From the abstract:
This article is one part of a multi-article project on the role of law in the history of corporate responsibility in the United States. Key background material for the project is set forth in the introduction to an earlier article addressing corporate personhood. This paper deals with corporate governance while other articles address corporate purpose and corporate regulation.
Corporate responsibility concerns associated with corporate personhood, corporate purpose, and corporate regulation all ultimately relate to a far more basic issue: corporate governance. As the commercial demands of nineteenth century industrialization led to substantial displacement of the partnership form of business enterprise by large corporations with dispersed shareholders, control of these corporations – i.e., their governance – centered in the hands of senior managers, not investors themselves. This phenomenon of “separation of ownership from control” is quite different than in the typical partnership and was seminally described by Adolf Berle and Gardiner Means in their 1932 book, The Modern Corporation and Private Property. It has continued to occupy center stage in corporate law for the past eighty years.
From a legal history vantage point on corporate responsibility, the stupendous rise in commercial significance of the corporation in the nineteenth century corresponded to the precipitous decline of a regulatory approach to corporations under state corporate law, and instead, the twentieth century “outsourcing” of such regulation to an array of other legal regimes ostensibly designed to protect both investor and noninvestor groups. This meant that corporate law itself developed in such a way as to loosen, not tighten, most constraints on those who govern public corporations. The thesis of this article, developed in Parts I and II, is that corporate governance, both as a body of law and as a field of academic study, has historically had little to say on the important subject of corporate responsibility. Instead, the quest for greater responsibility in the United States largely has come from “external” legal regulation and from ongoing shifts in business and social norms. Recently, corporate law’s long and unsustainable neglect of corporate responsibility concerns has led to the emergence of a new type of business corporation, the “benefit corporation.” Benefit corporations expressly permit the directors to advance both investor and noninvestor interests, in aid of pursuing a larger public benefit. The implications of this development for governance of the regular business corporations are unknown. One potential adverse outcome is the “ghettoization” of corporate responsibility within benefit corporations, leading to even less serious attention to such concerns in the traditional business corporation.