Departmental Papers (School of Law)

Document Type

Journal Article

Date of this Version

January 1995

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For several decades, American corporate scholars assumed the inevitability of the widely held Berle and Means' corporation. The argument was simple. In a rapidly developing industrial economy, economic prosperity dictated the infusion of massive amounts of capital into owner-managed corporations. Without ample capital, entrepreneurs would be unable to realize the scale economies or technological innovations necessary for industrial growth. The rub in the story, however, was that to raise the necessary capital, owner-managers had to sell off equity interests. Inevitably, the pressure for capital meant that ownership ended up being dispersed among numerous small stakes shareholders. With ownership fractured, sundry collective action problems subverted the capacity of shareholders to wield effective control over their managerial agents, which, in tum, meant efficiency losses from sub-optimal resource utilization.

Recently, however, recognition of the survival of concentrated share ownership corporations in other countries, namely Germany and Japan and even in the United States, has caused American scholars to reconsider their commitment to the evolutionary inevitability of the Berle and Means' corporation. No longer the byproduct of innate economic forces, the American corporation has of late been viewed by many as merely path dependent, more particularly the result of a confluence of political, historical and cultural factors. Perhaps the most important was the restriction barring financial intermediaries from holding or voting ownership interests in commercial companies. Had these barriers not been created, ownership may have come to reside in sophisticated large stakes shareholders, who were much more likely than retail investors to control managerial agents.


Reproduced with permission from the Canadian Business Law Journal, Vol. 33, published by Canada Law Book (1-800-263-3269,
Reprinted from Canadian Business Law Journal, Volume 26, 1995, pages 11-62.

Note: At the time of publication, the author Ronald Daniels was affiliated with the University of Toronto. Currently, he is Provost of the University of Pennsylvania.

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Date Posted: 17 July 2008