¹ Hartz's, LouisThe Liberal Tradition in America (New York, 1955Google Scholar), remains the standard work. For dissenting views, see Shallope, Robert, “Republicanism and Early American Historiography,” William & Mary Quarterly 39 (1982): 335–56Google Scholar; Appleby, Joyce, “Introduction: Republicanism and Ideology,” American Quarterly 37 (1985); 461–73CrossRefGoogle Scholar; and Horwitz, Morton J., “Republicanism and Liberalism in American Constitutional Thought,” William & Mary Law Review 29 (1987): 57–74Google Scholar. For a recent defense of Hartz's thesis, see Pangle, Thomas L., The Spirit of Modern Republicanism: The Moral Vision of the American Founders and the Philosophy of Locke (Chicago, Ill., 1988), 28–39Google Scholar; and Diggins, John Patrick, The Lost Soul of American Politics: Virtue, Self Interest and the Foundations of Liberalism (New York, 1984), 6–17Google Scholar.

² Prangle, Spirit of Modern Republicanism, 43–47, and Diggins, Lost Soul, 41–42 and 96, explore the public-private distinction in the political thought of America's founders. McCoy, Drew, The Elusive Republic: Political Economy in Jeffersonian America (Chapel Hill, N.C., 1980Google Scholar), examines the importance of the marketplace in the political thought of the early republic, and Kaufman, Allen, Capitalism, Slavery and Republican Values: Antebellum Political Economists, 1815–1848 (Austin, Texas, 1982Google Scholar), continues the story into the middle of the nineteenth century.

³ For example, see Thomas, John L., Alternative America: Henry George, Edward Bellamy, Henry Demarest Lloyd and the Adversary Tradition (Cambridge, Mass., 1983Google Scholar); and Horwitz, “Republicanism and Liberalism,” 61–62.

⁴ Mason, Edward S., “Introduction,” in The Corporation in Modern Society, ed. Mason, Edward S. (1959; New York, 1964), 5Google Scholar.

⁵ Mason, “Introduction,” 10–11, put it this way:

… corporate managements have traditionally been considered to have as their single-minded objective … maximization of business profits…. Now managerial voices are raised to deny this exclusive preoccupation with profits and to assert that corporate managements are really concerned with equitable sharing of corporate gains among owners, workers, suppliers, and customers. If equity rather than profits is the corporate objective, one of the traditional distinctions between the private and public sectors disappears. If equity is the primary desideratum, it may well be asked why duly constituted public authority is not as good an instrument for dispensing equity as self-perpetuating corporate managements?

Kenneth J. Arrow argued that information asymmetries gave managers bargaining advantages and so made professional norms socially desirable. See his “Social Responsibility and Economic Efficiency,” Public Policy 21 (1973): 303–17Google Scholar. For a discussion of how a competitive market theoretically eliminates ethical dilemmas, see Gauthire, David, Morals by Agreement (New York, 1986), 83–122Google Scholar.

⁶ For example, Chandler, Alfred D. Jr, The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1977Google Scholar), argues that managers' professional status arises from their engineering-like skills in coordinating mass production and mass distribution. Williamson, Oliver, “The Modern Corporation: Origins, Evolution, Attributes,” Journal of Economic Literature 19 (1981): 1537–68Google Scholar, believes cost accounting to be the quintessential managerial skill. Also see Johnson, H. Thomas and Kaplan, Robert S., Relevance Lost: The Rise and Fall of Management Accounting (Boston, Mass., 1987), 94–100Google Scholar.

In contrast, writers such as Barnard, Chester I., The Functions of the Executive (Cambridge, Mass., 1938Google Scholar), and Selznick, Philip, Leadership in Administration: A Socio-logical Interpretation (New York, 1957Google Scholar), have argued that the managerial function is one of communication or value facilitation. In this essay, we combine these positions, arguing that, although the managerial function arises out of the technical necessities imposed by market competition and technological development, management's professional status has come in large part from legal conceptions that incorporate the managerially run firm as an institutional bulwark of modern democracy.

⁷ Among Young's forerunners are Croly, Herbert, The Promise of American Life (1909; Indianapolis, Ind., 1965), 427–41CrossRefGoogle Scholar, and Brandeis, Louis D., Business-A Profession (Boston, Mass., 1914Google Scholar).

⁸ Case, Josephine Young and Case, Everett Needham, Owen D. Young and American Enterprise: A Biography (Boston, Mass., 1982), 110–18, 143–44, and 252–53Google Scholar. Also see “Life of Owen D. Young,” Fortune 3 (April 1933): 89–98Google Scholar, and Tarbell, Ida, Owen D. Young: A New Type of Industrial Leader (New York, 1932Google Scholar).

⁹ Case and Case, Owen D. Young, 370–76.

¹⁰ “U.S.A. The Permanent Revolution,” Fortune 43 (Feb. 1951): 61–124ff.Google Scholar; William B. Benton, “The Economics of a Free Society,” ibid. 30 (Oct. 1944): 162–65ff.; John Knox Jessup, “A Political Role for the Corporation,” ibid. 46 (Aug. 1952): 112–13; Committee for Economic Development, Social Responsibilities of Corporations (New York, 1971Google Scholar); and Business Roundtable, “Statement on Corporate Responsibility,” Oct 1981.

Sutton, Francis X. et al. , in The American Business Creed (1956; New York, 1962Google Scholar), summarize managerial ideology as it emerged in the post-Second World War era. Silk, Leonard and Vogel, David, in their Ethics and Profits: The Crisis of Confidence in American Business (New York, 1976Google Scholar), report on how the social movements of the late 1960s and 1970s stranded management's fiduciary self-representation.

