Berle and Means’ Control and Contemporary Problems
Berle and Means’ Control and Contemporary Problems

Summary/Abstract: The best way to judge the quality of a new company law is to test it against real-life problems. This article attempts to do that by placing the concept of control in the center of its observations, posing related questions, and offering food for thought for the drafters of company laws. The concept of control in the context of corporations with highly dispersed shareholders holding atomized stakes (‘quasi-public corporations’) was first dissected by Adolf A. Berle (lawyer) and Gardiner C. Means (economist) in their 1932 classic The Modern Corporation and Private Property. Their conceptualization and classification of control serves as the basis for the analysis herein, even though interest in control has lately been overshadowed by novel schools of thought based on agency theory and the like. With that in mind, the central thesis of this article is that control is the ultimate ‘invisible hand’ of company law because it is unparalleled in importance, omnipresent, and – due to its multifaceted nature – inherently difficult to grasp, especially insofar as its precise essence or its manifestation in real life circumstances is concerned. Secondly, using examples from recent cases from Central and Eastern Europe (‘CEE’), this article aims to show that the crucially important concept of control is still not fully understood. Unfortunately, but perhaps unsurprisingly, empirical evidence readily proves that simple formulas for “taming” control do not exist. Instead, eternal vigilance, as well as regular re-evaluation of governance and oversight solutions, is needed not just by the boards and corporate officers in charge of oversight, but also by shareholders if control of corporate officers is at stake. Thirdly, the article demonstrates that control plays a similarly important role for small and mid-sized businesses (‘SMEs’) countering a burning set of problems that SMEs are doomed to face at some point in their existence: the issues corollary to the inter-generational transfer of the control and ownership of successfully operating companies. This topic is tackled through the prism of the milestone case of Galler v. Galler from Illinois, United States (US), which gave the green light to a peculiar but flexible set of solutions to these governance-related issues. I argue that the Galler formula, or at least parts of it, could be adapted elsewhere to serve similar ends. As the case studies offered in this article will demonstrate, these are living problems, especially insofar as they concern jurisdictions which are still yet to settle on wholly-adequate solutions, such as the post-socialist states of Central and Eastern Europe, China, and other fledgling legal systems across the globe.

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