Abstract
The transition to a zero-emissions world entails vast political economic restructuring. How resources are mobilized, what sorts of technological infrastructures are constructed, who funds, controls and has claim to profits from investments contributing to the green transition will shape political economies for generations to come. This article suggests that early 20th-century American institutionalism and subsequent legal institutionalist literatures provide a valuable resource for energy transitions scholars and other social scientists, activists, and policy-makers of the energy transition. The article summarizes some of the major lines of thought in classical and legal institutionalism and briefly outlines three areas in which they can inform thinking about political economies of the Anthropocene. First, these literatures are generative of creative thinking on how business activity is organized and help overcome reductionist public-private dichotomies. Second, the history of institutionalist and progressive thought in the New Deal-era runs parallel, in revealing ways, to thinking based on environmental, social and governmental (ESG) principles in the present. Lastly, the article discusses radical proposals for transformation of private property and investment in the thought of institutionalist Adolf Berle relevant to simultaneously addressing both climate and inequality crises.
Introduction
Transition to low-emissions economies and societies involve both technical questions of emissions and energy generation as well as fundamental social questions of who finances, who owns, who controls, and who benefits from production. Issues of not only how transition to a net-zero emissions society and economy can happen but also how to make it fair to all Earth’s inhabitants have become a major topic of debate. Discussions around just transitions and possible Green New Deals have conscientiously sought to couple the challenges of the climate crisis with the imperative of reducing rising levels of economic inequality. Much of this debate has featured arguments regarding the need for a new balance between the private and public spheres, questions of how active states should be in producing and implementing solutions to greenhouse gas emissions, and discussion over how and to what extent private interests can be mobilized to this end. Traditionally, answers to such questions have revolved around considerations—theoretical and empirical—of privatization and nationalization of industry and their respective efficiency, social utility, and overall desirability. Indeed, key sectors in the green transition such as electricity have historically been battlegrounds like few others for just these issues (Neufeld, 2016: 245).
Roughly a century ago, industrial, market-based economies faced a series of challenges resulting from technological transformation of the second Industrial Revolution, Gilded-Age inequality, and the subsequent Great Depression. Many observers viewed these as existential crises for capitalism as a form of production and social organization. In the United States, a group of economists, lawyers, and other social scientists that loosely called themselves “institutionalists” emerged with trenchant critiques of both neoclassical economics and early twentieth-century American laissez-faire capitalism (Rutherford, 2011). More recently, a number of authors in legal studies and related fields have reinvigorated and consciously expanded on classical American institutionalism under the name “legal institutionalism” (Deakin et al., 2017). One of the central issues of concern to both classical and legal institutionalism has been examination of the history and organization of private business, with particular focus on the dominant form of business activity then and even more so today: the corporation.
Energy transitions scholars and activists have also long been interested in various ownership and governance configurations. Germany, in particular, has been fertile ground for a movement of energy co-operatives based not exclusively, or even primarily, on profit. Such small-scale enterprises were responsible for roughly half new green energy to come online in Germany in the first decade and a half of the century (Degenhart and Nestle, 2014). The structures of these enterprises have varied from member-owned and -operated co-operatives, to co-operative for-profit partnerships and (re-)municipalized ownership—all structures that have been broadly grouped under the term Bürgerenergie (community energy). Many activists, in particular, have suggested that the cooperative ownership structure for electricity-producing enterprises offers a blueprint for a sustainable and just energy system for the future as a third-way between full-scale state ownership and the private property of the business firm (Angel, 2017; Morris and Jungjohann, 2016). An adjacent literature on the “environmental state” has explored the enhanced role states can play in the zero-emission transition largely by focusing on the state as an administrator, regulator, provider of research funding, and sometimes owner of polluting industries (Babic et al., 2017; Babić and Dixon, 2023; Duit, 2016; Eckersley, 2021; Hausknost, 2020).
This article complements and expands on this work by showing historically and theoretically how the organization and governance of private business—with emphasis on the corporation—are contingent and far from inevitable or unchanging and suggesting ways this analysis is relevant for the green transition. Deeper and richer understandings of property and the business corporation can helpfully inform transitions scholarship and spark wider, more creative thinking about ownership, property, and control in a time of ecological crisis. This article, therefore, begins with an overview of central arguments from classical American and legal institutionalism and then considers them in the context of present-day discussions and debates in public policy and energy transitions literatures. It then briefly explores three areas in which classical and legal institutionalism can inform thinking about political economies of the Anthropocene. First, it details how these literatures are generative of creative thinking about how business activity is organized and helps overcome reductionist public-private dichotomies present in much work on energy and ecological transitions that too easily accepts a stable border between public and private spheres. Second, the history of institutionalist and progressive thought in the New Deal era contains enlightening parallels to debates surrounding environmental, social and governmental (ESG) principles in business and finance. This can help to better understand the stakes and possible consequences of ESG for future political economies. Lastly, the article discusses the radical proposals of institutionalist and New Dealer Adolf Berle for transformation of private property and investment with relevance for today’s climate and inequality crises.
Institutionalism and the business enterprise
The early decades of the twentieth century featured a movement within American social science now know as (classical) American institutionalism. Made up of an amorphous group of mostly economists and legal scholars, the institutionalists attacked what they viewed to be overly reductive and unrealistic assumptions about human nature implied by neoclassical economics such as rationality and utility maximization. Instead they promoted empirical approaches, particularly those that treated economic activity as embedded in social and cultural contexts that vary over time and space. As one proponent wrote, institutionalism was concerned first and foremost with the “customs, or, if you please, the arrangements, which determine the nature of our economic system” (Hamilton, 1919: 310). Scholars working within the institutional movement thus saw economic theorizing as something that should by necessity take into account history, human psychology, law, and social aspects of human behavior in order to understand economic behavior (Rutherford, 1996: ch. 1; Hodgson, 2001; Yonay, 1998). 1 Central to their concerns was the issue of the corporation.
