2024年1月10日发(作者：)
For Whom Corporate Managers Are Trustees: A NoteAuthor(s): A. A. Berle, :
Harvard Law Review,
Vol. 45, No. 8 (Jun., 1932), pp. 1365-1372Published by: The Harvard Law Review AssociationStable URL: /stable/1331920Accessed: 21/04/2010 21:42Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at/page/info/about/policies/. JSTOR's Terms and Conditions of Use provides, in part, that unlessyou have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and youmay use content in the JSTOR archive only for your personal, non-commercial contact the publisher regarding any further use of this work. Publisher contact information may be obtained at/action/showPublisher?publisherCode= copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printedpage of such is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact support@ Harvard Law Review Association is collaborating with JSTOR to digitize, preserve and extend access toHarvard Law ://
FOR WHOMi CORPORATE MANAGERS ARE TRUSTEES
1365
FOR WHOM CORPORATE MANAGERS ARE
TRUSTEES: A NOTE
T
HE administration
of corporations
-peculiarly,
a few hun-
-is
now the crux of American dred large corporations
industrial life. Upon the securities of these corporations has
been erected the dominant part of the property system of the
industrial east. A major function of these securities is to provide
safety, security, or means of support for that part of the com-
munity which is unable to earn its living in the normal channels
of work or trade. Under cover of that system, certain individuals
may perhaps acquire a disproportionate share of wealth. But
this is an incident to the system and not its major premise;
statistically, it plays a relatively minor part. Historically, and
as a matter of law, corporate managements have been required
to run their affairs in the interests of their security holders.
From time to time other groups, notably labor, have asserted
their claims; and these claims are receiving steadily greater
recognition as a cost of industry. If these costs are not met,
security holders receive an illusory additional profit.
But the
security holder's claim was the supposed main objective.
Professor Dodd has challenged the theory.' He has stated his
own thesis:
"The present
writer is thoroughly
in sympathy
with Mr. Berle's
to establish
efforts a legal control which will more
effectually prevent
into their own pockets
from
corporate managers from diverting profit
of
stockholders,
of the
specific rules
which
those with
many
and
agrees
the latter
deduces from his trusteeship principle. He nevertheless be-
of
giving lieves that it is undesirable, even with the laudable purpose
stockholders much-needed
protection against self-seeking managers,
to
give
increased emphasis at the present time
to the view that business
for their
stock-
of
making profits
exist for the sole
purpose corporations
holders. He believes that public opinion, which ultimately
makes
in the direction
and is today
making
substantial strides
law, has made
as an economic institution which
of a view of the business
corporation
1
For Whom are Corporate Managers
Trustees?
(I932)
45 HARV. L. REV. II45.
I366
HARVARD LAW REVIEW
function, that this view
has a social service as well as a profit-making
has already had some effect upon legal theory, and that
it is likely to
have a greatly increased effect upon the latter
in the near future."
2
This is a point of view which can not be ignored.
I
As a matter of economics and social theory, Professor Dodd's
argument is not only sound but familiar. Indeed, the present
writer made that argument before the Bureau of Personnel Ad-
ministration in
I93o,3
and collaborated in working out the sta-
tistical basis for it.4 No one familiar with European or advanced
American thought seriously disputes the propositions:
first,
that
the present mode of life entails a high degree of large-scale
production; second, that this necessitates an unprecedented
degree of financial concentration
which has clothed itself in the
corporate form; and, third, that the result of such concentration
has been, and must be, to pose a few large organisms, the task
of whose administrators is, fundamentally, that of industrial
government.
In other words, the great industrial managers, their bankers
and still more the men composing their silent
"
control,"
5
func-
tion today more as princes and ministers than as promoters or
2
Id. at II47-48.
3
Berle, The Equitable Distribution
of Ownership, in A
SYMPOSIUM
ON
Busi-
ENTERPRISE.
The mimeographed
symposium is
available at the Bureau of
Personnel Administration,
420
Lexington Avenue, Room
745, New York City.
The paper referred to was
dated December II,
I930.
The writer even
attempted a tentative
classification of the various
claims on the
corporate wealth and income
stream, namely: (i)
The security owners.
(2)
The
management.
(3) The customer or
patron.
(4) The workers,
including the en-
tire list of salaried or
wage earners.
(5) Certain general
community claims which,
however, might best be
worked out through taxation.
