Bad and Not-so-Bad Arguments for Shareholder Primacy
![handle is hein.journals/scal75 and id is 1207 raw text is: BAD AND NOT-SO-BAD ARGUMENTS
FOR SHAREHOLDER PRIMACY
LYNN A. STOUT*
In 1932, the Harvard Law Review published a debate between two
preeminent corporate scholars on the subject of the proper purpose of the
public corporation. On one side stood the renowned Adolph A. Berle,
coauthor of the classic The Modern Corporation and Private Property.'
Berle argued for what is now called shareholder primacy-the view that
the corporation exists only to make money for its shareholders.2 According
to Berle, all powers granted to a corporation or to the management of a
corporation, or to any group within the corporation... [are] at all times
exercisable only for the ratable benefit of all the shareholders as their
interest appears.3
On the other side of the debate stood esteemed professor Merrick
Dodd of Harvard Law School. Dodd disagreed vehemently with Berle's
shareholder primacy thesis. He argued for a view of the business
corporation as an economic institution which has a social service as well as
a profit-making function.4 Dodd claimed that the proper purpose of the
corporation (and the proper goal of corporate managers) was not confined
to making money for shareholders. It also included more secure jobs for
employees, better quality products for consumers, and greater contributions
to the welfare of the community as a whole.
As can be seen from Delaware Vice Chancellor Leo E. Strine's Essay
in the preceding pages of this journal, the debate over the social role of the
* Professor of Law, University of California at Los Angeles School of Law. The author would
like to thank William Allen, Margaret Blair, Stephen Bainbridge, Allen Ferrell, Jeffrey Gordon, Ehud
Kamar, William Klein, Mark Roe, Leo E. Strine, Jr., Eric Talley, and Jack Treynor for their insightful
comments on earlier drafts of this Essay.
1. ADOLPH A. BERLE & GARDINER C. MEANS, THE MODERN CORPORATION AND PRIVATE
PROPERTY (Harvest Books, 1968) (1932).
2. See generally D. Gordon Smith, The Shareholder Primacy Norm, 23 J. CORP. L. 277 (1998).
3. Adolph A. Berle, Corporate Powers as Powers in Trust, 44 HARV. L. REV. 1049, 1049
(1931).
4. E. Merrick Dodd, For Whom Are Corporate Managers Trustees?, 45 HARV. L. REV. 1145,
1148 (1932).](ViewImageLocal?handle=hein.journals/scal75&div=37&collection=journals&method=preview&ext=.png&size=3)
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Bad and Not-so-Bad Arguments for Shareholder Primacy
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