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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 1930s, and tries to investigate their viewpoints on corporatelaw. The debate between both was initiated due to anticipated issue of separation of

shareholder's ownership and management control. There are controversial views exist aboutthose debates. The authors of the article try to examine the texts that have reached their 75thanniversary and include Berle and Dodd's articles that deal with corporate powers, and Berle'sfamous book with Gardiner C. Means, The Modern Corporation and Private Property. Theauthors believe that Berle and Dodd's debate is frequently and easily misunderstood and istaken outside of their original context, and their generally-accepted historical picture puts Berlein the position of the grandfather of today's shareholder primacy, a position which he never hold.It happened only due to his strict confines of corporate law. There are three transitions in Berle'stexts; one is called Early Berle when he was articulating the version of shareholder primacy.When he begun the work as an advocate of corporate self regulation, very soon he shifted hisviews and started to favor judicially enforced shareholder primacy. Second transition is calledmiddle Berle, a corporatist on the political plat form. Later, middle Berle's texts refer as

coexistent political writing. Berle's post war work refers to as Late Berle, a modification of hisDepression-era corporatism.

While on the other hand when modern scholars read the Dodd's text, and they interpreted himas the original forefather of today's corporate social responsibility (CSR). Dodd stated thatBerle's view point about shareholder trustee was problematic because that was undesirable togive increased emphasis at the view point that corporations exist only for making profit forstockholders. Instead, business corporation should be able to act as a social institution. Dodd'swork can be read in several ways, and though most of the readers try to align him with modernCSR while some consider him as a supporter for management discretion with socialresponsibility.

In this article, the authors are trying to correct that old mistake through this article and offering anew correct reading about the concept of corporate law. This article identify that Berle and Doddwere supporters of corporate social responsibility (CSR). These both positions were wrong; noone was supporting either position. That was a time of Great Depression and the normativeissues were taken for the appropriate policy response to the crisis of that Great Depression.Berle and Dodd were just trying to support the different aspects of the emerging corporatiststate that sees corporation as an entity which is an organ of the state, and presumes socialresponsibilities. Berle has taken on the basic question that for whom is the corporationmanaged? It was at an era when the answer had critical implications for social welfare. Whenanswering that question Berle expressed a political economy that combined the theory ofcorporate law with the theory of social welfare maximization. It was his big achievement,however, it was in a situation totally different from current debate over corporate responsibility

and management. In fact, Berle was not in favor of shareholder primacy as it was perceivedtoday. There is also not any proof that Berle was a CSR advocate, as he never tried to supportreorganization of the legal firm as social welfare maximization. Berle had made argumentsabout a strong regulatory state and a public consensus that are against corporate profitmaximization.

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Dodd also did not express a clear picture of it, his Depression era writing just indicated anindirect support to today's CSR supporters. He is most likely read as a managerialist, the socialresponsibility within management's discretion is not what CSR tends to be about?

The biggest lesson from this analysis is that the shareholder primacy school impairs its own position by making a claim on Berle.