As historically minded legal institutionalists have recently observed, the corporation was a concept in Roman law known as the universitas, from the stems unum, meaning “one,” and vertere, or “to turn,” thus implying turning multiple people or things into one. With the rediscovery of Roman law in the form of the sixth-century Digest of Justinian in the European 11th and 12th centuries, medieval jurists merged Roman concepts with Christian thought that invoked similar ideas relating to the body of Christ (corpus) and his members, which represented the “mystical body” of the Church (Mansell and Sison, 2020: 582). The corporation became an common means of structuring universities, monasteries, guilds, and municipalities in the High Middle Ages. The church was especially interested in mechanisms to separate and insulate its authority from that of secular rulers while maintaining its hierarchical – but not hereditary—and centralized ruling structure (Harris, 2020b: 255–258). Organizations which came to be structured as corporations could contract as entities in and of themselves (judicial personality) and own property collectively. The medieval scholastics engaged in arguments about metaphysical reality of corporations, a debate that extends to the 21st century, while other writers such as Thomas Hobbes found the idea of the corporation a useful one for political theory. According to Hobbes, a corporation represented an abstract but real “unity-in-plurality” that consisted of more than its component parts and was represented by a “feigned or fictional person,” which he in turn mobilized in his articulation of the Leviathan and the inseparable sovereign (Turner, 2016: 213–224). 2
In the years around 1600, the early modern period’s most famous companies—the English East India Company (EIC) and the Dutch Vereenigde Oostindische Compagnie (VOC)—were incorporated. Most legal and economic historians trace the modern business corporation to these two examples. 3 These entities included characteristics that, as discussed above, had been features of medieval European law: the principle of legal personality, whereby the corporation was a legal entity separate from that of any individual person, and mechanisms for collective corporate decision-making. Legal scholar and historian Ron Harris has argued that the EIC and VOC combined these with four organizational innovations. First, joint-stock equity finance meant that investors purchased shares in the business enterprise as a whole, rather than in a specific part, such that all costs but also all profits were shared across shareholders. Second, investment lock-in ensured that shareholders could not recall their shares from the company at will. Third, to moderate the impact on investors, transferability of interest arose where secondary markets offered investors a way to liquidate their positions by selling them to others without removing invested capital from the enterprise. This made long-term business planning possible. Lastly, both the VOC and EIC, in different ways, secured some assurances from their local rulers that they would not be subject to expropriation (Harris, 2020b: 252–253). The final characteristic of the modern business corporation, shielding of the assets of the corporation from shareholder creditors and assets of shareholders from creditors of the corporation—limited, or zero, liability—arose fully only in the nineteenth century (Hansmann et al., 2005; Harris, 2020a; Ireland, 1996, 2010).
Neither the EIC nor VOC began with these characteristics. Instead, they gradually developed them in response to local and often quite idiosyncratic historical circumstances. In the case of the VOC, the need to maintain capital (lock-in) without allowing their investors to withdraw their money on demand or, indeed, at all led to a secondary market in shares on capital markets already liquid in state debt obligations. Recognition of explicit corporate personhood came only later (Gelderblom et al., 2013; Gelderblom and Jonker, 2014). The English EIC went down a somewhat different path. It was organized from the beginning as a corporation and bore the marks of earlier regulated companies that had functioned as trade monopolies rather than unified business enterprises. Thus, the early EIC relied on investment in each individual voyage to Asia until its rechartering in 1657 (Ciepley, 2020b: 634–636). Common to both, however, was a new form of corporate organization that enabled mobilization of pooled resources from heterogeneous groups of people and in political settings that made guarantees against expropriation by the state credible (Harris, 2020b: ch. 9–11).
One of the key observations of classical institutionalists was that organized business implied and required state power. “Control” was a concept of central importance for the movement as a whole (Rutherford, 2011: ch. 3–4). In Social Control of Business, John Maurice Clark, one of the institutionalist movement’s central actors, argued that business organizations were fully dependent on coercive state action, which he called “orders backed by irresistible power” (Clark, 1926: 5). In Clark’s explanation, control as a rule could be exercised blatantly and physically, such as in the form of a jail sentence or physical arrest by police, but also more covertly as when people were denied freedom of option in the case of monopoly or labor monopsony. Legal economist Robert Hale had also noted that control clearly occurred even in the absence of physical pressure—freedom of choice between severely limited selection of options was little freedom at all (Fried, 2009: 47).
Laws enabling production, commerce and, not least, business organization required direct state coercion. “We must take some pains to avoid the implication that business exists first and is then controlled. Control is rather an integral part of business, without which it could not be business at all” (Clark, 1926: 12). Private business was fundamentally about and came into being through “control” at the level of informal institutions, customs, courts and legislation. It had no existence that was prior to control—social, legal, or state. At the same time, the control that was in turn exercised by business through property rights such as labor policies and wage-setting had significant social consequences. Thus, argued Clark, “business is inherently a matter of public as well as private interest” (p. 45). Or, as John Commons pithily put it, “private business. . . is a contradiction in terms” (cited in Fried, 2009: 171).
Clark took a dim view of the direct exercise of state authority. The state—even a democratic state—was, he argued, not the representative of the people or society so much as it was a group that wielded control through the activities of a few select bureaucrats or functionaries. The immediate state officials making decisions regarding regulation or governance of economic matters frequently had wide discretion in enforcing rules and directives. In many instances, “for all practical purposes, [the bureaucrat] is the state” (Clark, 1926: 9). But rather than look to the market for corrective, Clark advanced the concept of social control through either law or legislation, as opposed to the regulatory and administrative state. For Clark it was these avenues that promised control for the good of the collective. To take but one example, he speculated on possible wider interpretations of the concept of the “public interest” to include the relations of wage-earners and private employers (Clark, 1926: 178). Thus, while resolutely anti-Communist and anti-dirigiste, he also argued that laissez-faire was not a plausible way to conceive of any possible human economy. Both laissez-faire capitalism and planned economy communism were examples of concentrated control exercised by individuals. Clark’s institutionalist critique, then, sought to undermine the distinction between the private sphere (a realm supposedly characterized by freedom of contract outside of state control or coercion) and a public sphere where the state had the authority and obligation to control and coerce. Instead, Clark and other institutionalists of the period maintained that coercion and control existed in both (Tsuk, 2003: 189).
As noted above, corporations were not even viewed as private before the 19th century. It was, instead, “taken for granted that they owed their existence and rights to the government that chartered them,” and charters were given out neither freely nor easily (Ciepley, 2013: 139). One of the fundamental objectives of liberalism of the nineteenth century was precisely to draw a clear line between the public and the private. However, it is government interference – issuing corporate charters and granting special treatment under law—that makes a corporation. The corporation might thus be considered a “franchise government” (Ciepley, 2017). It takes form and assumes powers delegated by the state but runs on private initiative. “A corporate economy,” argued political theorist David Ciepley, “is not merely a parallel universe of private governments, but is a messy public/private offshoot of public government and cannot be separated from it historically, analytically, or normatively” (Ciepley, 2013: 141). The bundle of legal rights (privileges) of the corporation is fundamental to its attractiveness but inherently overrides free market principles regarding property and liability (p. 144). The concern that incorporation remained at odds with democracy and that the corporate form could be used by the wealthy to perpetuate private advantage was a powerful worry, extending well into the twentieth century (Lamoreaux and Novak, 2017). Consequently, corporate charters were historically only granted when the corporation was to carry out activity to the benefit of the public at large. It was only in the nineteenth and twentieth centuries that incorporation became a right, handed out at will in exchange for a fee. The privilege of being exempt from normal laws remained intact but the obligation to advance public weal disappeared (Ciepley, 2020a; Ireland, 2010; Stout, 2012b).
