Berle and Means Reconsidered at the Century's Turn

This paper reconsiders Berle and Means' The Modern Corporation and Private Property in the context of contemporary corporate legal theory. Although the book lost its paradigmatic status in the field two decades ago, it retains an enviable place at the forefront of policy discussions. The paper seeks to explain this unusual longevity, in a three-part discussion. The first part places the book in the context of the legal theory of its day by comparing work of John Dewey on the theory of the firm and William O. Douglas on corporate reorganization. This discussion highlights two progressive assumptions Berle and Means shared with these business law contemporaries?a confidence in the efficacy of judicial intervention to vindicate distributive policies and a distrust of the institution of contract. The second part takes up Berle and Means' description of the separation of ownership and control. It is here that Berle and Means still speak in an active voice. The split in the classical entrepreneurial function has come to be seen as a problem by observers on all points of twentieth century America's ideological spectrum, even as few have denied the large corporation's success as a producer. The problem has never been solved, despite strenuous efforts to assert the contrary in first-generation law and economics. Instead of clear cut solution of the problem, we instead have seen a process of accommodation and adjustment between the management-controlled corporation and the wider economy and society. The process, which began before the turn of the twentieth century, continues into the twenty first. More particularly, Berle and Means' description of the problem synchronizes neatly with contemporary views on corporate governance. It turns out that even the latest microeconomic theory of the firm in the incomplete contracts framework coexists in consonance with the book. The third part reconsiders the solution Berle and Means recommended for the problem of separated ownership and control, a judicially-enforced norm of trust. This has been eclipsed in business law. Even so, The Modern Corporation and Private Property hedges its prescriptive presentation carefully enough to retain a measure of plausibility in a contemporary reader's eyes. More importantly, the book's prescriptive miss follows less from the its analysis of corporate problems than from now-discarded progressive assumptions about regulation and contract. Finally, the book's failure accurately to predict the future course of corporate fiduciary law stems in part from a development Berle could not reasonably have been expected to anticipate--the rise of the Delaware courts to a dominant place in the making of corporate case law due to the ancillary disappearance of federal common law after Erie Railroad Co. v. Tompkins.