Under this last head would
come matters of public
welfare like charity and
benevolence referred to by
Professor Dodd in the
article cited.
4
"
The
Modern
Corporation and Private
Property
"
by the writer and
Gardiner C. Means, in
the course of
publication by the Commerce
Clearing House,
Chicago, Illinois.
5
"
Control
"
is here used to mean
that individual or small
group of individuals
who are able to mobilize or
cast sufficient votes to
elect the corporate
management.
This is the sense in
which the word is used in
the financial
communities; and the
institution has apparently
already acquired a legal
status.
NESS
MANAGEMENT AS A HUMAN
FOR WHOM CORPORATE MANAGERS
ARE TRUSTEES
1367
merchants. Exclusive profit-making purpose necessarily yields
to this analysis.
This is the real justification for Professor Dodd's argument.
But it is theory, not practice. The industrial
" control " does
not now think of himself as a prince; he does not now assume
responsibilities to the community; his bankers do not now un-
dertake to recognize social claims; his lawyers do not advise him
in terms of social responsibility. Nor is there any mechanism
of his theoretical function.
now in sight enforcing
accomplishment
Challenge to the security holder's claim has been made, less
articulately
but with
infinitely
more
effect, by
the handful of
corporation
lawyers, mainly
in New
York, who really determine
legal control of the corporate mechanism. They in fact, and
sometimes in words,6
discard the theory that corporate manage-
ments are trustees for corporate security holders.
But they
know what the social theorist does not. When the fiduciary
obligation of the corporate management
and
"
control
"
to stock-
holders is weakened or eliminated, the management and
"
con-
trol
"
become for all practical purposes absolute.7
The claims
upon the assembled industrial wealth and funneled industrial
income which managements
are then likely to enforce (they have
no need to urge) are their own. The history of the past decade
indicates this; the pages of every morning newspaper furnish a
new illustration, and the situation is merely complicated by the
fact that corporate managers have a real
position, can render a
real service, and can properly
make a real claim. The point is that
they
need
recognize
no other.
Now
I
submit that you can not abandon emphasis on "the
view that business corporations exist for the sole purpose of
making profits for their stockholders
"
until such time as you
are prepared to offer a clear and
reasonably enforceable scheme
of responsibilities to someone else.
Roughly speaking, there are
ri
Robert T. Swaine,
reviewing the writer's STUDIES
IN THE
LAW
OF CORPORA-
TION FINANCE
in
(I929)
38
YALE
L. J.
1003.
The legal demonstration of this has been
made elsewhere and
would serve
no purpose to review it here.
See
Berle, Corporate Devices
for Diluting Stock
Participations
(I93I)
L.
REV.
I239.
A similar
study, appearing in the book
3I
COL.
referred to in note 4, supra, has to do with
devices for diverting
the income stream
from one group within the
corporation to another
group or to groups outside the
corporation.
7
I368
HARVARD LAW REVIEW
between five and eight million stockholders
in the country (the
estimates vary); to which must be
added a very large group of
bondholders and many millions of
individuals who have an
interest in corporate securities through
the medium of life in-
surance companies and savings banks.
This group, expanded to
include their families and dependents,
must directly affect not
less than half of the population
of the country, to say nothing of
indirect results. When the fund and income
stream upon which
this group rely are irresponsibly dealt with,
a large portion of
the group merely devolves on the community;
and there is pre-
sented a staggering bill for relief, old age pensions,
sickness-aid,
either as a matter of law
and the like. Nothing is accomplished,
or of economics, merely by saying
that the claim of this group
ought not to be
"
emphasized." Either you have a system
based
of property
or you do not. If not
-
and
ownership
on individual
there are at the moment plenty
of reasons why capitalism does
not seem ideal
-
it becomes necessary
to present a system (none
or both, by which re-
has been presented) of law or government,
sponsibility
for control
of national wealth and income is so appor-
as a whole, or at least
the
tioned and enforced
that the community
the economic
taken care of.
Otherwise
great
bulk of it, is properly
form,
in
the
and massed
under
the
corporate
power
now mobilized
individuals
and the few hundred
directors,
hands
of a few thousand
holding
"
control
"
8
is simply handed
over, weakly,
to the present
with a pious wish that something nice
will come
administrators
out of it all.