For an appreciation of the Committee for Economic Development, see Collins, Robert, The Business Response to Keynes, 1929–1964 (New York, 1981Google Scholar); for an appreciation of the Business Roundtable, see McQuaid, Kim, Big Business and Presidential Power (New York, 1982Google Scholar), chap. 9.

¹¹ See Kaufman, Allen, Zacharias, L. S., and Marcus, Alfred, “Managers United for Corporate Rivalry: A History of Managerial Collective Action,” Journal of Policy History 2 (1990): 56–97CrossRefGoogle Scholar. Collins, Business Response to Keynes, documents management's influence on macroeconomic policy; and Tomlins, Christopher L., The State and the Unions: Labor Relations, Law, and the Organized Labor Movement in America, 1880–1960 (New York, 1985Google Scholar), and Harris, Howell John, The Right to Manage: Industrial Relations Policies of American Business in the 1940s (Madison, Wis., 1982Google Scholar), examine management-labor relations.

¹² We are arguing that the trustee and contract approaches to corporate regulation follow a technical logic that can be adapted to altering normative stances, whether they be libertarian or egalitarian. Our concern in this essay is simply to review how the technical arguments have provided a public language for understanding management's position in the democracy. For a further discussion, see Kaufman, Allen, Zacharias, L. S., and Karson, Marvin, The End of Managerial Ideology? Managerial Collective Action and the Regulatory State, 1920–1980 (New York, forthcoming, 1994Google Scholar).

¹³ Epstein, Richard A., “A Common Law for Labor Relations: A Critique of the New Deal Labor Legislation,” Yale Law Journal 92 (1983): 1357–62CrossRefGoogle Scholar.

¹⁴ Bratton, William W. Jr, “The New Economic Theory of the Firm: Critical Perspectives from History,” Stanford Law Review 41 (1989): 1471–1527CrossRefGoogle Scholar, offers a history of trust and contract. In addition, he documents, pp. 1501–17, a third regulatory alternative, the doctrinal theory of the firm, which judges have found useful for settling disputes. However, this doctrine has not been important in public discussions over management's professional identity.

¹⁵ See, for example, Chandler, The Visible Hand; Hays, Samuel, The Response to Industrialism, 1885–1914 (Chicago, Ill., 1957Google Scholar); Wiebe, Robert, The Search for Order, 1877–1920 (New York, 1967Google Scholar); Keller, Morton, Affairs of State: Public Life in the Late Nineteenth Century (Cambridge, Mass., 1977CrossRefGoogle Scholar); McCraw, Thomas K., Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, Alfred E. Kahn (Cambridge, Mass., 1984Google Scholar); Nelson, William E., The Roots of American Bureaucracy, 1830–1900 (Cambridge, Mass., 1982Google Scholar); and Sklar, Martin J., The Corporate Reconstruction of American Capitalism, 1890–1916 (New York, 1988CrossRefGoogle Scholar).

¹⁶ See Horwitz, Morton J., “Santa Clara Revisited: The Development of Corporate Theory,” West Virginia Law Review 88 (1985): 173–224Google Scholar; Bratton, “The New Economic Theory”; and Hurst, J. Willard, The Legitimacy of the Business Corporation in the United States, 1780–1970 (Charlottesville, Va., 1970Google Scholar).

¹⁷ Horwitz, “Santa Clara,” 182 and 189.

¹⁸ Ibid., 182–86, 202–7. Horwitz argues that attempts to disaggregate the corporate entity led to an alternative legal construction of corporate form based on partnership and contract, but this alternative could not accommodate experience (as in the displacement in certain board decisions of a unanimity rule by a majoritarian one). See also Bratton, “The New Economic Theory,” 1490–91.

¹⁹ For the most part we follow Horwitz, “Santa Clara,” 220–21. However, in contrast to Horwitz, we distinguish a real entity theory from the natural and artificial entity theories.

²⁰ Purcell, Edward A. Jr, The Crisis of Democratic Theory: Scientific Naturalism and the Problem of Value (Lexington, Ky., 1973Google Scholar), summarizes this transformation succinctly. Also, see Bratton, “The New Economic Theory,” 1482–90.

²¹ The literature on formalism was at one time an enterprise unto itself—see, for example, Lynda S. Paine, “Instrumentalism v. Formalism: Dissolving the Dichotomy,” University of Wisconsin Law Review, 1978, 997–1028.

²² This shift in the Court's doctrine is well known, though by no means entire. See, for example, Swindler, William F., Court and Constitution in the 20th Century, 2 vols. (New York, 1969, 1970Google Scholar); White, G. Edward, The American Judicial Tradition (New York, 1976), 150–229Google Scholar; Cover, Robert, “The Left, the Right and the First Amendment: 1918–1928,” Maryland Law Review 40 (1981): 349–88Google Scholar. On the pluralist procedural conception of due process, based on footnote 4 of Justice Harlan Stone's majority opinion in the Carotene Products case, 304 U.S. 144 (1938), 152–53, see Ely, John H., Democracy and Distrust: A Theory of Judicial Review (Cambridge, Mass., 1980Google Scholar).

²³ See, for example, Furner, Mary O., Advocacy and Objectivity: A Crisis in the Professionalization of American Social Science, 1865–1905 (Lexington, Ky., 1975Google Scholar), and Haskell, Thomas, The Emergence of Professional Social Science (Urbana, Ill., 1977Google Scholar).

