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Shareholder Primacy's Corporatist Origins: Adolf Berle and 'The Modern Corporation'

This article aims to look at the scholarly work and debate that took place between Adolf A. BerleJr. and E. Merrick Dodd in the early 193s! and tries to in"esti#ate their "iewpoints on corporatelaw. The debate between both Berle and Dodd was initiated d$e to anticipated iss$e of

separation of shareholder%s ownership and mana#ement control. There are contro"ersial "iewse&ist abo$t those debates. The a$thors of the article try to e&amine the te&ts that ha"e reachedtheir '(th anni"ersary and incl$de Berle and Dodd%s articles that deal with corporate powers!and Berle%s famo$s book with )ardiner *. Means! The Modern *orporation and +ri"ate+roperty. The a$thors belie"e that Berle and Dodd%s debate is fre,$ently and easilymis$nderstood and is taken o$tside of their ori#inal conte&t! and their #enerally-acceptedhistorical pict$re p$ts Berle in the position of the #randfather of today%s shareholder primacy! aposition which he ne"er hold. t happened only d$e to his strict confines of corporate law. Thereare three transitions in Berle%s te&ts/ one is called Early Berle when he was artic$latin# the"ersion of shareholder primacy. 0hen he be#$n the work as an ad"ocate of corporate selfre#$lation! "ery soon he shifted his "iews and started to fa"or $dicially enforced shareholderprimacy. 2econd transition is called middle Berle! a corporatist on the political plat form. ater!

middle Berle%s te&ts refer as coe&istentpolitical writin#. Berle%s post war work refers to as ateBerle! a modification of his Depression-era corporatism. ate Berle showed a little interest intoday%s corporate le#al theory that is a #o"ernance phenomenon.

0hile on the other hand when modern scholars read the Dodd%s te&t! and they interpreted himas the ori#inal forefatherof today%s corporate social responsibility 4*256. Dodd ali#ned himselfwith the b$siness commonwealth camp! s$pportin# corporatism. n his debate with Berle! hestated that Berle%s "iew point abo$t shareholder tr$stee was problematic beca$se that was$ndesirable to #i"e increased emphasis at the "iew point that corporations e&ist only for makin#profit for stockholders. nstead! b$siness corporation sho$ld be able to act as a social instit$tion.Dodd s$##ested that the corporatist policy for the 7nited 2tates sho$ld rely on the ass$mptionthat the mana#erial elite wo$ld work as the tr$stees for the comm$nity and corporations sho$ld

be $sed to sol"e the social and economic problems of the )reat Depression. Dodh had #oodfaith on the abilities of mana#ers and on their professional responsibilities. Dodd%s work can beread in se"eral ways! and tho$#h most of the readers try to ali#n him with modern *25 whilesome consider him as a s$pporter for mana#ement discretion with social responsibility.

n this article! the a$thors are tryin# to correct that old mistake and offerin# a new correctreadin# abo$t the concept of corporate law. This article was aimed to identify whether Berle andDodd were s$pportin# the idea of corporate social responsibility 4*256. The a$thors stated thatboth positions that are specifically associated with them were wron#/ no one was s$pportin#either position. Berle who ends $p as #reat forefather of shareholder primacy was $st bychance! and most likely Dodh%s attack p$shed him toward that position. That was a time of)reat Depression and the normati"e iss$es were taken for the appropriate policy response to

the crisis of that )reat Depression. Berle and Dodd were $st tryin# to s$pport the differentaspects of the emer#in# corporatist state that sees corporation as an entity which is an or#an ofthe state! and pres$mes social responsibilities. Berle has taken on the basic ,$estion that forwhom is the corporation mana#ed8 t was at an era when the answer had critical implicationsfor social welfare. 0hile answerin# that ,$estion Berle e&pressed a political economy thatcombined the theory of corporate law with the theory of social welfare ma&imiation. t was hisbi# achie"ement! howe"er! it was in a sit$ation totally different from c$rrent debate o"ercorporate responsibility and mana#ement. n fact! Berle was not in fa"or of shareholder primacyas it was percei"ed today. This article indicate that there is not a clear e"idence that Berle was a

http://knowledge.sagepub.com/view/ethics/n73.xmlhttp://www.merriam-webster.com/dictionary/coexistenthttp://www.merriam-webster.com/dictionary/coexistenthttps://www.google.com/search?safe=off&biw=1366&bih=622&q=define+forefather&sa=X&ei=mOSUU78aiqCiBPjZgKgF&ved=0CCIQ_SowAAhttp://www.merriam-webster.com/dictionary/coexistenthttps://www.google.com/search?safe=off&biw=1366&bih=622&q=define+forefather&sa=X&ei=mOSUU78aiqCiBPjZgKgF&ved=0CCIQ_SowAAhttp://knowledge.sagepub.com/view/ethics/n73.xml

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*25 ad"ocate! he ne"er made a final $mp s$pportin# the reor#aniation of the le#al firm associal welfare ma&imiation. Berle had made ar#$ments abo$t a stron# re#$latory state and ap$blic consens$s that are a#ainst corporate profit ma&imiation. Dodd also did not e&press aclear pict$re of it! his Depression era writin# $st indicated an indirect s$pport to today%s *25s$pporters. :e is most likely read as a mana#erialist! and the social responsibility withinmana#ement%s discretion is not all abo$t *25 tends.

belie"e that Berle is considered as an ad"ocate of shareholders primacy only d$e to his earlywork which he later reected by himself at the time of The Modern Corporation! when he was atthe opposite side of today%s shareholders% primacy ad"ocates. belie"e that he was #oin#thro$#h different phases of his life! and he was infl$encin# by those thin#s that were happenin#aro$nd him s$ch as )reat Depression. n 1931! no do$bt! he stated that all powers #ranted to acorporation or the mana#ement of a corporation is necessarily and at all times e&ercisable onlyfor the ratable benefit of all the shareholders as their interestappears. At that time! Berlepercei"ed that corporations are only for ad"ancin# and protectin# shareholder%s interests andcorporations sho$ld be able to reflect that principal. :owe"er! in 19(;! the debate betweenBerle and Dodd was came to an end when Berle mentioned it in his book The 20th CenturyCapitalist Revolution, two years after Dodd%s death! and he said that the law has s$pported

Dodd! and the ar#$ment is settled in the fa"or of Dodd%s contention 45$tkow!