The only thing that can come out
of it, in any long view, is the
massing of group
after group to assert their private
claims
by
force or threat
-
to take what each can get, just
as
corporate
do. The laborer is invited to organize
and
strike,
managements
8
The two hundred largest corporations,
comprising somewhere between forty
and fifty per cent of the industrial
wealth of the country,
have altogether slightly
more than twenty-eight
hundred directors.
From this must be subtracted a
certain number of inactive representatives
of large stockholdings.
The " control "
of these corporations represented by
holders of dominant minorities or by
the
beneficiaries of devices such as
voting trusts, pyramided holding corporations,
and
the like, analyzes down to a very
few men.
If in place of two hundred corpora-
tions perhaps six hundred and
fifty corporations are taken, the result
would show
approximately sixty-five per cent
of the industrial wealth of the
country admin-
istered by perhaps five thousand
directors and perhaps seven or eight
hundred
individuals holding
"
control."
FOR WHOM CORPORATE MANAGERS ARE TRUSTEES
1369
the security holder is invited either to jettison his corporate se-
curities and demand relief from the state, or to decline to save
money at all under a system which grants to someone else power
to take his savings at will. The consumer or patron is left no-
where, unless he learns the dubious art of boycott. This is an
invitation not to law or orderly government, but to a process of
economic civil war.
It is a great misfortune that
so little of American
enlightened
juristic thought has dealt with the
subject of private
property.
The great liberals,
notably Mr. Justice Holmes, were rooted in
the doctrine that the individual could
look out for himself in the
economic field, provided he
had a full kit of civil
rights and
political privileges.
Some portion of the
thinking entered the
field of labor rights. No one
succeeded in
becoming effectively
interested in what happened to
the fruits of labor; there
is, even
now, entire absence of
realization that the corporate
system is
steadily conscripting and
absorbing the bulk of those
fruits to
the extent that
they are not presently
consumed.9 Yet a society
based on the individual, whose
support and maintenance the
state does not assume, can
only be carried on by
vigorous pro-
tection of the property that he
has. It is a matter of
experience
that during two periods of
man's life, childhood
and old age, he
can not support
himself; and that sickness,
child-bearing, and
incidental economic
readjustments will make even
further la-
cunae. The
only bridge, in our system, to
cover these gaps is
private property. The
common law has based its
whole fabric
on this premise.
Under this system,
property has now split into two
distinct
categories. One class
may be called active
-the
farm, the little
business, the collection of tangible
property which the owner can
himself possess,
manage, and deal with.
The other may be
9
Again reference must be made
to "The Modern Corporation
and Private
Property
"
now in process of publication.
Cf.
note 4, supra.
Figures show
that
during the past few years
(I932
is an obvious exception)
fifty-five per cent of sav-
ings were absorbed into the
corporate system, the balance
being divided between
government securities and real estate in
one form or another.
Further, this
process
is not optional.
If all investors elected to
endeavor to invest their savings
outside
the corporate system, there
would simply not be enough investments to
go round.
1370
HARVARD LAW REVIEW
called passive
-a
set of economic expectations evidenced by a
stock certificate or a bond, each representing an infinitesimal
claim on massed industrial wealth and funneled income-stream.10
The owner of passive property is helpless to do anything with it
or about it, except to sell for what the security markets will let
him have. This no doubt weakens his ethical right to demand
compensation for mere ownership. Equally, it leaves him en-
tirely in the hands of the factual possessor or administrator of
the massed wealth.
Probably half the entire savings of the
country are now represented by passive property; the result has
been to throw administration
of a dominant part of the system
of property rights into the hands of corporate administration.
The first major breach in the great dyke of property rights was
-
that
is,
made by the corporation
laws in the past two decades
just as passive property was becoming the type-form in the
eastern United States. Many things have flowed through that
-
but responsibility to the community has not yet ap-
breach
peared. One recognizes
the occasional
benevolences
of the
many
corporate managers whose sympathies are warm and whose
aspirations are magnificent. The gross result, however, appraised
from the angle either of government
or economics, has not been
either benevolent or idealist. With due appreciation
of the fact
is bitterly unjust to many men in the corporate
that the appraisal
system, it must
be
conceded,
at present, that relatively unbridled
scope
of
corporate management has,
to
date, brought forward
of
responsibility
in the main seizure of
power
without
recognition
-ambition
'0
without
courage.
The economic distinction between active and passive property, so far as
the writer is aware, has only recently been made; it was in part the result of a
study carried on under the auspices of the Social Science Research Council of
America, the economic work being done by Mr. Gardiner C. Means.