²⁴ Commons, John, Legal Foundations of Capitalism (1924; Madison, Wis., 1964Google Scholar); and Llewellyn, Karl N., “The Effect of Legal Institutions upon Economics,” American Economic Review 15 (1923): 665–83Google Scholar. For an evaluation of these authors, see Williamson, Oliver, The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting (New York, 1985), 2–10Google Scholar. Rutherford, Malcolm, “J. R. Commons's Institutional Economics,” Journal of Economic Issues 17 (1983): 721–44CrossRefGoogle Scholar, offers a useful introduction to Commons's work, noting that his abstruse style helps to explain his anonymity in the literature.

²⁵ Llewellyn, “Effect of Legal Institutions,” 669–72.

²⁶ Today when economists speak of social costs, they have in mind the unaccounted effects of market transactions. These effects are what economists now call externalities. Today, one usually illustrates externalities by pointing to environmental problems. See Coase's, R. H. collection of essays, The Firm, the Market and the Law (Chicago, Ill., 1988), 11–26Google Scholar, and, in that collection, “The Problem of Social Cost,” 95–185. In the nineteenth century, the social costs arising out of corporate activities that most concerned reformers were the dispossession of America's propertied laboring class and its subsequent dependency on the corporate entity.

²⁷ For example, see Ripley, William Z., Main Street and Wall Street (Boston, Mass., 1927Google Scholar); Veblen, Thorstein, Absentee Ownership and Business Enterprise in Recent Times: The Case of America (New York, 1923Google Scholar); Brandeis, Louis, Other People's Money, and How Bankers Use It (New York, 1914Google Scholar).

²⁸ Brandeis, Louis, “Our New Peonage: Discretionary Pensions,” The Independent 73 (25 July 1912); 187Google Scholar, reprinted in Business—A Profession, 71.

²⁹ Louis Brandeis, “The Road to Social Efficiency,” in Business—A Profession, 58, 69–70.

³⁰ For instance, see Dewey, John, “The Historic Background of Corporate Legal Personality,” Yale Law Journal 35 (1926): 655–73CrossRefGoogle Scholar; Douglas, William O., “A Functional Approach to the Law of Business Associations,” Illinois Law Review 23 (1929): 673–82Google Scholar; Isaacs, Nathan, “Business Security and Legal Security,” Harvard Law Review 34 (1923): 201–13Google Scholar; Isaacs, “The Promoter: A Legislative Problem,” ibid. 38 (1925): 887–902; Isaacs, “Trusteeship in Modern Business,” ibid. 42 (1929): 1048–61; and Adolf Berle, “Non-Voting Stock and ‘Banker's Control,’” ibid. 39 (1926): 673–93.

³¹ Quotation from Berle, Adolf A. Jr, and Means, Gardiner C., The Modern Corporation and Private Property (1932; New York, 1968), 8Google Scholar. For an assessment of Berle's writing, see Kirkendall, Richard S., “A. A. Berle, Jr.: Student of the Corporation, 1917–1932,” Business History Review 35 (1961): 43–58CrossRefGoogle Scholar, and Schwarz, Jordan A., Liberal: Adolf A. Berle and the Vision of an American Era (New York, 1987Google Scholar); and Herman, Edward S., Corporate Control, Corporate Power: A Twentieth Century Fund Study (New York, 1981), 5–14Google Scholar.

³² Berle and Means, The Modern Corporation, 8. Although The Modern Corporation and Private Property was indeed a collaborative effort, Berle was the driving force behind the project; he hired Means to assist on the statistical study of corporate concentration that became the first part of the text, and Berle was responsible for mapping out the regulatory implications of the analysis. Economists have confined the book's contribution to its observation that owners of the large corporation had become separated from its control. See Stigler, George J. and Friedland, Claire, “The Literature of Economics: The Case of Berle and Means,“ Journal of Law and Economics 26 (1983): 237–68CrossRefGoogle Scholar. Corporate lawyers and students of business, however, had perceived this phenomenon since the turn of the century; Berle and Means simply provided better statistical evidence.

³³ Berle and Means, The Modern Corporation, 33.

³⁴ Among the top two hundred firms, Berle and Means, The Modern Corporation, 109, found that managers had acceded to control in 44 percent of the firms, representing 58 percent of the wealth; in an additional 21 percent of the firms (22 percent by wealth), a substantial minority interest was exercising control (that is, 20 percent or more of the outstanding voting shares). In sum, Berle and Means, 46, concluded that perhaps 2,000 men controlled over half the nation's corporate wealth. For a review of recent statistical analyses of corporate control, see Mintz, Beth and Schwartz, Michael, The Power Structure of American Business (Chicago, Ill., 1985), 17–44Google Scholar.

³⁵ Berle's account of the erosion of shareholder governance remains widely accepted. For a critical review, see Werner, Walter, “Corporation Law in Search of Its Future,” Columbia Law Review 81 (1981): 1611–66CrossRefGoogle Scholar.

³⁶ Scott, Austin W., “The Trustee's Duty of Loyalty,” Harvard Law Review 49 (1936): 521–65CrossRefGoogle Scholar; quotation on 521.

³⁷ See Israels, Carlos L., “Are Corporate Powers Still Held in Trust?” Columbia Law Review 64 (1964): 1445–57CrossRefGoogle Scholar, and Purcell, The Crisis, 86.

³⁸ Dodd, E. Merrick, “For Whom Are Corporate Managers Trustees?” Harvard Law Review 45 (1932): 1145–63CrossRefGoogle Scholar.

