The Modern Corporation and Private Property by Adolf A. Berle, Jr. and Gardiner C. Means is a comprehensive guide for those interested in taking a look at the way corporate structures around the world function. As pioneers, humans have developed businesses in order to establish civilization. For this reason, to be civil or not to be, is a question greatly related with humanity’s ethical ideals, and for that reason one must be familiarized the extent to which laws impact corporations and business operations.
This book tackles several subjects and topics, the most important being corporate governance, corporate law and institutional economics. To understand the book better, one has to read it with the understanding that the book was written and published in 1932 by the mentioned authors regarding the foundations of American Corporate Law. Thus, it explored corporations and their relationship with managers in the US, the means of production of the US economy and the 200 large corporations formally owned (yet not directly controlled) by shareholders/stakeholders, etc.
Sidenote: The book was published in 1932 however it is a piece of text that is still relevant in today’s day and age, primarily because the functioning of modern-day corporate law and corporations is heavily influenced by texts such as the one mentioned above.
Corporate Law & Corporations
Corporate law and corporations go hand in hand, due to the fact that it is these types of laws which help businesses navigate through the business world still sticking to certain ethical ideals. This is what the Modern Corporation and Private Property attempts to show to the world - the paper government and actual government that keeps a check on corporate activities. Without them, corporations would likely indulge in business operations controlled by owners & managers whose actions would be purely guided by self-interest and would thus be inherently lawless in nature - not limited to externalities like governments.
Corporations nowadays have gone under radical changes. MNCs and a plethora of other types of companies have undergone an evolutionary process which has brought about a change in the meaning of the word ‘ownership’. This has resulted in thousands of shareholders owning a certain percentage of a company, while still not having to interfere with the day-to-day activities of the business. The corporation itself is constantly regarded as a third-party legal identity, also known as a corporate person. The authors of the book take a stance from which they delegate who actually controls business operations - in their opinion it is the management and the directors.
Stockholders & Managers/Directors
Shareholders/stockholders and their relationship with equity they hold was greatly explored in the book. Apart from the subject of company law, this book emphasizes on the need to make the distinction between formal owners and individuals who actually control and direct business operations towards the company’s profit goals. The book repeatedly mentioned managers and directors who end up having to deal with the company and formulate strategies according to what the company is doing.
Shareholders usually only end up obtaining a piece of wealth - which equates to a particular amount of ownership. In name you could say a shareholder owns the company, however, that does not mean that he or she controls the businesses actions completely. It is this disparity of managers having the ability to easily influence business decisions without any shareholder scrutiny that the book aims to showcase, among other things.
The above mentioned is particularly talked about in Book I: property in flux, chapter V - Evolution of Control. The chapter is concerned with shareholders and their power to influence managers through the use of votes. Essentially, it covers basics such as “rational apathy” and the increasing, and rapid, development of voting trusts.
Profits In A Corporation
While two different chapters tackle profits and corporation separately, these two topics are one of the primary objects of the book - that and the shareholders and their relationship with these topics. Morso than shareholders, Berle and Means separately talk about these topics to elucidate them further for the interest of the reader.
Serving as a foundation for corporate structures, naturally institutional economic concepts such as concentration of economic power within corporate structures and the dispersion of stock ownership (book II, chapter III & IV respectively) would have to coincide since they intertwine within the book's definition of such concepts.
Moreover, book IV: Reorientation of Enterprise is greatly related to the idea of profit - which is expressed further by chapters II & III of the same book. The traditional logic of profits (chapter II) talks more about the differences between shareholder interests and managers. It concerns itself with how individuals holding the power of making decisions (managers & directors) can make profits even if they are not exactly working for the shareholders interests. Furthermore, Chapter III is a discussion on traditional theory and joint stock companies. Here, like Book II - property in stock markets, the authors dedicate a major chunk of this chapter to notions about passive and active property.
The Idea of A Corporation
To conclude on the topic of corporation, chapter IV of Book IV, greatly talks about the concept of corporation. It infuses economic ideals with the functions of a corporation. Social organizations and the law of corporations is mentioned under this chapter. Additionally, the distinction between economic power vs. political power is made here for readers. The paper government - constitutional provisions, charters, by-laws, statutes and decisions, are a necessary aspect of a corporation, while the actual government is a representation of the conduct of men who actually control corporate activity.
To conclude, the book is greatly centered around the idea of formal ownership and the differences arising out of the dispersion of control in a corporation. To add to the aforementioned, the corporate laws which tend to govern the manner in which people are placed within an organization can not rule the power of decision-making held by managers and the passive and active property held by shareholders