The Birth of Corporate Governance

Abstract

This article examines the origins of modern debates of corporate governance. While commonly traced back to the 1932 publication of Adolf A. Berle & Gardiner Means’s The Modern Corporation and Private Property, this article argues that corporate governance became a concern decades earlier, when scholarly and popular awareness was raised about the separation of ownership and control in the modern corporation and by a related but not identical development, the dispersal of mass share ownership. Taken together, these developments led to public concern over corporate management, and a reorientation of debates over the corporation to focus on shareholder protection. By the 1920s corporate governance was the subject of vigorous public debates sparked by the reformist campaigns of Harvard economist William Z. Ripley, now best remembered as the author of the critique Main Street and Wall Street. When Berle & Means’s work appeared in 1932, it was seen as part of already ongoing debates, the latest salvo in decades-old fights over corporate governance. The perspective provided here not only explains why Berle & Means’s work was hailed as a classic, but how corporate governance became a public issue in modern America.

JEL Classification: K22