In
brief,
where industrial property is aggregated under the corporate system, the atom of
property splits.
The power goes in one direction, centripetally, and concentrates
in the hands of the corporate management and the corporate
"
control."
The
assumed beneficial ownership is dispersed, centrifugally, among many thousand
of small security holders.
This dispersed residue of beneficial
ownership repre-
sented by corporate
securities is
"
passive
"
property.
It must be
contrasted with
the old unit of property
-
for
example, a farm over which the owner had complete
dominance.
Individual initiative, stimulated perhaps by the profit motive, can be made
to function where the bulk of the property is active and where the units are so
small as to make possible a balance of economic forces. The profit motive can not
stimulate the owner of passive property to do anything except speculate.
FOR WHOM CORPORATE MANAGERS ARE TRUSTEES
I37I
III
What ought to be the part of lawyers and the law in
this in-
terplay of great hope and disillusioning fact?
Unfortunately, the lawyers have not given too good an
account
of themselves thus far, either in
theory or administration. Again
the manifest injustice to
many individuals must yield to the grim
aggregate, whose summation faces us every morning.
The pri-
vate property right, though still honored in
tradition even when
passive
property
-
securities
-
are involved,
has
in practice
been cut to pieces by them. A
group of New York corporation
lawyers drafted the present Delaware
Corporation Act, and
(practically speaking) passed it.
A similar group evolved a
reorganization
procedure
under which equity and economics may
be dealt with almost at will
by individuals who are not con-
strained to recognize
either, unless by unusual consciences. On
the administrative
side, a lawyer and an ex-lawyer constructed
the outstanding American "investment trust"
bubble; and one
could follow this with a
lengthy list. For prophylactic
justice, the
Listing Committee of the New York Stock Exchange (in honor it
must be observed that they have excellent
counsel) is far more
useful than any existing legal group.
Nevertheless, development in the corporate
field is more likely
to come through
lawyers than through
any other group. For one
thing, they do, approximately, understand
the
system.
They
have, however, a function widely divergent from that of the
economist or the social theorist.
They
must meet a series of
practical situations from day to day. They are not,
accordingly,
in a position to
relinquish one position
here, the idea of corpo-
rate trusteeship for security holdings
-leaving
the situation in
flux until a new order shall
emerge. Legal technique does not
contemplate intervening periods of chaos; it can only follow out
new theories as they become established and
accepted by the
community at large.
It is
likely that claims upon corporate
wealth and
corporate income
will be asserted from
many
direc-
tions. The shareholder who now has a
primary property right
over residual income after
expenses
are
met, may ultimately
be
conceived of as
having an equal participation
with a number of
other claimants. Or he
may emerge,
still with a
primary
property
right
over residual
income,
but subordinated to a number of
1372
HARVARD
LAW REVIEW
claims by labor, by customers and
patrons, by the community
and the like, which cut down that residue. It
would, as Pro-
fessor Dodd points out, be
unfortunate to leave the law in such
shape that these developments
could not be recognized
as
a
mat-
ter of constitutional or corporation
law. But it is one thing to
say that the law must allow for such
developments. It is quite
another to grant uncontrolled
power to corporate managers in
the hope that they will produce
that development.
Most students of corporation finance
dream of a time when
corporate
administration
will be held to a high degree of required
responsibility
-a
responsibility conceived not merely in terms
of stockholders'
rights, but in terms of economic
government
satisfying the respective needs of
investors, workers, customers,
and the aggregated
community. Indications, indeed, are not
wanting that without such readjustment
the corporate system
will involve itself in
successive cataclysms perhaps
leading to
its ultimate downfall.
But apart from occasional and brilliant
experiments
of men
like Mr. Swope and Mr. Young
(who after
all are the exceptions rather than
the rule), we must expect our
evolutionary process to be stimulated
from
quite different
quarters.
Unchecked
by present legal balances, a social-economic
abso-
lutism of corporate administrators,
even if benevolent, might be
unsafe; and
in
any case it hardly affords the soundest
base on
which to construct the economic
commonwealth which industrial-
ism seems to require.
Meanwhile, as lawyers, we had best be
protecting
the interests
we know, being no less swift to
provide for
the new interests as
they successively appear.
A. A.
Berle, Jr.
NEW YORK CITY.
