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Firm, Property and Governance: From Berle and Means to the Agency Theory, and Beyond

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  • Weinstein Olivier

    (University Paris 13)

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    Over the last thirty years, the shareholder conception of corporate governance has established itself as the foundation of the power structure and management principles of the corporation. It is based on a specific theorization of the firm: agency theory. Our aim is to explain the full significance of this theorization, by considering the context in which it was developed and the project – of a fundamentally political nature – that it conveys. For that purpose, we return to the questions raised during the first half of the twentieth century, in the seminal book of Berle and Means and in subsequent works by Berle; questions of a much broader scope that the relationship between shareholders and managers. We will show that agency theory can be considered a response to the most important ideas advanced by Berle and Means, and then by Berle (and others), after the New Deal and the Second World War. Comparison of these two themes of reflection leads us to identify two theorizations, and two radically different conceptions of the firm and the corporation. To address these issues, we start by considering the questions raised in the early twentieth century about the nature of the corporation and the status of managers; and how, in response to these questions, Berle constructed a certain conceptualization of the corporation and of managerial capitalism; we shall then revisit the contract-based approach of Jensen and Meckling, to assess the theoretical and ideological content and show how it was actually strongly opposed to Berle’s vision. Lastly, by way of conclusion, we shall endeavor to show how the opposition between these two theorizations should be seen, above all, as an opposition between two theories that are both “performative” rather than positive, and that the apparent success of agency theory and the dominance of shareholder primacy in corporate governance can only be understood in an institutional and political perspective.

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    File URL: https://www.degruyter.com/view/j/ael.2012.2.issue-2/2152-2820.1061/2152-2820.1061.xml?format=INT
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    Article provided by De Gruyter in its journal Accounting, Economics, and Law.

    Volume (Year): 2 (2012)
    Issue (Month): 2 (June)
    Pages: 1-57

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    Handle: RePEc:bpj:aelcon:v:2:y:2012:i:2:n:2
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    1. Henry Hansmann & Reinier Kraakman, 2000. "The End Of History For Corporate Law," Yale School of Management Working Papers ysm136, Yale School of Management, revised 01 Feb 2001.
    2. Richard Arena, 2010. "Corporate limited liability and Cambridge economics in the inter-war period: Robertson, Keynes and Sraffa," Cambridge Journal of Economics, Oxford University Press, vol. 34(5), pages 869-883.
    3. Langlois, Richard N., 2004. "Chandler in a Larger Frame: Markets, Transaction Costs, and Organizational Form in History," Enterprise & Society, Cambridge University Press, vol. 5(03), pages 355-375, September.
    4. Strasser Kurt A. & Blumberg Phillip, 2011. "Legal Form and Economic Substance of Enterprise Groups: Implications for Legal Policy," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 1(1), pages 1-30, January.
    5. Alchian, Armen A. & Demsetz, Harold, 1973. "The Property Right Paradigm," The Journal of Economic History, Cambridge University Press, vol. 33(01), pages 16-27, March.
    6. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    7. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, April.
    8. E. Han Kim & Adair Morse & Luigi Zingales, 2006. "What Has Mattered to Economics Since 1970," Journal of Economic Perspectives, American Economic Association, vol. 20(4), pages 189-202, Fall.
    9. Michael Dietrich & Jackie Krafft, 2012. "The Economics and Theory of the Firm," Chapters,in: Handbook on the Economics and Theory of the Firm, chapter 1 Edward Elgar Publishing.
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