Anita K. Krug


This Article first recalls the primary contours of Adolf Berle and Gardiner Means’s acclaimed observations regarding the separation of ownership and control in the “modern corporation,” as well as their conclusions about the implications of those observations for the doctrine of shareholder primacy. Second, the Article describes how the activities of FSHCs generally differ from what we think corporations do and, certainly, from what Berle and Means conceived of as the purpose of corporations or, indeed, any business enterprise. Third, this Article articulates how those business activities render more acute the problem of the separation of ownership and control that Berle and Means observed. In particular, FSHC shareholders face additional peril as a result of managerial incentives that cultivate excessive risk taking, which is often difficult to temper, and heavy regulation, which raises the prospect of both regulatory enforcement actions and regulatory capture—all fueled by rules under the Bankruptcy Code that, in the event of insolvency, limit a firm’s rights to recoup assets transferred in its final days. Finally, this Article concludes that the special concerns that FSHCs produce both portend and necessitate rethinking the problem of managerial accountability in large, publicly traded corporations. The Article suggests, consistent with Berle and Means’s conclusions, that the notion of shareholder primacy should be supplanted—but does so without necessarily embracing the notion that corporations should be managed in the interests of innumerable constituencies. Rather, the Article raises the possibility that many of the concerns associated with FSHCs’ activities could be addressed through a greater governance focus on one constituency, in particular: those who seek out, and benefit from, FSHCs’ traditional and foundational business operations—namely, clients and customers.