The single most influential discussion of control over the business corporation came from institutionalists Adolf Berle and Gardiner Means, a lawyer and economist respectively, in their 1932 book The modern corporation and private property. While the book has been a cornerstone in American legal and political analysis of the corporation for the last nine decades, readings of it have varied greatly due in no small part to the fact that the authors advanced multiple and partially mutually-exclusive viewpoints. The bulk of the book, based on statistics of firm size and structure, strove to illustrate the authors’ contention that American business consisted of increasingly passive ownership via stockholding which made managers progressively more independent and unaccountable. 4 This was but to suggest the second and more consequential question: who should control corporations? Here the authors gave conflicting answers. The bulk of the book was based on the assumption that the groups with claims to control the corporation were stockholders and managers. Given that, Berle and Means sketched out two possible options. One was that the corporation be managed in trust for its shareholders. Managers should have a fiduciary duty to shareholders, who should reap the benefits of the firm’s profits. The second option implied that shareholders should be compensated for their capital after which all surplus capital should go to the corporation’s managers, who would have ultimate decision-making authority over the firm (Berle and Means, 1991 [1932]: 309–311). Most of the book goes to arguing the former.
It was within these boundaries that in 1931 Berle engaged in a famous debate with Harvard Law School professor E. Merrick Dodd just months shy of the book’s publication and shortly before the election of Franklin Delano Roosevelt, in whose Brain Trust Berle would become a key member. The debate was framed by Berle’s publication of an article based on a chapter of the forthcoming book where he put forward an argument that corporations should, in fact, be managed in trust for its shareholders. Berle argued that in looking at case law on different aspects of corporate management, it was clear that interests of the shareholders were of primary importance (Berle, 1931). Dodd opined in response that he could not agree with the argument that “business corporations exist for the sole purpose of making profits for their shareholders” (Dodd, 1931: 1147–1148). Instead, Dodd pronounced himself “of the view of the business corporation as an economic institution which has a social service as well as a profit-making function” (p. 1148). Dodd, thus took the position that management should both seek profit and simultaneously ensure that the firm’s activities were beneficial to society, a view encapsulated by the idea of a “business commonwealth,” influential at the time and trumpeted by leaders of some of the US’s largest companies in the 1930s (Bratton and Wachter, 2008; Tsuk, 2005).
The fact that these arguments seem so recognizable today has led many to credit them with laying the groundwork for contemporary debates. Berle is often deemed a founding father of shareholder-maximization theory that would come to dominance in the business world in the 1980s, while Dodd is often seen as originator of the idea of “corporate social responsibility.” This is, however, to misread both the debate and its aftermath. First, neither Berle’s original article nor response defended any sort of shareholder profit maximization as Dodd had alleged. Berle attacked Dodd’s proposal, first and foremost, for being unrealistic. If corporate managers were untethered from their trusteeship to shareholders, it was unreasonable to expect them to follow the best interests of the community rather than their own. But in addition to this, who were the stockholders? Berle noted that people with either direct or indirect interests in corporate securities, the latter in the 1930s through banks or life insurance companies, made up no less than half of the country. If this group lost their invested savings and could not otherwise provide for themselves, responsibility for their welfare would devolve to the community. Thus, suggested Berle, shareholder interests largely overlapped with community interests and, in fact, stock-ownership in a capitalist economy was to no small extent a means of apportioning wealth to the community (Berle, 1932: 1368). Managing in trust for shareholders, particularly as shareholding became more widespread, increasingly resembled management in trust for society as a whole. This was a very different argument from shareholder profit maximization that demanded CEOs be responsible only to deliver maximally high returns to their shareholders as a means of disciplining managers and ensuring efficiency (Bratton and Wachter, 2008).
Berle’s thinking continued to evolve. In a speech written for Franklin D. Roosevelt during his election campaign in September 1932, Berle argued that managers manage not in trusteeship to specific shareholders, but to regular citizens—“new individuals”—with economic rights that needed to be protected. Public interest trumped narrow views of private property rights of shareholders (pp. 110–111). This presaged the last chapter of The Modern Corporation, where Berle and Means moved even further away from the idea of “rigid enforcement of property rights,” instead highlighting obligations to the community as a whole. Passive property ownership, the authors argued, was such a different and detached form of property that by giving up the responsibilities normally attached to property rights so too did shareholders surrender the right that corporations be operated solely in their interests. If the obligations taken on by passive property rights holders were weaker than with classical ownership then so too were the obligations of the community to protect their implied rights. This gave the community grounds to demand corporations serve their interests as well. Berle and Means motioned toward a wholly new concept of corporate activity. . . it seems almost essential if the corporate system is to survive – that the “control” of the great corporations should develop into a purely neutral technocracy, balancing a variety of claims by various groups in the community and assigning to each a portion of the income stream on the basis of public policy rather than private cupidity (Berle and Means, 1991 [1932]: 312).
Control of and profit issuing from the activity of corporations should be shared by multiple groups not limited to direct shareholders (or, indeed, stakeholders) of the corporation itself. Here Berle and Means also implicitly relied on the institutionalist undermining of separate public and private spheres. Coercive power, authorized and often even provided by the state, was part and parcel of private property, thus the state could also legitimately require this coercive power to serve the general public interest (Tsuk, 2003: 188–189). Berle and Means ended their book by noting that the spheres of power of corporations and states overlapped. “The future may see the economic organism, now typified by the corporation, not only on an equal plane with the state, but possibly even superseding it as the dominant form of social organization” (Berle and Means, 1991 [1932]: 313). Writing later in life, Berle argued along the lines of Hale and Clark that the laws of incorporation allowing corporations perpetual life and freeing them of the requirement of distributing all their proceeds were artificial and, even, opposite of laissez faire principles. He summarized, “taken together, [the legal privileges granted corporations] proved to be the unintended but nevertheless greatest invasion of the so-called ‘free-market’ principle so dear our grandfathers” (Berle, 1968: 149). Instead he argued that the “‘free market’ is today a statist instrument” as compared to the time of small, unincorporated businesses of Adam Smith’s day. The state’s enforcement of private property rights protected a relatively small number of large corporations (p. 151).