³⁹ Ibid., 1153–56. Dodd also cites Wallace Donham, dean of the Harvard Business School, and Gerard Swope, who worked with Young as president of General Electric. For Swope's views, see Loth, David, Swope of G.E. (New York, 1976), 159–81Google Scholar.

⁴⁰ Dodd, “For Whom Are Corporate Managers Trustees?” 1151, 1159–62.

⁴¹ Berle and Means, The Modern Corporation, chap. 8, “The Resultant Position of the Stockholder,” 244–52; and 262–63, 300–302.

⁴² Ibid., 276–77.

⁴³ Ibid., 255–90. In general Berle organized his discussion around the “functions of a public market,” which he explicated as “appraisal” and “liquidity.” Accordingly, he mapped out rules that helped the markets serve as efficient clearinghouses for information and exchange. The review of charter rights is in ibid., 140–95. Berle suggests specific occasions for potential market failure at, for example, 152, 155, 188, and in the chapter on market functions, 255–63; and specific corrective measures, 264–90.

⁴⁴ Ibid., 240–43, 63–302, esp. 275–77, 289–90.

⁴⁵ For a review of Berle's relationship to the New Deal, see Schwarz, Liberal, 69–155.

⁴⁶ See James Landis, M., The Administrative Process (New Haven, Conn., 1938Google Scholar), chaps. 4 and 16.

⁴⁷ Ohl, John Kennedy, Hugh S. Johnson and the New Deal (Dekalb, Ill., 1985Google Scholar), esp. chap. 7; and Bellush, Bernard, The Failure of the NRA (New York, 1975), 55–84, 176–79Google Scholar.

⁴⁸ Carosso, Vincent P., Investment Banking in America: A History (Cambridge, Mass., 1970), 156–73Google Scholar.

⁴⁹ Ibid., 353. For example, Carosso offers the following quote from Franklin Roosevelt's statement accompanying his request for a federal securities law: “What we seek is a return to a clearer understanding of the ancient truth that those who manage banks, corporations, and other agencies handling or using other people's money are trustees acting for others.”

⁵⁰ Ibid., 368–75.

⁵¹ Ibid., 352–68.

⁵² McCraw, Prophets of Regulation, 153–203.

⁵³ For an assessment of Congress's intent in regulating proxy solicitation, see U.S. Congress, Senate Committee on Banking and Urban Affairs, Staff Report on Corporate Accountability: A Re-examination of Rules Relating to Shareholder Communications, Shareholder Participation in the Corporate Electoral Process and Corporate Governance Generally, report prepared by the Division of Corporation Finance, Securities and Exchange Committee, 96th Cong., 2d sess., 1980, 140–42.

⁵⁴ Carosso, Investment Banking, 376–80.

⁵⁵ Senate Committee, Staff Report, 702–4.

⁵⁶ Ibid., 669–77, and Klein, William A. and Coffee, John C. Jr, Business Organization and Finance: Legal and Economic Principles, 3d ed. (Mineola, N.Y., 1986), 140–44Google Scholar.

⁵⁷ Berle, Adolf A. Jr, “‘Control’ in Corporate Law,” Columbia Law Review 58 (1958): 1212–25CrossRefGoogle Scholar.

⁵⁸ Ibid., 1215.

⁵⁹ Ibid., 1216–18.

⁶⁰ Ibid., 1220–21.

⁶¹ Ibid., 1219.

⁶² Ibid., 1221.

⁶³ Barnard, The Functions, and Simon, Herbert, Administrative Behavior: A Study of Decision Making Processes in Administrative Organization (New York, 1947Google Scholar).

⁶⁴ Machlup, Fritz, “Theories of the Firm: Marginalist, Behavioral, Managerial,” American Economic Review 57 (1967): 1–33Google Scholar; Cyert, Richard M. and Hendrick, Charles I., “Theory of the Firm: Past, Present and Future: An Interpretation,” Journal of Economic Literature 10 (1972): 398–412Google Scholar; and Robin Marris and Dennis C. Mueller, “The Corporation, Competition and the Invisible Hand,” ibid. 18 (1980): 32–63.

⁶⁵ Galbraith, John Kenneth, The New Industrial State (Boston, Mass., 1967Google Scholar).

⁶⁶ Marris, Robin, “Galbraith, Solow, and the Truth about Corporations,” The Public Interest 11 (1968): 37–46Google Scholar.

⁶⁷ See Nader, Ralph and Green, Mark J., eds., Corporate Power in America (New York, 1973Google Scholar).

⁶⁸ Manne, Henry G., “The Higher Criticism' of the Modern Corporation,” Columbia Law Review 62 (1962): 401–32CrossRefGoogle Scholar; also see Adolf A. Berle's rejoinder, “Modern Functions of the Corporate System,” ibid., 433–49.

⁶⁹ Manne, Henry, “Mergers and the Market for Corporate Control,” Journal of Political Economy 73 (1965): 110–20CrossRefGoogle Scholar; quotation, 113.

⁷⁰ Ibid., 112–15.

⁷¹ Manne, “The ‘Higher Criticism,’” 413–16, 423–30.

⁷² For a summary of this opposition and of the controversy surrounding the 1960s merger movement, see U.S. Congress, House Committee on the Judiciary, Investigation of Conglomerate Corporations: Report by the Staff of the Antitrust Subcommittee, 91st Cong., 1st sess., 1971, 22–76. Also, see Davidson, Kenneth M., Megamergers: Corporate America's Billion-Dollar Takeovers (New York, 1985Google Scholar), chap. 5.

