Berle and Means Reconsidered at the Century\u27s Turn

Part I places Berle and Means in the context of the legal theory of its day by comparing the work of Dewey on the theory of the firm and 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. These assumptions would, in the long run, cause the book\u27s prescription to land wide of the mark. After 1980, Berle and Means lost their paradigmatic status due to a combination of skepticism respecting judicial competence (and a concomitant retreat to process scrutiny) and renewed faith in the institution of contract. Significantly, by 1980 the same emerging perspectives had already played a role in the Congress\u27s abandonment of Douglas\u27s corporate reorganization scheme. Part II reconsiders The Modern Corporation and Private Property in the context of contemporary corporate legal theory. It begins, in Section A, with a look at the book as an early example of corporate law and economics. The book\u27s pro-regulatory posture reverses contemporary expectations about interdisciplinary influence, under which economics promotes deregulation. The alignment of methodology and policy prevailing in the 1930s was very different from that of today, and the book reflected that alignment. Section B takes up the separation of ownership and control, showing that the book\u27s description of the problem synchronizes neatly with contemporary views on corporate governance. It turns out that even the latest micro economic theory of the firm coexists in consonance with Berle and Means. Section C turns to the solution the book recommends for the problem of separated ownership and control, a judicially enforced norm of trust. Here, Berle and Means have become history, eclipsed in business law along with many other progressive policy positions. Yet, their book hedges its presentation carefully enough to retain a measure of plausibility even in a contemporary reader\u27s eyes. Nor should Berle and Means have foreseen a critical subsequent change in the context of corporate lawmaking. The Delaware courts have been the primary agents of the book\u27s prescriptive failure. They did not assume an obstructive position until Erie Railroad Co. v. Tompkinsl9 took the federal courts out of corporate fiduciary lawmaking a few years after the book was published