In line with the precepts of classical institutionalism, legal institutionalists have recently underlined the importance of the legal foundations of the firm, in contrast to more abstract proposals that have become popular since the 1970s that portray the firm as a mere “nexus of contracts.” Jean-Philippe Robé has shown step-by-step how legal corporation-hood benefits investors, owners, and managers of a firm. 5 Of utmost significance is the fact that the corporation is not owned by its shareholders. This is one reason corporate structure is so beneficial, argued Robé. What shareholders own—and all they own—are shares in the corporation. This gives the responsibility and rights to vote in shareholder assemblies and collect dividends when distributed. It is not a property right to the corporation itself. A “share” in this way is a misnomer. Someone owning 25% of the total shares in a company does not own 25% of the company but 100% of the shares that make up 25% of total shares in the company. “The difference” argued Robé, “is very important” (Robé, 2011: 35). Thus, he contended, the separation of ownership and control that animated Berle and Means—passive, dispersed shareholders versus insider managers – should actually be viewed as the second separation. The first separation occurs at the moment of incorporation. This legal fact largely deflates the influential idea behind agency and shareholder value theory that is based on the contention that shareholders own the firm and thus managers should act as their agents. There is no duty for firm management to maximize profits either legally or in any defensible theory of the firm (Robé, 2020b: ch. 7–8; Robé, 2020a).
The corporation or legal person is, therefore, not a thing that can be legally owned. This is clear when one considers that shareholders, no matter how many shares they own, cannot simply help themselves to the corporation’s capital. This feature allows capital owners to solve problems of collective action as illustrated above in the example of the early-modern EIC and VOC. On the other hand, in the event of bankruptcy, their losses can be no larger than what they have already invested due to the principle of limited liability. This leads to the contention that controlling shareholders, to a large extent, are able to have their cake and eat it too – controlling the firm as if they owned it but protected by limited liability from any (negative) consequences that might befall it (Robé, 2011: 73). As a corrective to this, Robé and others have argued it is beneficial to think of the firm as “owning itself” (Robé, 2011; Stout, 2012b).
The firm also exercises power well outside of its own boundaries and eventually, if unchecked, butts up against the power of the state. Much as the corporation was a privilege granted by the state, so too did the institutionalists, building on a line of thought from the German Historical School, see the institution of private property as a state-granted exemption that was historically contingent (Rutherford, 2011; Schumpeter, 1926: ch. 7–8; Honoré, 1961; Richard, 1999). Robert Hale argued that the laissez-faire system fundamentally rested on the state monopoly of coercive force, which it used to restrict individual freedom with respect to others’ private property. These “coercive restrictions of individual freedom” made a mockery of any concept of “equal opportunity” or “preserving the equal rights of others” (Hale, 1923: 470). Private property entailed an extension of autonomy of one’s own private property at the expense of others, all backed by the power of the state. Public property, in other words, represented a public grant (Fried, 2009: 171–172). The same point has been made even more starkly by Robé: private property gives certain people (owners) the right to set the rules on their property and requires that others (everyone else) obey, representing a significant decentralization of authority. Property gives the owner autonomy. This autonomy is incomplete, to be sure, as states can and do set limitations, though such limitations have to be explicitly spelled out (Robé, 2020a, 2020b: 70–82). This carves out areas of partial autonomy from within the state’s sphere of sovereignty, what Robé has called “small-scale despotism” (p. 167). Private property owners have the right to set their own rules on their piece of property. These rights are quite extensive and of import to the energy transition, such as the right to mine fossil fuels on private property.
As property coalesced in a few hands and became protected by the “corporate veil,” rights initially ordained to protect the individual from the state could be used by increasingly powerful corporations against the state, eroding and coopting power. Furthermore, an increasingly globalized world has meant that firms can seek to use the corporate laws of different states against one another to obtain lower tax rates and other preferential terms, where states feel required to compete against each other. The result, argued Robé, is that the “Westphalian State System is now giving way to a hybrid order” (p. 284). Indeed, a similar conclusion was stated by the preeminent 18th-century British jurist William Blackstone, perhaps having the East Indies Company in mind, that “corporations are republics writ small” (cited in Ciepley, 2013: 141). Not just related to companies acting as extensions of colonial states, the concern was central to Berle and Means as well, who observed that the enterprise, as it had (in its American context) grown in size and autonomy, “becomes transformed into an institution which resembles the state in character” (Berle and Means, 1991 [1932]: 309). The modern corporation had come to compete with the state for power on increasingly equal terms and with increasingly similar characteristics, thus necessitating new versions of corporate law that could be likened to “a constitutional law for the new economic state [the firm]” (pp. 309, 313).
At the same time that liberalism has sought to separate the idea of private business from public actions, so too have types of liberalism effaced the distinction between the logic of the market and that of the public sphere. In this view, the logic of market transactions and competition (the private sphere) has increasingly seeped into the public sphere. French legal theorist Alain Supiot, for instance, has written of the expanding range of relations that are governed by contract theory rather than democratic or political theory. This has, Supiot argued, led to a “primitive anthropology of contract law” replacing the principles of natural law. In an unequal world, this has led to a “refeudalization of the social bond.” As state capacity and governance objectives are increasingly built on contracts and the principles of competition (market logic), efficient resource allocation has acquired precedence over principles such as justice, fairness and legal rights (Supiot, 2017: ch. 3; see also Brown, 2015). The institutionalist challenge does not imply that the private-public dichotomy does not or should not exist but that where the borders lie is historical and empirical question rather than one to be deduced from first principles.
Institutionalism and the climate crisis
The political economy and dominant corporate governance regime of the present is vastly different from the world of Hale, Clark, Berle, and Means. Asset managers hold steadily more of the shares of public companies. Many of the huge conglomorates of the mid-century have disappeared and there has been a decline in the number of publicly listed companies over the last quarter century, though large public companies will continue to play an oversize role in the American economy of the future (Langlois, 2023: 550). Despite these changes, the writings of the American Institutionalists can still productively inform a broad range of questions about the political economy of climate change and mitigation. Institutionalist thought, for example, opens up new vantage points on ownership of fossil fuel resources and ways in which the institution of private property affects emissions mitigation efforts; it provides frameworks for considering the status and governance of new types of property such as carbon emissions permits; it gives tools to analyze climate initiatives in an international system of both states and increasingly powerful transnational organizations; and it can suggest ways the zero-emissions transition might require regulation or “control” of corporations, perhaps on the international level. The second half of this article discusses three areas where institutionalist thinking can fruitfully inform transitions literatures.
The organization of business
The cooperative and other public-private alternatives
An important strand in climate and energy transition literatures is centered around energy cooperatives and the argument that the cooperative form of ownership and management is a more potent agent of change toward carbon-free production because it both increases efficacy and local buy-in and is more fair (Blome-Drees, 2012; Dow, 2018; Holstenkamp and Kahla, 2016; Morris and Jungjohann, 2016). The cooperative movement and its many syndicalist offshoots aiming for workers’ control or power-sharing have been a major feature of industrial economies for the last 150 years. According to the cooperative ethos, the human stands at the center of the production unit. Capital plays a subsidiary role. The cooperative is to be democratically run, thus setting it apart from the for-profit corporation. Whereas corporations traditionally work on a one-share-one-vote principle, the cooperative ideal is for each member to have an equal vote regardless the number of shares owned. Cooperative co-owners are usually seen to be more risk averse than many capital-owned enterprises and proved, indeed, less susceptible to the recession following the global financial crisis in 2008. Some authors in the cooperative literature have deigned cooperatives “shepherds of stability” both for this outlook as well as their explicit long-term time horizon focused on stable organizational development (Blome-Drees, 2012; Doluschitz et al., 2012). In electricity, cooperatives have a long tradition going back in some settings—the US prominently —to the early 20th century when they were established in primarily rural areas to provide electricity to populations too poor or disbursed to make attractive markets for utilities (Neufeld, 2016). More recently, cooperatives have had a major part to play in many renewable energy infrastructures in Europe—Denmark and Germany, in particular.
