Securities Intermediaries and the Separation of Ownership from Control

Abstract:     
The Modern Corporation and Private Property highlighted the evolving separation of ownership and control in the public corporation and the effects of that separation on the allocation of power within the corporation. This essay explores the implications of intermediation for those themes. The article observes that intermediation, by decoupling economic ownership and decision-making authority within the shareholder, creates a second layer of agency issues beyond those identified by Berle and Means. These agency issues are an important consideration in the current debate over shareholder empowerment.

The article concludes by considering the hypothetical shareholder construct implicit in the Berle and Means paradigm and in proposals to increase shareholder empowerment. Intermediation challenges the validity of this construct and raises questions about whether corporate law can rely on shareholders to constrain managerial power appropriately.

Number of Pages in PDF File: 13

Keywords: Corporations, Corporate Governance, Gorporate Finance, Capitalism, Adolf Berle, Gardiner Means, Shareholder Primacy, Intermediation Between Ownership and Control, Agency Theory, Agency Costs

JEL Classification: B25, B31, G34, K22

Accepted Paper Series