Chuck O'Kelley has assembled a fascinating group of scholars to examine the legacy of Adolf A. Berle, Jr. at a conference called "In Berle's Footsteps." The conference prompted me to revisit The Modern Corporation and Private Property, which I first read in the mid-1990s upon entering legal academe. The book is full of profound insights, but one that jumped off the page on this reading is that the conventional account of the separation of ownership and control in the legal literature is misleading. Modern legal academics tend to think of the separation of ownership and control as a cause of problems (i.e., agency costs) in search of a solution. But Berle clearly viewed the separation of ownership and control as a solution to problems of non-liquidity that (according to Berle) burdened traditional forms of property ownership. Here are a couple of passages:

To divide [non-liquid] properties into participations involves the creation of a mechanism, by which their management and integral quality is undisturbed, despite the transfer from hand to hand of relatively low-priced participations in them. This has been accomplished by the aid of the corporate device and, at least in part, accounts for the popularity of the so-called 'share of stock.'

...

The owner of a non-liquid property is, in a sense, married to it.... To some extent, non-liquid property immobilizes the owner by its own immobility.

...

The separation of ownership from management and control in the corporate system has performed [an] essential step in securing liquidity. It is the management and 'control' which is now wedded to the physical property. The owner has no direct personal relation to it and no responsibility toward it. The management is more or less permanent, directing the physical property which remains intact while the participation privileges of ownership are split into innumerable parts – ‘shares of stock’ – which glide from hand to hand, irresponsible and impersonal.

Berle concludes in a later chapter, the shareholder “has exchanged control for liquidity.”

So the big point here is that the separation of ownership and control is an adaptation that enables liquidity and, in the process, generates greater productivity. That point acknowledged, the separation admittedly creates new problems. In addition to the familiar problem of agency costs, there is the problem of the concentration of power that the corporate form enables: "The rise of the modern corporation has brought a concentration of economic power which can compete on equal terms with the modern state – economic power versus political power, each strong in its own field."

I will attempt to flesh all of this out in a paper to be published next year with the other papers from the conference. In the meantime, if you haven't read The Modern Corporation and Private Property, consider this a plug.

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