The Past Speaks

AS: I’m going to be presenting this paper at Cass Business School in London on Thursday.

ABSTRACT: Our paper explores how a seminal text influenced corporate governance systems in the United States and abroad. The Modern Corporation and Private Property by Adolf Berle and Gardiner Means (1932) remains one of the most cited works in management. Unfortunately, the radical political vision that informed this book has been ignored or forgotten by the vast majority of management academics who now cite this book. Our paper shows that Berle and Means espoused a stakeholder theory of corporate governance that challenged the idea that the sole purpose of a corporation is to create value for the shareholders. Whereas shareholder value ideology was dominant in the United States in the 1920s, the nation’s corporate governance system moved towards a stakeholder model during the New Deal. We argue that the influential text by Berle and Means contributed to this shift. Our paper, which is based on archival research in the Franklin Delano Roosevelt Presidential Library, explores the cultural shifts that shaped how US companies have historically defined success, treated their workers, and influenced inequality in society. Our paper examines why Berle and Means choose to present a stakeholder theory of corporate governance in this text, which was written between 1928 and 1931. The paper then discusses the reception of the ideas of Berle and Means and documents how their theory came to influence how many US corporations allocated resources among different stakeholders. We suggest, somewhat tentatively, that the ideas of Berle and Means prompted corporate managers to behave in ways that contributed to the relatively low levels of income inequality that prevailed in the United States between the New Deal and approximately 1980. The paper documents how political cultural shifts in the 1970s undermined the popularity of the idea of Berle and Means and promoted a revival of shareholder value ideology. In advancing our explanation for the rise and fall the Berle-Means variant of stakeholder theory, we relate their ideas to United States cultural, political, and military history. We suggest that the same cultural shifts that contributed to the re-emergence of shareholder value ideology in the 1970s were connected to the end of military conscription and the transition to the All-Volunteer Force advocated by Milton Friedman and other economic liberals.

Andrew Smith, University of Liverpool Management School; Jason Russell, Empire State College; Kevin Tennent, University of York Management School. Draft. Please do not quote or cite this draft of the paper without permission. Contact author: adasmith@liverpool.ac.uk

Keywords: corporate governance;  management history;  stakeholder orientation