Cooperatives are not static and those in existence—including those in renewable power—have shown tendencies to change over recent decades in significant and structural ways. In Europe, where market share of agricultural marketing cooperatives is some 40%, organizations have been pressed by challenges ranging from legislative reform, market concentration, and internationalization (Bijman et al., 2014: 643). These questions go the very raison d’etre of cooperative enterprises. A number of innovations in European cooperatives include changes to proportional voting (breaking from the one-member-one-vote principle), separating cooperative associations from cooperative firms in order to limit liability and increase freedom of action of hired managers, and allowing for greater financing flexibility through hybrid ownership structures. There are even cooperatives listed on stock exchanges.
However, just as the borders, membership, and other characteristics of cooperatives are historically malleable, institutionalist thinking reminds us that the borders between private (for-profit) firms and the public sphere are also context specific and historically variable. One well-known strand of thinking regarding the corporation argues that numerous groups beyond simply shareholders have interests that deserve to be accounted for in management and decision-making. “Stake-holder” theory holds that firms in one way or another should take into consideration interests of other groups rather than just shareholders (Freeman et al., 2010). Indeed, early in his career, Berle, too, advocated for “industrial democracy” where workers shared power with management and other stakeholders in decision-making within the firm. In this, he drew on a long line of work both among early American economists such as Richard Ely and the German industrialist and politician Walter Rathenau (Smith et al., 2019). While Berle later abandoned this position because of concern that class conflict might take over corporate governance, recent work in political science and political theory has explicitly likened the inner workings of private companies to governance by a state (Ferreras, 2017; McGaughey, 2016; Tsuk, 2003). One scholar has recently argued that private companies actually form their own private governments which, in the language of political subjectivity, most closely resemble a communist dictatorship: the firm owns the means of production and creates a production plan that employees must fulfill (Anderson, 2019: 39).
A further idea that comes out of the early institutionalist context and finds parallels with some forms of contemporary thinking is the collectivist conceptualization of society as made up of multiple, overlapping nodes of organization and power, including the business firm. As Dalia Tsuk Mitchell has written, a movement in the early half of twentieth-century United States overlapping with the institutionalist movement, which she called legal pluralism, viewed such civil organizations as loci of power in the same league as, and possibly in competition with, state power. The legal pluralists set themselves the task of finding a legal doctrine that might allow for the operation of such institutions to the benefit of society while at the same time limiting the power they could accumulate and potentially misuse (Tsuk, 2005). Similar to institutionalists, political pluralists emphasized that collective institutions, not just individuals, were constitutive elements of American democracy that required a place and voice in democratic theory (p. 180). 6 As Tsuk Mitchell has argued, these tendencies combined in the postwar United States to write labor out of corporate governance, as opposed to the well-known example of Germany where the institutional of workers councils and principle of co-determination (Mittbestimmung) have given increased voice for groups within the firm in addition to managers and shareholders (Cioffi, 2010b; McGaughey, 2016).
Alternative conceptions of the business corporation
Recent scholarship building on the American institutionalists has also approached the issue of who is a member of a corporation (or firm) historically with findings that are deeply relevant for firm decision-making under conditions of climate change. Returning to the (post-Roman) medieval origins of corporations in European law, Samuel Mansell and Alejo Sison have argued that medieval jurists actively discussed the issue of who was a member of a corporation. In the context of medieval corporations, these jurists viewed corporations as legal persons—“pluralities in succession”—existing to engage in “common good” for its members. Members actively involved in furthering the common good were members with more direct claim to rights and privileges of membership, though passive members also afforded a more limited set of claims. Thus, they argue, modern-day employees, as well as shareholders, should be considered members of a corporation by virtue of their participation in activities to support the common good of the corporation and its continuation as a “going concern.” In turn, while the medieval discussion of authority was complicated and indicated that authority over a corporation came both from within as well as sometimes from without—an issue of particular import for the church and, as we have seen, for Hobbes—managers may be spoken of as receiving authority from their members (Mansell and Sison, 2020).
An alternate account comes from David Ciepley, who argued that the medieval conception of “member corporations” (universitas personarum) were fundamentally different from that of the “property corporation” (universitas rerum). Medieval law focused on the former, which gave members voting rights based on membership (not size of share ownership), control over membership, and power to elect or appoint a corporate government that would govern the members themselves (such as in the cases of universities, guilds, and townships). Alongside this existed the concept of the property corporation which had no members and whose authority came from “above” (in canon law, God). The head of this type of corporation exercised unilateral control. The difference, however, was not transferred across the English channel due to accidents of history. Ciepley points to the East India Company that began life as a membership corporation that functioned more like a guild until it was remade in 1657 into a modern business corporation with the characteristics of a property corporation but still called and thought of in English law as what it used to be but no longer was, namely a membership corporation. The member corporation engages in group governance while the property corporation—the modern business corporation—engages in group production (Ciepley, 2020b). However, whether one views the business corporation as having a more expansive membership or being without members, there is little reason to think that shareholders—generally the least informed, liable, committed and active participants in a firm—should have more weight or claims on its management than others (Mansell and Sison, 2020: 593; Ciepley, 2020b: 640). Thus, while much of the energy transitions and cooperative literature posits the cooperative as a distinctly third-way between private and public ownership structures, the two forms of organization, historically understood, are far more similar to each other.
Even within the for-profit corporation there exists a bewildering variety of legal forms. One recent idea that has generated interest is the category of “public benefit corporation.” This form, first adopted in Maryland in 2010, has been passed in over 30 states with slight variations around a model template that requires the corporation to have a public benefit purpose and submit to reporting requirements. In Delaware’s influential statute, managers are charged with balancing the interests of those affected by the corporation’s activities and the pecuniary interest of the shareholders (Loewenstein, 2017; Murray, 2014). Other experiments such as the “low-profit” company passed into Vermont law in 2008 have sought to establish firms that blend characteristics of for- and non-profit companies (Benjamin, 2021: 11).
