Berle-Means Thesis – Definition

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Berle-Means Thesis Definition

The Berle-Means Thesis is a theory named after A. Berle and G. Means. It has to do with governance of public corporations in which the board of directors is put in charge of governance. The owners of the public depend on the board of directors to run the operations of the corporation.

According to this theory, the interests of the owners of the public corporations are represented by the board of directors. The Berle-Means Thesis describes a structure of governance where there is a separation between the ownership and control of a public corporation.

A Little More on What is a Berle-Means Thesis

The Berle-Means Thesis is one that maintains that the governance of public corporations is dominated by the board of directors, even the owners rely on them to run the affairs. A book written in 1932 by Adolf Berle and Gardiner Means in modern corporation and private property developed the Berle-Means Thesis.

This theory studies the foundation of corporate law in the United States as well as the emergence of big corporations. It posits that legal ownership and control of public corporations are separated. Those who own the corporations are different from those that control them. Both authors argued that corporate law in the U. S during the 1930s enforced the separation of ownership and control of public corporations.

According to this Berle-Means theory, owners of corporations surrender to those who are in t

control of the corporations and are merely become wages or salary earners. The relinquish authority to the board of directors who control the corporation and also represent the interests of the owners of the corporation.

However, there are certain consequences attributed to separation in the ownership and control of a company. One major consequence is that owners of the company overtime have proportionally smaller capital capital stake and their relevance in the company might gradually reduce.

Berle and Means advocated transparency, accountability and embedded voting rights for all shareholders in a public corporation.

References for Berle Means Thesis

Academic Research on Berle-Means Thesis

The structure of corporate ownership: Causes and consequences, Demsetz, H., & Lehn, K. (1985). Journal of political economy, 93(6), 1155-1177.

The literature of economics: The case of Berle and Means, Stigler, G. J., & Friedland, C. (1983). The Journal of Law and Economics, 26(2), 237-268.

Berle and Means reconsidered at the century’s turn, Bratton, W. W. (2000). J. Corp. L., 26, 737.

The structure of ownership and the theory of the firm, Demsetz, H. (1983). The Journal of law and economics, 26(2), 375-390.

Is Berle and Means really a myth?, Cheffins, B., & Bank, S. (2009). Business History Review, 83(3), 443-474. Cheffins, B., & Bank, S. (2009). Business History Review, 83(3), 443-474.

Corporate finance, the theory of the firm, and organizations, Bolton, P., & Scharfstein, D. S. (1998). Journal of Economic Perspectives, 12(4), 95-114.

Where Berle and Means went wrong: a reassessment of capital market agency and financial reporting, Bricker, R., & Chandar, N. (2000). Accounting, Organizations and Society, 25(6), 529-554.

Pressure groups and political entrepreneurs: A review article, Wagner, R. E. (1966). Papers on Non-Market Decision Making, 1(1), 161-170.

The influence of ownership and control on profit rates, Kamerschen, D. R. (1968). The American Economic Review, 58(3), 432-447.

The transaction cost analysis of Oliver E. Williamson: a new synthesis?, Dugger, W. M. (1983). Journal of Economic Issues, 17(1), 95-114.

Tax and corporate governance: an economic approach, Desai, M. A., & Dharmapala, D. (2008). In Tax and corporate governance (pp. 13-30). Springer, Berlin, Heidelberg.

A political theory of American corporate finance, Roe, M. J. (1991). Columbia Law Review, 91(1), 10-67.

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