⁷³ Samuel L. Hayes III and Russell A. Taussig, “Tactics of Cash Takeover Bids—For Bidders, Incumbent Managements, and Shareholders,” in U.S. Congress, Senate Committee on Banking and Currency, Full Disclosure of Corporate Equity Ownership and in Corporate Takeover Bids: Hearings before the Subcommittee on Securities, 90th Cong., 1st sess., 1967, 224–25.

⁷⁴ House Committee on the Judiciary, Investigation of Conglomerate Corporations, 24–25.

⁷⁵ These eleven firms were Gulf and Western, Ling-Temco-Vought, International Telephone and Telegraph, Teledyne, General Telephone and Electronics, Litton Industries, General American Transportation, Textron, PMC, White Consolidated, and Colt Industries. U.S. Congress, Senate Committee on the Judiciary, Economic Concentration: Hearings before the Subcommittee on Antitrust and Monopoly, Part 8A, Staff Report of the Federal Trade Commission, Economic Report on Corporate Mergers, 91st Cong., 1st sess., 1969, 268–69.

In general, these firms pursued growth by aggressively acquiring undervalued firms with substantial cash resources. For a summary of the conglomerate “strategy and structure,” see Norman Berg, “Corporate Role in Diversified Companies,” in Chandler, Alfred D. Jr and Tedlow, Richard S., The Coming of Managerial Capitalism: A Case-book on the History of American Economic Institutions (Homewood, Ill., 1985), 756–65Google Scholar. More detailed accounts are included in Senate Committee on the Judiciary, Economic Concentration, 117–61, and 499–601; and House Committee on the Judiciary, Investigation of Conglomerate Corporations, chaps. 2–3.

⁷⁶ House Committee on the Judiciary, Investigation of Conglomerate Corporations, 5. These studies considered whether the conglomerate merger movement contributed to economic efficiency or whether it inhibited competition by concentrating assets in specific product markets or in the economy as a whole. For a summary of these reports, see ibid., 22–75. For a recent assessment, see Mueller, Dennis C., The Corporation: Growth, Diversification, and Mergers (New York, 1987), 44–73Google Scholar; and Raven-scraft, David J. and Scherer, F. M., “Mergers and Managerial Performance,” in Knights, Raiders, and Targets: The Impact of the Hostile Takeover, ed. Coffee, John C. Jr., Lowenstein, Louis, and Rose-Ackerman, Susan (New York, 1988), 194–210Google Scholar.

⁷⁷ A summary of the Williams Act appears in Davidson, Megamergers, 49–53.

⁷⁸ See Stanley A. Kaplan, “Testimony,” in Senate Committee on Banking and Currency, Full Disclosure, 132–36; and Robert H. Mundheim, “Testimony,” ibid., 136–39. For some lively reading, see their interchanges with Senator Williams, ibid., 114–28. Henry Manne expressed similar views in an earlier exchange with Manuel F. Cohen. See Cohen, Manuel F., “Takeover Bids,” Mergers and Acquisitions 2 (1966): 87–90Google Scholar; and Henry G. Manne, “Tender Offers and the Free Market,” ibid., 91–95.

⁷⁹ Williams's concerns perhaps came out most clearly during the hearings in his leading interrogation of Samuel Hayes III, then a professor of finance at Columbia and a well-known expert on conglomerate mergers. See Senate Committee on Banking and Currency, Full Disclosure, 54. Also, see the comments of the bill's cosponsor, Senator Thomas H. Kuchel of California, ibid., 43.

⁸⁰ See Cohen, “Testimony,” 32–41; for a discussion of Cohen's reign at the SEC, see Carol J. Loomis, “Where Manny Cohen Is Leading the SEC,” Fortune, Dec. 1966, 163–65ff.

⁸¹ Cohen, “Testimony,” 180–81. Cohen admitted that takeovers could have a beneficial social outcome when they dislodged incompetent or self-interested management. However, Cohen doubted that every takeover was intended to enhance the target firm's productivity. Many takeovers were simply ways to acquire more cash or credit than was currently available to the offeror. And many takeovers involved large amounts of debt that necessarily led new management to auction off parts of the firm. Ibid., 179–80.

⁸² See Vogel, David, “The ‘New’ Social Regulation in Historical and Comparative Perspective,” in Regulation in Perspective: Historical Essays, ed. McCraw, Thomas K. (Boston, Mass., 1981), 155–86Google Scholar. Much has been written on America's slipping economic position. See, for example, Scott, Bruce R. and Lodge, George C., U.S. Competitiveness in the World Economy (Boston, Mass., 1985Google Scholar), and Dertouzos, Michael L., Lester, Richard K., and Solow, Robert M., Made in America: Regaining the Productive Edge (Cambridge, Mass., 1989Google Scholar).

⁸³ Davidson, Megamergers, 117–38 and 247–80, and Michael C. Jensen, “The Take-over Controversy: Analysis and Evidence,” in Knights, Raiders, and Targets, 316–17.

⁸⁴ Alchian, Armen A. and Demsetz, Harold, “Production, Information Costs, and Economic Organization,” American Economic Review 62 (1972): 777–95Google Scholar. For a review of the property rights literature that preceded Alchian and Demsetz's essay, see Furubotn, Erik G. and Pejovich, Svetozar, “Property Rights and Economic Theory: A Survey of Recent Literature,” Journal of Economic Literature 10 (1972): 1137–62Google Scholar.