Similarly, several authors in the legal institutionalist tradition have suggested that the corporation be treated as a commons. They argue that the corporation, like the commons, is treated under law in a manner similar to a common-pool resource. It is ownerless and subject to a wide range of diverse and sometimes overlapping claims. This view draws on the idea of property rights as shifting bundles of claims to a thing—present in both legal institutionalism and in Elinor Ostrom’s seminal work on the commons. Existing bodies of law—bankruptcy, employment, fiscal, administrative—identify claims on corporations as if they were a commons (Deakin, 2011; Tortia, 2018).
Institutionalism has and continues to attack the notion that the present-day corporate form was natural or default setting of capitalism, which raises the possibility that other forms are better suited to the sorts of collective action required for a green transition. As noted above, unlimited liability was the norm and considered “natural” well into the 19th century. Adam Smith showed deep suspicion toward the idea of a rentier class of share owners arguing this form of operation was fundamentally inefficient (Anderson, 2019: 19–21). The corporation should, in Smith’s view, have the burden of showing a clear public benefit (Ireland, 2010). Some legal scholars have suggested—starting from minimally invasive legal changes—ways in which this could be reversed, returning to a world where the corporate form is awarded only if the corporation is engaged in furthering the public good. Just as banks are highly regulated and banking licenses not freely given out, so too might incorporation place more responsibilities on the incorporated entity, from simply forcing them to articulate their social purpose to more structural requirements that firms commit to certain types or locations for production and employment (Hockett and Omarova, 2015) or, alternately, carbon targets.
International business enterprise and statecraft
A number of scholars have also noted that globalization has allowed firms to use nationally-embedded corporate structures to evade and minimize laws, regulations, and, not least, taxes. Indeed, the above-mentioned widening of market logic into the legal realm might encourage this 7 . As Robé and an increasingly large body of literature today clearly show, firms, particularly multinational firms, are in part designed to produce externalities in the form of tax dodging, environmental damage, and a host of other negative social consequences of economic activity (Robé, 2011: 66; Robé, 2020b: ch. 8–9; Pistor, 2019). The institutions we have, argues Robé, exist “at the national level. And on the basis of 18th century political theories in the context of relatively closed economies in which agriculture and small businesses were dominant, in a world with no business corporations, no large firms, no global society, no global environmental problems. In today’s global world, there is no such thing as ‘the government.’ We have competing States with competing interests hosting competing firms playing competing States [off against one another] to supply them with legal environments favorable to the improvement of their competitive position in the global economy” (Robé, 2011: 66, emphasis in the original). Ciepley, too, has noted the power dynamics between the state and corporations in the United States have essentially reversed since the 19th century. Where once “business corporations were accessories to the democratically elected state governments that chartered them,” corporations now are chartered automatically and hence are able to organize across national boundaries concentrating assets and operations where laws are the most favorable and play nation-states off against each other (Ciepley, 2020a: 21). Quite opposite of being assumed away or not recognized in the first place, imperfections of political regulation should be central to analyses, theorizing, and real-world governance of firms.
Several recent legal cases suggest that courts are beginning to shift on this point. In a 2019 ruling the British Supreme Court found that an English incorporated parent company could be held liable under English law for environmental pollution emitted by its subsidiary, a Zambian corporation controlled but not fully owned by its British parent. This and other recent European cases have been welcomed by activists and environmental scholars as a “new approach” to giving victims of environmental degradation in developing countries mechanisms to press charges in European courts against European parent companies. It has established and expanded a still narrow precedent for cases where “the corporate veil” separating parent and subsidiary across international borders may be pierced (Bertram, 2021; Ojeda, 2020).
A second recent case against Royal Dutch Shell in the Netherlands might be interpreted as a move to make corporations—rather than just states—responsible for climate action under international law (Macchi and van Zeben, 2021). Shell, sued by environmental NGOs and some 17,000 individuals in a Dutch court to quicken its pace of decarbonization, argued that the impetus and framework for reducing greenhouse gas emissions should come from the state. The district court in the Hague found to the contrary that Shell had responsibility to abide by the “widespread international consensus” embodied in numerous IPCC reports and the Paris Agreement that emissions be reduced by 45% by 2030 and to net zero by 2050 (The Hague District Court, 2021). The ruling, also hailed as precedent setting, spoke directly to the concern that corporations can pick and choose their jurisdictions or rely on lack of state action to lessen their responsibilities. In the nation-state architecture of the twenty-first century world, it is required that corporations, in Berle and Means’ words, “assume the aspects of economic statesmanship” (Berle and Means, 1991 [1932]: 313).
ESG capitalism as the new “corporate commonwealth”
For roughly half a century following publication of The modern corporation and private property the American political economy was characterized by managerialism. Ideologically, business executives saw themselves—influenced, no doubt, by Berle and Means—as agents for their shareholders but also trustees for a wider group of beneficiaries. Historians have argued that this sentiment arose from experiences with both the Great Depression as well as the collectivism and values of duty and service arising from, particularly, service in World War II (Cheffins, 2015; Smith et al., 2019; Stout, 2012a). Commentators at the time spoke of the “soulful corporation,” run for the general benefit of society (Davis, 2009: 10–11). Institutionally the period was characterized by the wide dispersion of shareholding Berle and Means had noted, meaning the power of the shareholders over corporations was limited, while professional class of managers called the shots in hierarchies of size and complexity larger than had ever before been seen.
The postwar managerial model began to unravel in the 1970s both ideologically and institutionally. Intellectually the attack on managerialism was led by Milton Friedman, who argued that the corporate executive was “an employee of the owners of the business. . . the manager is the agent of the individuals who own the corporation.” The manager must, therefore, act according to the desires of the business owners, “which generally will be to make as much money as possible” (Friedman, 1970). The government was to have responsibility for setting the rules, managers were to focus exclusively on maximizing profits within the boundaries of those rules. A no less influential argument came from Michael Jensen and William Meckling attacking the separation of ownership from control. For them, the firm was but a “legal fiction which serves as a nexus for contracting relationships” (Jensen and Meckling, 1976: 8–9). This then led logically to principal-agent theory and the question of what mechanism would allow the “principals” (shareholders) to assert control over their “agents” (managers). The answer was that managers should be held accountable for maximizing shareholder value. Making the largest amount of money possible within the laws of society would bring the greatest welfare to the shareholders of the corporation but also to society as a whole, which would benefit from greater productivity. Such was the dominance of this idea that by the turn of the century it was seen as “the end of corporate history” when “the triumph of the shareholder-oriented model of the corporation over its principal competitors is now assured” (Hansmann and Kraakman, 2001: 468). Just as scientific consensus around anthropogenic global warming was solidifying, the increasingly dominant management ideology of shareholder capitalism made all concerns not connected to shareholder value creation external to the purview of corporate managers.
