On the Rise of Shareholder Primacy, Signs of Its Fall, and the Return of Managerialism (in the Closet)
In their 1932 opus The Modern Corporationand Public Property, Adolf Berle and Gardiner Means famously documented the evolution of a new economic entity-the public corporation.’ What made the public corporation “public,” of course, was that it had thousands or even hun- dreds of thousands of shareholders, none of whom owned more than a small fraction of outstanding shares. As a result, the public firm’s share- holders had little individual incentive to pay close attention to what was going on inside the firm, or even to vote. Dispersed shareholders were rationally apathetic. If they voted at all, they usually voted to approve whatever course of action was recommended by the company’s incum- bent directors, including the re-election of the directors themselves.