Berle’s Conception of Shareholder Primacy: A Forgotten Perspective For Reconsideration During the Rise of Finance

Today, Berle is celebrated as the grandfather of modern shareholder primacy, but this description glosses over his opposition to Manne’s flip of his argument. Berle’s objection is not always appreciated in commentaries of his shareholder primacy argument. For this reason, this Article offers a nuanced understanding of Berle’s argument, providing a clear observation point for examining the shift from his shareholder primacy argument to the one of today. This shift is a transition from promoting shareholder primacy in order to protect minority constituents to promoting shareholder primacy in order to protect majority rights and the right of exit for any disgruntled minority. It is also the shift from promoting shareholder primacy in order to tie corporate managers to public interest to promoting shareholder primacy in order to endorse minimizing transaction costs—even when efficacy gains unfortunately result in costs being externalized upon people who did not ex ante negotiate contract safeguards to protect themselves against such risk. From this point of observation, the shareholder primacy argument offers another perspective upon investor empowerment during the current “rise of finance.” Part II of this Article briefly reviews the history of Berle as a young man. It then introduces Berle’s theory of the corporation and how this theory plays out in his early endorsement of shareholder primacy from 1923 to 1926. Part III explores the development and content of The Modern Corporation and Private Property, with particular emphasis on the relationship between the book and the Berle–Dodd debate. Part IV provides a fresh analysis of the debate. Part V contextualizes Berle’s thoughts on shareholder primacy within the rise of finance as an organizing force not only for the firm, but also for the rest of society. Finally, Part VI offers a concluding thought