Major structural changes also took place in the 1970s and 1980s that played a role in the shift to shareholder value maximization. Postwar economies based on industry in North America and western Europe began to deindustrialize and shift increasingly to services, a process aided by developments in communications technology and transport, the spread of manufacturing to other areas of the world, and increasingly open trade borders (Findlay and O’Rourke, 2009: ch. 9). Declining productivity in the developed, industrial economies was complicated by fracturing of the postwar international financial architecture and the unprecedented crises in world energy prices in 1973 and again in 1979 (Eichengreen, 2008: ch. 9). The decline of traditionally strong industrial sectors and energy shocks hit Wall Street and led to slumping stock prices. Regulatory changes and the rise of new types of institutional investors—especially the “corporate raiders” of 1980s lore—meant that corporate managers had to increasingly focus on share prices lest a corporate raider take aim at them (Fligstein, 1990; O’Sullivan, 2000).
The new paradigm quickly became subject to criticism that this form of corporate behavior prioritized short-term gains over long-term sustainability leading to declining rates of investment and innovation, greater focus on dividents and stock buybacks to investors, ballooning salaries for top executives and decreasing job security for employers (Lazonick and O’Sullivan, 2000). This critique originally stemmed from another American institutionalist and original radical critic of American turn-of-the-century capitalism Thorstein Veblen, who had bemoaned the rise of the joint-stock corporation and it’s close ties with banks, which had, he argued, led firms to shift their focus from expanding production to maximizing financial profits for often absentee owners. Short term financial gain became prized over long term industrial improvements (Hill, 1967; Veblen, 1904, 1919). A related analysis, also inspired by Veblen, has argued that the 1990s and 2000s witnessed a turn to a “franchise economy” in which a small number of firms were able to capture the largest profits and insulate themselves from competition using increasingly strengthened intellectual property rights (Schwartz, 2022). Through a franchise-type relationship with suppliers and producers and enabled by its corporate structure, the lead firm can increasingly squeeze its subcontractors on physical production costs while reaping the lion’s share of profits itself.
Scholars and observers have also placed increasing focus on the rise of asset management companies particularly through the development of index funds, which implement strategies to broadly track the market as a whole without active management. Given the increasing dimensions of these funds, the asset managers have ended up with share ownership of a broad swath of public companies making them both universal and permanent share owners. The concentration of these index funds in three major asset management firms that dominate the market—Blackrock, Vanguard, and State Street—have made them the New Permanent Universal Owners (Braun, 2016; Fichtner et al., 2017; Fichtner and Heemskerk, 2020). These three major asset managers owned some 21% of shares in the average S&P 500 company at the end of 2017, up from 6% in 2000 (Backus et al., 2021: 17). Similarly, in 1970 individual investors controlled some 70% of outstanding shares of companies in the United States, by 2019 the situation had reversed with institutional investors owning 80% (Jahnke, 2019: 332–333). The rise of asset managers has led to the argument that their dominance represents a new corporate governance regime marked by high degree of shareholding concentration, extensive (nearing universal) portfolio diversification, and control over firms exercised not by threat of selling shares but through voice, often in the form of public letters to CEOs, stressing values of “stakeholder capitalism” and stewardship rather than shareholder value (Braun, 2021; Jahnke, 2019).
In this context, one of the leading arguments for how Wall Street can lead the charge on a net-zero emissions transition is precisely through a new appeal to stakeholder capitalism led by corporations themselves and perhaps spearheaded by asset managers. 8 This idea, trumpeted, unsurprisingly, by executives of major corporations and often argued for at length in year-end reports and advertising campaigns, suggests that it is current business leaders that are best placed to make this vision a reality. The idea runs parallel to the depression-era idea of the “corporate commonwealth” and Dodd’s argument that corporate managers should represent more than just shareholders. Much in contrast to Berle’s lifelong distrust of managers (“princes of property”), Dodd had been a supporter of the idea that enlightened managers who took into consideration more than narrow, short-term profit maximization could play a decisive role in saving capitalism from itself. He specifically took inspiration from Owen D. Young and Gerald Swope, chairman and president of General Electric Corporation who accepted the social responsibility in their positions by offering increased worker compensation and insurance (Dodd, 1931: 1155–1156). Indeed, Swope had even authored a well-publicized plan for national recovery in 1931, the Swope Plan, calling for cartelization of economic sectors—similar to Roosevelt’s ill-fated National Industrial Recovery Act—and requiring companies to offer more social support for their workers, including unemployment benefits.
Dodd’s position was critiqued by Berle and, later, Dodd himself. Berle, unsurprisingly, argued that it was unrealistic to expect of corporate managers that they would consistently put social issues ahead of company profits—this was, he argued, the difference between an academic grounded in theory (Dodd) and a lawyer with experience in the cold, hard realities of life (Berle). Young and Swopes were exceptions, not the rule. Thus, when pressed to defend shareholder property Berle did so but even here the defense was wrapped in the idea that shareholders were more than simply individual investors. Shareholder well-being was a larger social good. Furthermore, Dodd had also changed his mind by the early 1940s. The reason is telling. In his later argument, managers might return to their traditional bailiwick as profit-motivated leaders because the state had created new regulatory agencies, particularly the SEC, to give shareholders the information and rights they needed to reel in corporate managers. Capitalism no longer required a corporate commonwealth in order to survive (Bratton and Wachter, 2008; Dodd, 1940: 131–133). In fact Swope argued not just that corporate managers should have other, social or moral, goals in mind while leading their organizations but that there was no inconsistency with this and profit-making—it was profit- and efficiency-enhancing to treat and pay workers well (Bratton and Wachter, 2008: 126–128).
This century-old argument has a direct parallel in modern debates surrounding environmental, social and governance (ESG) objectives where conducting business in socially- and environmentally-responsible ways or investing in companies that do so is seen as good for society and the planet but also for profit maximization. Helpfully, this also saves one from the dilemma of having to choose between morals and profit. A recent example comes from the shareholders revolt at Exxon in May 2021 where a proxy fight was initiated by an investment fund holding 0.02% of Exxon’s stock to place its own candidates on the corporate board in order to force the oil giant to be more climate-friendly. In their argument, Exxon had “failed to evolve in a rapidly changing world, resulting in significant underperformance to the detriment of shareholders and risking continued long-term value destruction” due to lack of a “long-term strategic plan for sustainable value creation” (Engine No. 1, LLC, 2021). Unsustainability is bad; more importantly, it is unprofitable.
Similarly, asset manager giant BlackRock argued in a January 2022 letter to CEOs that it did not back ESG objectives out of starry-eyed idealism. “Stakeholder capitalism is not about politics. . . it is not ‘woke’” and BlackRock’s focus on climate was “not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients” (Fink, 2022). Instead, the asset manager called for states to regulate markets, establishing “clear pathways and a consistent taxonomy for sustainability policy, regulation, and disclosure across markets.” The position corresponds to Dodd’s post-New Deal defense of more rigid rules for CEO behavior. If the state provides a comprehensive network of regulation, then pursuit of shareholder value will correspond with positive outcomes for society as a whole. Business can return to focus on profits.
