Strong Managers, Weak Owners: The Political Roots of American Corporate Finance
The distinctive character of corporate business enterprise in the United States - large firms guided by powerful, centralized managers, historically deferential directors, and distant shareholders - is usually thought to be the inevitable result of economic and technological forces. In this major reinterpretation of the origins and evolution of corporate structure, Mark Roe shows that the nature of the American corporation derives not only from these forces but also from political decisions that made alternative forms of organization costly or illegal. Drawing upon work in economics, history, law, and political science, Roe argues that the role of politicians in mediating the interaction between firms and financiers is a critical, but neglected, part of the explanation why certain forms rather than others prevailed. In their classic 1932 study, The Modern Corporation and Private Property, Adolf Berle and Gardiner Means argued that the separation of ownership and control was the consequence of industrial technologies requiring large-scale production, which in turn led to highly dispersed stockholding. Roe demonstrates, however, that the ownership structure of the American corporation represents just one of several possible outcomes, and that other organizational forms arose abroad (in Germany and Japan, for example) under the influence of different political conditions. At a number of critical junctures, political choices were made about how savings were to be channeled to industry that sharply restricted the power of financial institutions to shape the growth of large firms. These decisions, which pre-dated the New Deal, going as far back in some cases as the nineteenth century, reflected the American public's enduring dislike of concentrated financial power. Once these rules for the governance of financial institutions were in place - but not before - the Berle-Means corporation became inevitable. In recent years, new technological and competitive challenges have forced many of America's largest firms to restructure, often painfully. Some are now more efficient and productive, others are not. Relationships among shareholders, directors, and senior managers remain in flux, and tensions over whether shareholders are to have a greater or smaller voice in corporate management in the future may become acute. If history is any guide, Roe suggests, the issue will eventually be settled not only in boardrooms and on stock exchanges but also in statehouses and in Congress.
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