Corporate Power in the Public Eye : Re-Assessing the Implications of Berle's Public Consensus Theory

Adolf A. Berle, Jr. is widely regarded to be the intellectual pioneer of corporate governance as a field of academic inquiry. The seminal text which he co-authored with Gardner Means in 1932, The Modern Corporation and Private Property, is today still regarded by many scholars as the most influential academic account of the subject. On a descriptive level, Berle is credited with identifying the separation of ownership and control within public companies. From a normative standpoint, moreover, Berle is often depicted as the original defender of the principle that we today know as shareholder primacy. This article takes issue with both the above interpretations of Berle’s work, which we argue misrepresent the nature and extent of Berle’s lifetime contribution to corporate governance scholarship. We instead present a contextual and integral understanding of Berle’s ideas aimed at both highlighting and analyzing the wider institutional quality of his corporate governance scholarship. For this purpose, we rely principally on the two Berleian texts which are most heavily associated with his work on corporate governance, namely The Modern Corporation (1932) itself (notably including Berle’s 1968 updates to the original version) and Power Without Property (1959). Furthermore, we analyze Berle’s overall corporate governance project in accordance with what we see as its three core sub-themes, namely: A. the superior effectiveness of internal (corporate) over external (market) actors in allocating corporate capital; B. civil society and the public consensus as a continuous informal check on managerial decision-making power; and C. limited-form shareholder democracy (as opposed to shareholder primacy or shareholder wealth maximization) as a socially instrumental institution. We suggest that Berle’s scholarship, when viewed in this integral and non-selective way, provides the basis for a realistic and dynamic understanding of the concept of shareholder democracy and its relationship with wider civil society processes of public and political opinion formation. This has significant implications both for the legitimate role of the political-regulatory state in corporate governance, and also for the wider debate about involvement of non-shareholder groups (e.g. workers) in internal firm governance processes