The Birth of Corporate Governance

Part I of this Article briefly examines the concept of “corporate governance” and argues for dating the concept’s origins to the debates of the 1920s. Part II then moves on to examine early scholarly and popular discussions of the separation of ownership and control. After surveying the historical developments that produced the recognizably modern corporate economy around the turn of the century, it examines early scholarly and popular discussions of the separation of ownership and control, focusing on three major thinkers, Louis D. Brandeis, Walter Lippmann, and Thorstein Veblen. It argues that, while each of these authors examined the separation of ownership and control, they did not agree on its contours or impact. They did not necessarily see the separation of ownership and control as a problem for shareholders, and some did not see it as a problem at all. To portray these authors simply as anticipators of Berle and Means is to misunderstand the arguments they actually made and to miss the ways in which ideas about the separation of ownership and control were slowly developed. Part III, the heart of this Article, focuses on Berle and Means’s most significant predecessor in the debates over corporate governance, William Z. Ripley, and his 1920s crusade for better corporate governance, culminating in his book Main Street and Wall Street. It discusses how Ripley, already one of the best-known economists of his day, launched a campaign in 1925 against financial and legal innovations that were, he claimed, allowing corporate managers to wrest control of corporations away from their owners—shareholders scattered across the country. In speeches and a series of articles in the Atlantic magazine, Ripley hammered corporate leaders and pushed for a range of reforms in corporate law and governance intended to provide new protections for shareholders. His campaign drew wide attention and gained notice from Wall Street and the President of the United States. Ripley was not alone during the 1920s; his work is only the best-remembered of a series of scholarly and popular works that turned a spotlight on the separation of own- ership and control and the spread of shareholding. Thus, it was during the 1920s that recognizably modern views of the separation of ownership and control, and its consequences, took form. Finally, in Part IV, the Article turns to Berle and Means. It discusses both their connections to earlier theorists and crusaders, and the ways in which they transcended their predecessors. The Modern Corporation and Private Property broke with its predecessors by providing a technically sophisticated and empirically based legal and economic analysis of the separation of ownership and control, and by setting that analysis within a narrative describing how the modern corporation had come to dominate American economy and society