How Exclusion of Women and People of Color May Have Affected Debates About Corporate Purpose

Over the last few years, the #MeToo and #BlackLivesMatter movements have facilitated a deeper understanding of racial and gender inequality and have, generally speaking, begun to create tangible changes within American life.  At the same time, corporations have begun to reflect on what role they play within the larger community.  Academic conversations over the past year have dedicated time and thought to the role of the corporation as it relates to race and gender.  One question deserving more time and attention, however, is the historical context in which the foundational debates on the appropriate role and purpose of the corporation, particularly the Berle-Dodd debate, took place.

In mapping the origins of the corporate purpose, scholars point to a series of dueling articles – known as the Berle-Dodd debates – in the Harvard Law Review between New Deal brain-trust member Adolf A. Berle, and Harvard Law Professor E. Merrick Dodd.  For Berle, the purpose of the corporation was derived from the fact that “all powers granted to a corporation or to the management of a corporation, or to any group within the corporation . . . are necessarily and at all times exercisable only for the ratable benefit of all the shareholders as their interest appears.”[1]  This theory, later identified as “shareholder primacy,” became the dominant model of American corporate purpose, where corporations prioritized maximizing shareholder interests over those of all other corporate stakeholders.  Dodd, on the other hand, argued that corporate purpose expanded beyond mere economic benefits to shareholders.  He suggested that not only do “business[es] ha[ve] responsibilities to the community but that our corporate managers who control business should voluntarily and without waiting for legal compulsion manage it in such a way as to fulfill those responsibilities.”[2]  Dodd’s argument developed into what is known as the “stakeholder model” of corporate responsibility, namely that a corporation’s purpose is to build relationships and value not just for shareholders but for all its stakeholders.

Though both Berle and Dodd were quick to discuss the roles and duties of “business men” in corporate America, neither mentioned the roles, duties, or contributions of women or people of color within their conception of the corporation.  But if one considers the historical context in which these articles were written, the failure to include these members of society is, in some ways, unremarkable.  During the 1930s, the United States let rampant discrimination against women and people of color remain unchecked, forcing these groups to find alternative ways to access jobs, credit, and monetary resources.  And it was only a decade prior that women won the right to vote, while people of color would wait an additional 30 years before the Civil Rights Act of 1964 was signed into law.  These are just a few examples that highlight society’s exclusion and trivialization of women and people of color at the time the Berle-Dodd debates took place.

In a new chapter, here, I argue that corporate leaders and scholars engaging in those debates must now take into account that women and people of color failed to fit into the original understandings of corporate purpose.  Specifically, I focus on the fact that, while these original debates were taking place, scholars largely failed to consider the social realities, situations, and opinions of women and people of color regarding their place in corporate America.  I suggest that scholars should consider how the original debates failed to take into account how the voices of women and people of color may have been silenced; how women and people of color were treated as subordinate; and how white males were, at least in some aspects, perceived as the predominant group of power and privilege at the time.  I suggest that the full ramifications of the historical context in which the Berle-Dodd debates took place have remained largely unexamined in the corporate purpose literature and that we, as corporate scholars and business leaders, need to investigate these realities more fully in order to discover the proper purpose of today’s corporations.

The principal benefit of placing these debates in their historical context is that it provides scholars with a broader understanding of how societal exclusion of women and people of color throughout the 1930s — when the Berle-Dodd debates were taking place — may have played a role in shaping these arguments.  And if we are seeking to achieve greater understanding of the proper corporate purpose of today’s firms, scholars must necessarily reflect on these groups’ historical exclusion.  While the Berle-Dodd debates were not explicitly exclusionary, it is fair to consider how the debates may have been influenced by the discriminatory practices of the time.  Ultimately, the Berle-Dodd debates were more than just theoretical disagreements about managers versus shareholders versus stakeholders—they were conversations about power and who should have it within the corporation.  At the time, the individuals with power within American society were white men, while women and people of color were often treated as subordinate.

For those continuing to study and debate the proper purpose of the corporation, it is important to consider whether the historical context in which the Berle-Dodd debates took place may require a rethinking of the proper purpose of the corporation or, at a minimum, a better understanding of that purpose.  More specifically, scholars should consider whether the societal realities of the current moment might necessitate a renewed understanding of corporate purpose that is more inclusive and equitable.  In short, because our understanding of who should qualify as having power within both society and the corporation has shifted over time, might this have an impact on how we understand the proper purpose of corporations today?

ENDNOTES

[1]   Adolph A. Berle, Jr., Corporate Powers as Powers in Trust, 44 Harv. L. Rev. 1049, 1049 (1931) (emphasis added).

[2]   E. Merrick Dodd Jr., For Whom are Corporate Managers Trustees, 45 Harv. L. Rev. 1145, 1153 (1932).

This post comes to us from Professor Veronica Root Martinez at the University of Notre Dame Law School. It is based on her recent chapter, “A More Equitable Corporate Purpose,” available here.

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