The ‘Berle-and-Means Spirited’ Corporation

Abstract This chapter discusses the legacy of Adolf Berle and Gardiner Means’s 1932 book, The Modern Corporation and Private Property, best known for its exploration of the consequences of the ‘separation of ownership and control’ in the large American corporation. By documenting the basis on which one might reasonably infer that the diverging interests of managers and shareholders could be a defining feature of the large, public corporation, the book laid the foundation for what economists decades later would articulate as agency theory. Further, it provided a novel analysis of the concept and role of profit in a corporate-dominated system of divided ownership and control, an analysis that is relevant to a proper understanding of the pecuniary objects of the corporation. Finally, Berle and Means explored a potentially transformative idea, namely that one implication of the separation of ownership and control in the large corporation is that it has ‘placed the community in a position to demand that the modern corporation served not alone the owners or the control [ie the groups that have practical control over the corporation] but all society’. Although the increasing importance of institutional ownership of shares today has rendered the Berle-Means framework, as Gilson and Gordon have pointed out, ‘factually obsolete’, their exploration of the possible implications of the changing roles of shareholders and managers provides critical clues to analysing modern approaches to corporate purpose and reasoned alternatives to shareholder primacy.