The push for a solution to the zero emissions transition in the form of ESG thus looks similar to Dodd’s argument that the problems of capitalism in the Depression could be solved with voluntary corporate benevolence or regulatory changes to realign incentives. The fact that regulation in the form of the SEC allowed Dodd to retract his call for management enlightenment is analogous to recent calls for state ratings agencies for ESG and regulations intended to encourage flow of capital to ESG-friendly projects on the hope that the green transition can occur without the deep institutional political economic change. Neither envision the radical change represented by other facets of the New Deal that created the basis of a welfare state, growth of labor unions, or a significantly increased role of the state in the economic sphere.
Social investment and universal ownership
While he could not have foreseen the rise of index funds and universal investment managers, toward the end of his life Berle was clearly aware of ways in which shareholding and, with it, corporate governance was changing, particularly given the rise of institutional investors that bought and sold shares on behalf of clients. Pension and mutual funds were rapidly gaining popularity, he observed, meaning that the ranks of “so-called ‘property owners’” were growing and would soon play a determining role in many corporations (Berle and Jacobs, 1973: 24–26). This development was significant because it implied a large and increasing portion of society that was ultimately dependent upon stockholding for wealth and, secondly, marked a further degree of separation between management and share ownership.
Berle found little substance to the argument that shareholders should be the sole benefactors of residual profits. Business largely funded itself while the shareholders, “by now grandsons or great-grandsons of the original ‘investors’ or (far more often) transferees of their transferees at thousands of removes, have and expect to have through their stock the ‘beneficial ownership’ of the assets and profits thus accumulated and realized, after taxes, by the corporate enterprise” (Berle, 1965: 9). If holders of stock neither worked at the firm nor provided it with capital, Berle argued, then a justification for receiving the residual wealth of firms “must be sought outside classical economic reasoning” (Berle and Jacobs, 1973: 26). Berle argued that shareholders more weakly connected to the day-to-day management of firms were entitled to smaller protections and privileges given by share property ownership. As it was, stock exchanges had become sources of liquidity and distribution of profits far more than they were sources of investment funding. Berle thus suggested a core idea from The Modern Corporation and Private Property be expanded: not only could stockholders be viewed as an approximation of the community but law should ensure that every American have a share in corporate stocks. “Having attained size and economic power surpassing individual operations, corporations are essentially political constructs, having perpetual life and a continued legitimacy that depends on their performance as a productive and distributive mechanism” (Berle, 1965: 18). Furthermore, passive property has the distinct advantage that it can be redistributed without affecting business operations.
As his biographer would quip several decades later, Berle had aimed to be the “Marx for the shareholder class” (Schwarz, 1987), with the provision in his later writings that this class become universal. The artificial nature of corporations highlighted by the early institutionalists implied that both control over corporate activities and distribution of corporate profits be in the interests of the wider community. Even if one pulls back from Berle’s radical suggestion of complete socialization of corporate stocks, this thinking might inspire appeals for sovereign wealth funds or similar vehicles of green technology and infrastructure investment whose beneficiaries and shareholders are society writ large (Palladino and Lala, 2021). Other possible proposals include obligatory stock provisions or issuance of non-voting shares to citizens universally. A similar mechanism has been suggested as a means for more efficient corporate taxes (Baker, 2020: 54).
Questions of who controls firm decision-making and who benefits from firm profits are directly relevant to contemporary discussions of “just transitions.” For Berle, the link between the two was key. Increasing power of firms meant growing control of prices and necessitated greater state power in order to avoid an all out capture of the economy by an oligopoly of giant conglomerates. The greater state involvement necessary for a transition to a net-zero economy would, a modern-day Berle might suggest, require a rethinking of the structure of firms that will be participating in the green transition and the role of their shareholders. This is quite opposite of BlackRock’s vision of fairness or “just transitions.” In the above-cited letter to CEOs, just transition is named in connection to the need to be able to furnish people as consumers with affordable products of the energy transition (Fink, 2022). Berle’s argument, by contrast, suggests a just transition in fair sharing of profits, with people as shareowners of the energy transition.
Indeed, this touches on a recent argument heard on Wall Street. In a 2021 proposal to shareholders of Fox Corporation a proposal was made to designate the company as a public benefit corporation where one of the public benefits would include an amendment for “provision of the Company’s viewers with an accurate understanding of current events through the exercise of journalistic integrity.” The reasoning was that a large portion (43%) of Americans trust Fox News despite the fact that, in the proposal’s words, “our governance is structured to produce profits without accountability.” The requirement that Fox News provide accurate understandings of current events would return less to shareholders as shareholders of Fox News but would decrease the harm caused by polarizing, one-sided news on society as a whole and thus increase Fox Corporation’s stockholders’ financial well-being as diversified stockholders. “The vast majority of our diversified shareholders lose when companies harm the economy, because the value of diversified portfolios rises and falls with GDP. While a concentrated holder may profit when the Company inflicts costs on society by emphasizing viewership over accuracy, diversified shareholders internalize those costs” (Fox Corporation, 2021). Fox was comfortably controlled by a single shareholder and the proposal did not have a realistic chance of being adopted. However, the logic behind it is one that has slowly been gathering momentum and can easily be adapted to issues of climate change and greenhouse gas emissions (Levine, 2021). Indeed, the logic of the proposal goes even farther and leads us back to Berle. If stockholding is an investment more in the economy as a whole than in individual companies, then the case that everyone has a claim to benefit is strengthened.
Conclusion
As the examples of Shell, Exxon, Fox and Blackrock demonstrate, the purpose and characteristics of private property and the business corporation are being renegotiated under the exigencies of the Anthropocene. As the instutitionalists insisted, these categories have varied greatly over time and place and will continue to do so. Claims of an end of history in corporate governance seem increasingly antiquated. Debates and proposals for what these changes should and can look like have many similarities to former debates in the history of capitalism. Arguments about multiple bottom lines, ESG taxonomies, industrial policies, and corporate proxy voting invoke certain conceptions of the firm, its borders, who runs it and in whose interests it exists.
Drawing on classical American institutionalism and a historical conjuncture that inspired extremely novel and far reaching ideas, this article has outlined a series of arguments and analytical frameworks that can be productive of creative thinking in climate policy and reform. This and the related legal institutio literatures remind us that there is no clear or constant dividing line between private and public, particularly with regard to the business corporation. Social concerns and control are inherently intertwined with and inseparable from the corporation, a fact that can catalyze creative thinking about what the corporation of the Anthropocene could look like. The corporation is a human invention—there is nothing inevitable about its form or future development. There is no reason why the corporation of the 21st century must look like its late twentieth-century counterpart and a powerful argument that changes will be necessary to enable rapid and equitable transition to a zero-emissions world.
