Are you interested in lawyers debating what corporations are for? If so, I have just the historical reference for you. The Harvard Law Review in the early 1930s saw a series of debates about what firms are there to do. This was discussed by Joseph Weiner a generation later in the Columbia Law Review. It is a fascinating piece of history, and helps to illustrate some important points about lawyers and business thinking.
Corporations And The Law Of Trust
One of the scholars in the 1930s, Professor Berle, argued that corporations were essentially held in trust for the owners. His idea was that law should force managers to represent the best financial interests of their clients, i.e., the owners.
The pushback on this came from Professor Dodd, who argued that management was a public profession. This implied it was not a purely private matter between the managers and the owners. Dodd, in effect, agreed that managers owed obligations to the owners but added extra obligations. Managers had a much wider remit, a duty of trust to stakeholders beyond the owners.
Dodd referred to Mr. Owen D. Young who, as chief executive of General Electric Company, asserted that he was “a trustee of the institution” and not merely “an attorney for the investor.” As trustee, Mr. Young considered that he owed obligations to three groups of people: the stockholders, the employees, the customers and general public.
Weiner, 1964, page 1460
This is a fascinating example of stakeholder thinking from a century ago.
Lawyers Debating What Corporations Are For
One of the most interesting things about the article is that the lawyers descend into the plot of Face/Off, where they completely flip roles. (And I do mean descend — whenever you mention John Travolta movies things are inevitably going downhill). Dodd, who was in favor of a stakeholder view in the early 1930s, seemed to see less need for such a view given FDR’s interventionalist policies in the New Deal throughout the later 1930s. (Even nowadays sometimes we might see stakeholder thinking as compensating for the limitations of regulation. Maybe if regulation were perfect you wouldn’t need a stakeholder view. This doesn’t seem a major problem to me when arguing for the need for a stakeholder view. Regulation is still imperfect and it is likely to remain imperfect into the foreseeable future given it is impossible for humans to get regulation absolutely perfect).
While Dodd seemed to be wavering on his support for stakeholder ideas, his rival Berle flipped his view. Berle seemed to concede that Dodd’s initial view on the importance of stakeholders was correct. It is a bit confusing, as indeed I found the movie Face/Off. (Though I was bored when I watched it and, if I remember correctly, I had drunk too much to appreciate its subtleties).
Stakeholder Thinking Isn’t New
While the legal shenanigans may be of most interest to historians of US law one thing that stands out for us all is the long history of arguments between stakeholder thinking and the belief that firms are only there to benefit owners.
For more on stakeholder thinking see here, here, and here.
Read: Joseph L. Weiner (1964) “The Berle-Dodd dialogue on the concept of the corporation.” Columbia Law Review 64, no. 8 (1964): 1458-1467.