⁸⁵ The important works in agency theory include: Jensen, Michael C. and Meckling, William H., “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,“ Journal of Financial Economics 3 (1976): 305–60CrossRefGoogle Scholar; Fama, Eugene F., “Agency Problems and the Theory of the Firm, “Journal of Political Economy 88 (1980): 288–307CrossRefGoogle Scholar; Fama, Eugene F. and Jensen, Michael C., “Agency Problems and Residual Claims,” Journal of Law and Economics 26 (1983): 327–49CrossRefGoogle Scholar; Eugene F. Fama and Michael C. Jensen, “Separation of Ownership from Control,” ibid., 301–25. Horrigan, James O., “The Ethics of the New Finance,” Journal of Business Ethics 6 (1987): 97–110CrossRefGoogle Scholar, provides a critical assessment of agency theory.

⁸⁶ Oliver Williamson lays out his basic system in Economic Institutions of Capitalism. Also see Williamson, , “The Modern Corporation,” and his Markets and Hierarchies: Analysis and Antitrust Implications (New York, 1975Google Scholar). For an insightful account of Williamson and his differences with Alfred D. Chandler, Jr., see Englander, Ernest J., “Technology and Oliver Williamson's Transaction Cost Economics,” Journal of Economic Behavior and Organization 10 (1988): 339–53CrossRefGoogle Scholar.

⁸⁷ Williamson, Economic Institutions of Capitalism, 3–4; 15–22, 72–79; Coase, Ronald, “The Nature of the Firm,” Economica 4 (Nov. 1937): 386–405CrossRefGoogle Scholar.

⁸⁸ Aoki, Masahiko, The Cooperative Game Theory of the Firm (New York, 1984Google Scholar).

⁸⁹ Among the generic cost savings are: 1) the saving of risk cost through risk-sharing employment contracts; 2) the generation of option value—that is, flexible disposition of labor inputs at contract wages, and the routinization of higher work standards through administration; 3) the reduction of disequilibrium costs and opportunism among agents through administration; 4) the generation of information efficiencies characteristic of production teams and systems. Ibid., 30. These four cost-reduction features attract the following resources to the firm: 1) a body of shareholders willing to take higher risks because of diversification; 2) employees willing to cooperate with management; 3) a reserve of developed labor skills at management's disposal; and 4) production teams integrating production and management skills.

⁹⁰ Aoki argues that investors and workers bargain over the firm's growth and pricing strategies. Risk-neutral investors generally favor firms with high rates of growth (leverage, capital accumulation) and so bargain for competitive pricing of the firm's products to maximize output. Workers, in contrast, prefer to maximize marginal revenues to bolster their average wage; they resist pricing policies and competitive strategies that add workers who will dilute the measure of their productivity. Ibid., 61–69.

⁹¹ Ibid., 14–17; 172–80. Aoki believes that if the bargaining is properly carried out, the parties will reach a Nash-like equilibrium solution in which the collected utility gain must exceed the expected collective utility cost of open conflict. Thus, managers are interested in finding a solution where the employee's boldness in making increased wage demands and the shareholders' firmness in resisting these demands are in equilibrium. In other words, managers try to seek an equilibrium condition in which workers are indifferent to possible wage gains when compared to the risks of noncooperation and shareholders are indifferent to the premiums given up when compared to the risks of noncooperation.

⁹² See Easterbrook, Frank H. and Fischel, Daniel R., “The Proper Role of a Target's Management in Responding to a Tender Offer,” Harvard Law Review 94 (1981): 1161–1204CrossRefGoogle Scholar; Easterbrook, and Fischel, , “Corporate Control Transactions,” Yale Law Journal 91 (1982): 698–737CrossRefGoogle Scholar; Easterbrook, and Fischel, , “Auctions and Sunk Costs in Tender Offers,” Stanford Law Review 35 (1982): 1–21CrossRefGoogle Scholar.

⁹³ Coffee, John C. Jr, “Regulating the Market for Corporate Control: A Critical Assessment of the Tender Offer's Role in Corporate Governance,” Columbia Law Review 84 (1984): 1145–1296CrossRefGoogle Scholar.

⁹⁴ Ibid., 1163, 1164.

⁹⁵ Ibid., 1175–76. Easterbrook and Fischel's arguments appear in “The Proper Role,” 1174–80. For an economic treatment, see Jarrell, Gregg A. and Bradley, Michael, “The Economic Effects of Federal and State Regulations of Cash Tender Offers,” Journal of Law and Economics 23 (1980): 371–407CrossRefGoogle Scholar.

⁹⁶ Easterbrook and Fischel, “The Proper Role,” 1162, 1164.

⁹⁷ Coffee, “Regulating the Market for Corporate Control,” 1176–83, explains that the disagreement arises out of their differing estimations of the shareholders' demand function for tender offers.

⁹⁸ Ibid., 1204–5, 1221–3, 1282–85.

⁹⁹ In Coffee's view, leveraged buyouts and corporate financial restructuring essentially shift the risk of operations from the shareholders to the firm's other constituents. Coffee believes that the affected parties, creditors, workers, and the community, can renegotiate the terms of their contracts to take additional risks into account. Increased risk obviously lessens the market value of indentures. Creditors, Coffee believes, will protect themselves in the future by devising new financial instruments, demanding voting rights, or investing only in short-term notes. For employees, increased risk means layoffs. Here, too, Coffee finds the markets adequate in handling readjustments. Employees can actually intervene in takeover efforts by making concessions to bidder or target so as to minimize their losses in a restructuring. In addition, workers can seek protection by demanding a greater voice in the firm through Employee Stock Owner-ship Plans or by negotiating severance pay triggered by a takeover. See John C. Coffee, Jr., “Shareholders Versus Managers: The Strain in the Corporate Web,” in Knights, Raiders, and Targets, 104–5, 112–13.

