The least motivation of the managers is one thing, but nothing further guarantees that their interests will converge with those of shareholders. On the contrary, everything suggests a problematic divergence, especially if the former realize that the most profitable way to follow their selfish interests, after all – given that, as Schumpeter writes, ‘personal gain beyond salary and bonus cannot, in corporate business, be reaped by executives except by illegal or semi-illegal practices’23 – lies in dipping their hands into the till. Ironically, if managers comply with the maxim of the rational economic agent, the system starts to go off the rails, as it is true that ‘the interests of ownership and control are in large measure opposed if the interests of the latter grow primarily out of the desire for personal monetary gain’.24
Berle and Means make no objection to classical theory. They do not say that Smith was wrong, but on the contrary that he was right – and right to foresee the possible obsolescence of his own theorem. The importance of their critique, which explains why it has led to the shedding of so much ink, lies in the fact that it was ‘the first major effort to criticize the legal structure of the modern corporation in terms of the traditional economic notions upon which this structure was premised’.25
If the justifications provided by classical theory have become inoperative, it is not because they have been refuted intellectually, but because they have been rendered obsolete by a real transformation. This is the idea of ‘the Inadequacy of Traditional Theory’.26 Shareholder capitalism, by revolutionizing the forms of ownership, has moreover brought off the feat of undermining the foundations of its own legitimizing discourse.
The problem of Berle and Means, and conversely of the subsequent reductive reinterpretations of their work, was not that of knowing how to realign managerial conduct on the interests of shareholders, but of raising yet again the question of the motives and purposes of economic activity.27 This was firstly a question of legitimacy: if a modern enterprise can no longer be thought of as ‘the enlarged figure of the classical owner-enterprise’,28 wherein will reside the legitimacy of managerial power?
Berle and Means had spotted a huge gap in the dominant economic ideology. It remained to be seen how this gap could be sealed. Some thought that the best they could do in their search for a great saviour figure was to call on morality – better yet, a version of morality fished up out of the moat of a mediaeval imaginaire.
Notes
1 1. Joseph A. Schumpeter, Capitalism, Socialism and Democracy (London and New York: Routledge, 1976), p. 142.
2 2. David T. Bazelon, ‘The Scarcity Makers’, Commentary, XXXIV, October 1962, pp. 293–304 (p. 293).
3 3. Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (New York: Routledge, 2017; first published in 1932).
4 4. Paraphrased by Robert Hessen, ‘The Modern Corporation and Private Property: A Reappraisal’, Journal of Law and Economics, vol. 26, no. 2, 1983, pp. 273–89 (p. 273). See John Kenneth Galbraith, ‘Books review: Berle and Means, “The Modern Corporation and Private Property”’, Antitrust Bulletin, vol. 13, no. 4, 1968, p. 1527.
5 5. Adolf A. Berle, ‘Modern Functions of the Corporate System’, Columbia Law Review, vol. 62, no. 3, March 1962, pp. 433–49 (p. 434).
6 6. Hessen, ‘The Modern Corporation’, p. 280.
7 7. Berle and Means, The Modern Corporation and Private Property, p. 64.
8 8. Thorstein Veblen, Absentee Ownership: Business Enterprise in Recent Times – The Case of America (New York: Routledge, 2017; first published in 1923), p. 66.
9 9. Berle and Means, The Modern Corporation and Private Property, p. 8.
10 10. Ibid., p. 65.
11 11. Ibid., p. 113.
12 12. Ibid., p. 6.
13 13. Walther Rathenau, In Days to Come (London: G. Allen & Unwin, 1921), p. 121, quoted in Berle and Means, The Modern Corporation and Private Property, p. 309.
14 14. James Burnham, The Managerial Revolution (New York: John Day, 1941). The neologism ‘managerialism’ seems to have appeared for the first time in a review of this book by Burnham, though the latter did not himself employ it, preferring the term ‘managerial society’. See H.S. Person, ‘Capitalism, Socialism and Managerialism’, Southern Economic Journal, vol. 8, no. 2, 1941, pp. 238–43.
15 15. Note that Orwell was here reporting an idea that he did not share. See George Orwell, ‘Second Thoughts on James Burnham’ (1946), in The Complete Works of George Orwell, vol. 18 (London: Secker & Warburg, 1986), pp. 268–84 (p. 269). Drawing on Rizzi’s La Bureaucratisation du monde (1939), Burnham reinterprets the separation of ownership and control announced by Berle and Means as a split between two modes of control: managers have control in one sense, in that they concentrate the functions of leadership – what he calls ‘control over access’ – but shareholders always have control in a second sense, in that they carve out for themselves the lion’s share in the allocation of profits – ‘control over distribution’. But such a situation can, in his view, persist: ‘control over access is decisive, and, when consolidated, will carry control over preferential treatment in distribution with it: that is, will shift ownership unambiguously to the new controlling, a new dominant, class’ (Burnham, The Managerial Revolution, p. 59). In his view, this process is already well underway: it is transnational and trans-regime: Stalinist bureaucracy, fascist dirigisme and New Deal interventionism represent, in his view, three versions of one and the same phenomenon.
16 16. Berle and Means, The Modern Corporation and Private Property, p. 8.
17 17. The rich, ‘in spite of their natural selfishness and rapacity […], though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, […] divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society […]’ (Adam Smith, The Theory of Moral Sentiments (Metalibri Digital Editions, 2005), p. 165 [available online at https://www.ibiblio.org/ml/libri/s/SmithA_MoralSentiments_p.pdf]).
18 18. Berle and Means, The Modern Corporation and Private Property, p. 9.
19 19. Ibid., p. 304.
20 20. Ibid.
21 21. Ibid., p. 9.
22 22. ‘The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company’ (Smith, The Wealth of Nations, pp. 574–5). See also Berle and Means, The Modern Corporation and Private Property, p. 115.
23 23. Schumpeter, Capitalism, Socialism and Democracy, p. 157, n. 1.
24 24. Berle and Means, The Modern Corporation and Private Property, p. 115.
25 25. Henry G. Manne, ‘Current Views on the Modern Corporation’, University of Detroit Law Journal, vol. 38, 1961, pp. 559–88 (p. 560).
26 26. Berle and Means, The Modern Corporation and