What is the Berle-Means Thesis?
The Berle-Means Thesis is a theory named after A. Berle and G. Means. It has to do with governance of public corporations in which the board of directors is put in charge of governance. The owners of the public depend on the board of directors to run the operations of the corporation. According to this theory, the interests of the owners of the public corporations are represented by the board of directors. The Berle-Means Thesis describes a structure of governance where there is a separation between the ownership and control of a public corporation.
How is the Berle-Means Thesis Used?
The Berle-Means Thesis is one that maintains that the governance of public corporations is dominated by the board of directors, even the owners rely on them to run the affairs. A book written in 1932 by Adolf Berle and Gardiner Means in modern corporation and private property developed the Berle-Means Thesis. This theory studies the foundation of corporate law in the United States as well as the emergence of big corporations. It posits that legal ownership and control of public corporations are separated. Those who own the corporations are different from those that control them. Both authors argued that corporate law in the U. S during the 1930s enforced the separation of ownership and control of public corporations. According to this Berle-Means theory, owners of corporations surrender to those who are in t control of the corporations and are merely become wages or salary earners. The relinquish authority to the board of directors who control the corporation and also represent the interests of the owners of the corporation. However, there are certain consequences attributed to separation in the ownership and control of a company. One major consequence is that owners of the company overtime have proportionally smaller capital capital stake and their relevance in the company might gradually reduce. Berle and Means advocated transparency, accountability and embedded voting rights for all shareholders in a public corporation.
