatoes if in the intervening period, your salespeople, in their priapic enthusiasm, have promised the known world to their clients in direct contradiction to your clever legal figures. Be assured: what your clients will remember will not the dusty syntactical contortions you buried in a master agreement 15 years ago, but the vibrant — often lurid —assurances made to them over a few glasses of Château de Chasselas during the interval of a rousing presentation by Cirque du Soleil.

So here is the thing: you have the social organism that is a multinational financial services firm that bumps around the market ecosystem like an ineffable, shape-shifting,our-of control dirigible — this is the huge collection of employees, consultants, contractors with whom you interact each day — and you have the convoluted array of electronic books and records that represent that firm in the opinion of its risk controllers and upper management — its client static data, trading systems, executed document repositories, accounts, margin systems and accounting treatments.

These two things are very different, and the risk between them is asymmetrical: Any accommodation granted by the social organisation to the outside world is, to all intents, binding — either through ostensible authority, but more realistically because the commercial imperative so dictates — whether or not that accommodation makes its way into the firm’s books and records. But a benefit — an accommodation granted to the firm by the outside world — that does not make it into the firm’s books and records is meaningless.

See also

• For some crazy law chat on the historical concept of the corporate veil, see Salomon v Salomon & Co Ltd