The Modern Corporation Magnified: Managerial Accountability in Financial Services Holding Companies

Abstract

Recalling Adolf Berle’s and Gardiner Means’ famous analysis of the implications for shareholder primacy of the separation of ownership from control in the “modern corporation,” this paper argues that financial services holding companies (“FSHCs”) are a special breed of “modern corporation.” In particular, distinguishing features of FSHCs, such as their penchant for proprietary trading and the managerial incentives it creates, render more acute the managerial accountability problems that are the central concern of corporate governance norms. This paper suggests that that circumstance may provide further support for the move away from shareholder primacy that Berle and Means advocated. Without taking on that question, it contends that, in the FSHC context, reshaping governance is a critical “gating item.” Toward advancing that project, it proposes a refocusing of managerial accountability to encompass financial firms’ other “core” constituency — namely, those to whom FSHCs and their affiliates provide financial services.

Keywords: corporate governance, financial institutions, Adolf Berle

JEL Classification: G2, G3