Berle and Means Reconsidered at the Century's Turn

Abstract

Adolf Berle and Gardiner Means' The Modern Corporation and Private Property still speaks in an active voice. Since it first appeared in 1932, corporate law has been reckoning with its description of a problem of management responsibility stemming from the separation of ownership and control. Today, Berle and Means remain at the forefront of policy discussion in a field where even a highly successful academic contribution rarely has a shelf life exceeding ten years.

This essay seeks to explain the longevity of Berle and Means' book by looking at the book in the context of its time, comparing the contemporary contributions of other authors on the theory of the firm and corporate reorganization. It then goes on to reconsider the book in the context of contemporary corporate legal theory by first looking at the book as an early example of corporate law and economics. The essay then examines how Berle and Means' description of the problem of separation of ownership and control synchronizes with contemporary views on corporate governance. Finally, the essay turns to the solution the book recommends for the problem of separated ownership and control, a judicially-enforced norm of trust.

The essay concludes by noting that while Berle and Means' trust model was never adopted in corporate law or corporate legal theory, shareholder value maximization is more embedded than ever as the field's governing norm. The essay notes that the trust model has played a critical role in the shaping of corporate fiduciary law. Although Berle and Means' prescription for remedying the problem of separation of ownership and control is considered a policy relic, the importance of their book continues because it identified and discussed problems left untreated then and later. Leading corporate governance discussions still implicate the separation of ownership and control because, as Berle and Means asserted, the separation implies shortfalls of competence and responsibility.

JEL Classification: K22