¹⁰⁰ Coffee, “Shareholders Versus Managers,” 115, noted that this new consensus brings with it a certain irony:

For decades, reformers from the time of Adolf Berle to that of Ralph Nader have sought to increase the power of shareholders to control corporate managers by a variety of means…. The advent of the hostile takeover may have succeeded in reducing agency costs beyond their wildest dreams. Yet the end result is problematic, because for at least some of these reformers the motivation underlying their pursuit of increased shareholder power was the assumption that shareholders had interests and values that coincided with those of the unrepresented constituencies they chiefly wished to protect (e.g., local communities, the poor, the environment). Even if this assumed identity of interests proved tactically useful in some instances, it has become intellectually untenable in the current era of the bust-up takeover.

¹⁰¹ For example, Coffee demonstrates that the courts should rule favorably on managers who grant themselves generous bonuses (golden parachutes) in the event of take-over, even if these remunerations were not originally part of their contracts. Coffee reasons that shareholders benefit from these bonuses because they offer incentives for management to look favorably on tender offers that financially benefit shareholders but displace management.

Fischel and Easterbrook, “Corporate Control Transactions,” 700–703, similarly want the court to adopt a trustee standard in settling shareholder-management disputes. In general, they argue that a fiduciary relationship exists in any principal-agency contract. In the case of the shareholder-management relationship, Easterbrook and Fischel claim that the fiduciary principle requires management to maximize shareholder wealth; hence, the courts should evaluate management's actions accordingly. Easterbrook and Fischel attempt in the remaining part of their article to spell out market principles applicable to tender-offer regulation.

¹⁰² For a similar assessment, see Bratton, “The New Economic Theory,” 1474–82.

¹⁰³ See, for example, Meckling, William and Jensen, Michael, “Reflections on the Corporation as a Social Invention,” Midland Corporate Financial Journal 1 (1983): 6–14Google Scholar.

¹⁰⁴ Freeman, R. Edward, Strategic Management: A Stakeholder Approach (Boston, Mass., 1984Google Scholar), examines the importance of norms in corporate strategy. For managerial assessments of recent hostile takeovers, see Malcolm S. Salter and Wolf A. Weinhold, “Corporate Takeovers: Financial Boom or Organizational Bust?” in Knights, Raiders, and Targets, 135–49; and William Lazonick, “Statement,” in House Subcommittee on Economic Stabilization of the Committee on Banking, Finance and Urban Aflairs, Oversight Hearing on Mergers and Acquisitions, Hearing, 100th Cong., 1st sess., 12 May 1987, 98–107.

¹⁰⁵ Davidson, Megamergers, 143–45; and Coffee, “Shareholders Versus Managers,” 116n2; “The Best and Worst Deals of the 80s,” Business Week, 15 Jan. 1990, 52–57, and Congressional Research Service, Pensions and Leveraged Buyouts: A Report Prepared for the House Subcommittee on Labor-Management Relations of the Committee on Education and Labor, Committee Print 101–B, Feb. 1989, 1–13.

¹⁰⁶ For an excellent discussion of junk bond financing, see Congressional Research Service, House Committee on Energy and Commerce, The Role of High-Yield Bonds [Junk Bonds] in Capital Markets and Corporate Takeovers: Public Policy Implications. A Report Prepared for the House Committee on Energy and Commerce, Committee Print 99–W, 99th Cong., 1st sess. (Washington, D.C., 1985Google Scholar). Also see Taggart, Robert A. Jr, “The Role of the ‘Junk’ Bond Market and Its Role in Financing Takeovers,” in Mergers and Acquisitions, ed. Auerbach, Alan J. (Chicago, Ill., 1988), 5–24Google Scholar.

¹⁰⁷ For a hypothetical illustration of how a leveraged buyout works, see Congressional Research Service, Pensions, 36–40.

¹⁰⁸ Jensen, Michael C., “Eclipse of the Public Corporation,” Harvard Business Review 67 (Sept.-Oct. 1989): 62–63Google Scholar. In 1981, leveraged buyouts accounted for only 4.6 percent of the completed mergers; in 1986 leveraged buyouts peaked for the decade at 22.7 percent of merger activity. See Congressional Research Service, Pensions, 3–6.

¹⁰⁹ Davidson, Megamergers, 143; Jensen, “Eclipse of the Public Corporation,” 65–6; Sarah Bartlett, “Power Investors,” Business Week, 20 June 1988, 116–23; and Carol J. Loomis, “The New J. P. Morgans,” Fortune, 29 Feb. 1988, 44–53.

The Business Roundtable complained before Congress about the investment bankers' new entrepreneurial spirit. “Statement of H. B. Atwater, Jr. (Chairman of the Business Roundtable Task Force on Corporate Responsibility and Chairman and CEO of General Mills, Inc.), Before the House Subcommittee on Telecommunications and Finance on Williams Act Reform (H.R. 2172), June 11, 1987,” Business Roundtable mimeo, 7–13.

Jensen, “Eclipse of the Public Corporation,” 65–66, and Loomis, “The New J. P. Morgans,“ 44, suggest that recent takeovers represent an effort by finance capitalists to regain control over the large firm lost during the 1920s and 1930s. For a summary of this ongoing struggle, see Mintz and Schwartz, The Power Structure, 17–44.

¹¹⁰ House Committee on Energy and Commerce, Corporate Takeovers, 28; Congressional Research Service, The Role of High-Yield Bonds, 26, and Atwater, “Statement,” 7–13.

