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Abstract

The Berle XIV: Developing a 21st Century Corporate Governance Model Conference asks whether there is a viable 21st Century Stakeholder Governance model. In our conference keynote article, we argue that to answer that question yes requires restoring—to use Berle’s term—a “public consensus” throughout the global economy in favor of the balanced model of New Deal capitalism, within which corporations could operate in a way good for all their stakeholders and society, that Berle himself supported.

The world now faces problems caused in large part by the enormous international power of corporations and the institutional investors who dominate their governance. These include two fundamental problems threatening humanity: inequality and climate change. The traditional response by many corporate law scholars is that these are not corporate law’s problems.

Blinkered thinking like that was alien to Berle. He grappled with the need for structures ensuring corporate power would be exercised in a manner consistent with the public interest. Berle was pleased that a public consensus had been forged channeling corporate conduct in a direction beneficial to the many. And Berle recognized that corporate power was out-growing domestic constraints and the extension of New Deal values into the international economy was necessary.

Since his lifetime, however, the public consensus Berle championed has eroded. We use five core issues to show that corporate law is not a bystander but a contributor to that erosion and to some of humanity’s deep-est problems:

  • the powerlessness of workers in comparison to institutional investors and the corrosive effects of this imbalance on inequality, fairness, and social stability;
  • the realities of corporate externalities such as climate change and their implications for the residual claimant concept and corporate ac-countability;
  • facilitation of tax avoidance via corporate law, thus undermining the governmental capacity to address issues like climate change, power, and consumer harm;
  • the mismatch between the capacity and reach of the regulatory structures and social consensus that constrains corporate power and the scope of the markets in which corporations exert power; and
  • the tolerance of corporate law for the unconstrained use of corporate power for political purposes, and its negative effect on the ability of government to implement stakeholder-protective policies.

We confront these issues by identifying elements of countervailing policy to reshape a consensus supportive of stakeholder governance and New Deal capitalism. For corporate law to be a force for good, and not facilitate environmental harm and economic unfairness, it must stop pretending that core issues are solely for other bodies of law to address. If we don’t channel corporate power in a fair and sustainable direction, our descendants will be the residual claimants of our excesses and inequities.

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