Customer Reviews

The Modern Corporation and Private Property

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About 6 years ago I visited the White Eagle Conference Center in beautiful central New York. This is a quaint place that must have been a real marquee in its time. On one of their obviously long under used book shelves (seemed like nothing had been touched for at least 2 decades) I noticed this book, an original copyrighted 1932 version. I couldn't put it down. It presented a thoroughly well written, seminal treatment of the conflicts that senior leaders exhibit even today, a full 75 years later. It explained in vivid detail the deeply entrenched, inextricible human behavior that is observed consistently by senior leaders from organization to organization today. The plain and simple bottom line is that unless you're an insider, you're nothing more than overhead to be tolerated. The SEC was created by sheer necessity to protect the public. Businesmen 'talk' about how they care about other people but the unvarnished truth is that their friends and family are the only ones who matter. This book is great foundational work providing insight to the reasons why we need a strong SEC. The only thing that has changed in the human conditon is technology. The DNA that drives human behavior hasn't changed for thousands of years.

"The Modern Corporation and Private Property" was hailed as an instant classic when it appeared in 1932. To my knowledge, it was the first book to spell out how modern corporate capitalism is characterized by pervasive oligopoly and the separation of management from ownership. These points are still valid today, and remind us that modern capitalism has little in common with the social system analyzed by Adam Smith and other Classical economists. However, most of "The Modern Corporation and Private Property" is taken up with an out-of-date, pre-SEC review of corporate finance law as it existed in 1930. As a result, the book will be of little interest to most modern readers, even though it is a "must" purchase for any serious library of books on economics or corporate governance.

This is an excellent, timely book on modern corporate structure and its philosophical and legal underpinnings. It was written over 65 years ago, but it is as relevant now as it was then. The large scale government chartered collectivist enterprises we know as corporations were well developed by the early 20th century. Over 80 years ago, most of the economy was controlled by these collectives, and most of those collectives were controlled by their management and not their owners. In fact, some of these enterprises might have hundreds of thousands of owners.

Berle and Means dissect what this change means in terms of Adam Smith's theories and more modern legal theories. What does it mean when one owns property that is controlled by others. What checks are there on the authority of corporate officers in their fiduciary roles? Who is the beneficiary of their trust? These questions are as relevant today as they were when this book was published.

The world of the unbridled modern corporation has its defenders, most of the sort that George Orwell called bully worshipers, that is, those who worship power, the more, the better. Unfortunately, as we seem to discover every generation or two, these structures have serious shortcomings when it comes to providing the goods and services that we expect. Today, as when the book was published, we are in a period of reassessment. The private sector has failed horribly, showing itself unable to manage the nation's finances, produce automobiles or deliver health care.

When times are good, people forget that corporations are just government chartered collectives, and what the government creates, it can monitor, modify and control. Berle and Means point this out clearly as they outline the rise of modern corporate structure. It was not created in one step, nor did it evolve naturally. Berle and Means then turn to the remedies that might restore the nation's faith in its private sector. In fact, one section of the book underlies much of modern security law, including such innovations as bans on insider trading, the creation of the SEC, reporting requirements, and restraints on the assignment of earnings and on issuing shares.

Berle and Means, and those who followed their advice in the New Deal did their job well. For decades, the markets ran smoothly, and when things are running smoothly, people forget the lessons learned. The engine of our economy needs a tune up, perhaps even a rebuild. This makes it a good time to learn something about how the engine works, and how it came to work that way.

This book has been a classic in legal literature since it was first published. It is amazing how current and up to date it is! If you are studying the inner workings of the corporations this is the book to buy!

I was lucky to have Professor Berle as a teacher at the Columbia Law School. I read the book then (in the early 1960s) and re-read it recently. It is timely reminder that the corporation--that great engine of our prosperity--has undergone significant (and not for the better) changes--not only from when the book was written, but also in the forty-four years since I read it last.

Detail review of how corporations operate and the role shareholders play in buisness. A must for anyone desiring a better understanding of stocks.

This book was NOT the first to stigmatize giant corporations for "the separation of ownership and control." Rather, the key to the book's success was the timeliness of its appearance, during the Great Depression, not because it had anything new to contribute to our understanding of publicly traded big businesses. Far from being a riveting spellbinder, the prose is dry and never eloquent. But it possesses far more serious defects, e.g. that the alleged novelty of 20th century corporations -- that passive owners contribute funds to an enterprise that is run by others, professional managers -- is hardly anything new. The same status has always existed for limited partners in a firm with a managing partner; they must keep silent, exercising no voice or vote in management, lest they lose their limited liability status. The "innovation" actually began five centuries earlier in the great Italian merchant ventures: noblemen, clerics, widows and others unsuited to business affairs or uninterested in business decision- making, entrusted their wealth to entrepreneurs, in exchange for a share of the resulting profits. Berle & Means never acknowledged that dividing investment and management into two distinct functions is an example of specialization or division of labor-- and that everyone's participation is voluntary. Common sense asks: if shareholders really are being systematically shortchanged or abused, why do people continue to buy shares in giant corporations, and why do they buy new stock issues or reinvest their dividends in these companies? For a devastating dissection of the Berle & Means book, see Robert Hessen's essay, "The Modern Corporation and Private Property: a Reappraisal," in the Journal of Law and Economics, June 1983. Or, more accessibly, see Hessen's 1979 book, IN DEFENSE OF THE CORPORATION, in which he rebutted the Berle & Means thesis which Ralph Nader had invoked to justify federal chartering of corporations.