The Evolution of the Modern Corporation: Corporate Governance Reform in Context

Abstract:     
This article traces the evolution of the modern corporation from the American Civil War to the present. I begin with a focus on the period from 1865 to the Great Depression. This was the era of the Great Tycoon, the time of the second industrial revolution and the transformation of America’s economy from small proprietorships and partnerships to the forerunner of the modern corporation. I then detail the transformational crisis of the Great Depression and Adolf Berle’s central role in shaping America’s changed understanding of the proper relationship between government and the modern corporation. It was Berle, both as a scholar and key advisor to Franklin Roosevelt, who recast America’s history so that the New Deal seemed a natural extension of individualism. The following part details the period encompassing the New Deal and the Second World War. It is this period in which the United States develop into a modern, Keynesian social democracy. It is this period when the United States, in partnership with the modern corporation, assumes the mantle of world hegemon. I then examine the modern corporation during heyday of American hegemony and the so-called “golden age of American capitalism;” the period runs roughly from 1950 to 1973 and is characterized by the Galbraithian corporation, with power devolved to the technocracy of the firm. I conclude with tentative intuitions as to the nature of the modern corporation and the CEO in recent times. The tentativeness of this final section is purposive. We are too close in time to the “present” to agree on what has transpired, much less what is about to transpire. Thus, my effort is to provide a common backdrop for understanding the slightly more distant past, in hopes that conversation about the near present and near future will be more fruitful.

Number of Pages in PDF File: 42

Keywords: Theory of the firm, nexus of contracts, corporate governance, institutional economics, law and economics, Galbraith, Veblen, Knight, entrepreneur, shareholder primacy, Berle, corporations, intellectual history, evolution, New Deal, Individualism, Neo-Classical, Keynes

JEL Classification: A14, B10, B13, B15, B25, B31, D21, D22, E12, E13, K22, L21, M13, L00, N00, N11, N20, P1, P12, P50

Accepted Paper Series