¹¹¹ Rappaport, Alfred, Creating Shareholder Value: The New Standard for Business Performance (New York, 1986), 10Google Scholar; Walter Kiechel III, “Corporate Strategy for the 1990s,” Fortune, 29 Feb. 1988, 34–42; House Subcommittee on Telecommunications, Corporate Takeovers, 53–54; and Jensen, “Eclipse of the Public Corporation,” 61–64. For a discussion of management buyouts, see House Committee on Energy and Commerce, Management and Leveraged Buyouts: Hearings before the Subcommittee on Telecommunications and Finance, 100th Cong., 1st sess., 22 Feb. and 25 May 1989.

¹¹² House Committee on Energy and Commerce, Corporate Takeovers, 54. Coffee, “Shareholders Versus Managers,” 93, presents Federal Reserve Board data on debt-to-equity ratios for nonfinancial corporations between 1962 and 1985. Pessimists point to the growing corporate debt as a percentage of book value; optimists find this figure misleading because it does not account for inflation. Instead, they look at debt as a percentage of replacement costs (current value) or debt as a percentage of the market valuation of the corporation's net worth (market value). These figures are not at all alarming.

¹¹³ Management collectively opposed hostile takeovers through the coordinated efforts of the Business Roundtable, which helped assemble business, union, and academic interests into a coalition. See H. Brewster Atwater, Jr., Chairman Business Roundtable Corporate Responsibility Task Force, to Business Roundtable Member Company CEOs, 13 March 1987. In addition, see Business Roundtable, “Statement of Principles on Hostile Takeover Abuses,” 9 May 1985; Andrew C. Sigler, Chairman, Business Roundtables Corporate Responsibility Task Force, “Testimony,” House Committee on Energy and Commerce, Corporate Takeovers (part 2): Hearings before the Subcommittee on Telecommunications, Consumer Protection, and Finance of the Committee, 99th Cong., 1st sess., 23 May, 12 June, and 24 Oct. 1985, 195–211; and Business Roundtable, “Corporate Takeover: A Search for the Public Interest,” Roundtable Report, Feb. 1989.

For a statement expressing labor's opposition to the market in corporate control, see Thomas R. Donahue, secretary-treasurer, AFL-CIO, “Testimony,” Senate Committee on Banking, Housing, and Urban Affairs, Hostile Takeovers: Hearings, 100th Cong., 1st sess., 28 Jan., 4 March, and 8 April 1987, 261–70. Coffee, “Shareholders Versus Managers,” 103–15, provides an excellent analysis of the interests that ally management and labor in a united front against corporate raids.

Also see A. A. Sommer, Jr.'s testimony in Senate Committee on Banking, Hostile Takeovers, 94–104, for a very effective defense of managerial prerogative. Sommer, a Washington attorney and former member of the SEC, told the Senate committee that he was testifying as a private citizen. However, his firm represented the Business Roundtable and the Coalition to Stop the Raid on America, two organizations actively involved in lobbying for anti-takeover legislation. John Cranford, “Senate Banking Approves Anti-Takeover Bill,” Congressional Quarterly Weekly Report, 3 Oct. 1987, 2401.

¹¹⁴ Wall Street scandals and threats of anti-takeover legislation politically galvanized the securities industry. By 1987 the securities industry had an effective political voice through its lobbying and political contribution efforts. See Maxwell Glen, “Capitol Investments,” National Journal, 3 Jan. 1987, 742–49.

¹¹⁵ Securities and Exchange Commission, Report on Tender Offer Laws, Prepared for the Use of the Senate Committee on Banking, Housing and Urban Affairs, 99th Cong., 2d sess., Committee Print (Washington, D.C., 1980), 1–6Google Scholar. In 1984 the SEC issued an Advisory Committee Report that contained fifty proposals for reforming the ways corporate takeovers were to be fought out. Brownstein, Ronald, “Merger Wars—Congress, SEC Take Aim at Hostile Corporate Takeover Moves,” National Journal, 23 July 1987, 1538–41Google Scholar.

¹¹⁶ House Committee on Energy, Corporate Takeovers: Public Policy, 3. In the two years prior to the subcommittee's legislative proposals, it held fifteen hearings, questioned over sixty witnesses, and concluded with informal discussions with management, labor, and investors. In addition, the subcommittee made extensive use of the SEC, the Treasury Department, the Office of Management and Budget, the Federal Reserve Board, and the Congressional Research Service. House Committee on Energy, Corporate Takeovers: Public Policy, 5.

¹¹⁷ Ibid., 3. For additional congressional concern about the adverse effects of hostile mergers on America's competitive capabilities, see House Committee on Energy and Commerce, Trade and Competitiveness (part 1): Hearings before the Subcommittee on Consumers, Consumer Protection and Competitiveness, 100th Cong., 1st sess., 25 Feb. and 3 March 1987, esp. the testimony of F. M. Scherer, 72–93.

In effect, by reviewing corporate takeovers, Congress was examining the nation's major policy for restructuring the industrial sector. In 1984 Walter Mondale had promised that he would institute some publicly guided industrial policy. His defeat assured that industrial restructuring would be done privately through the financial markets. For an introduction to industrial policy, see Norton, R. D., “Industrial Policy and American Renewal,” Journal of Economic Literature 241 (1986): 1–40Google Scholar. For an extended study of the industrial policy debate and Mondale's position, see Graham, Otis L. Jr,Losing Time: The Industrial Policy Debate (Cambridge, Mass., 1992)Google Scholar.

¹¹⁸ Paul Starobin, “Takeover Debate Centers on States' Power,” Congressional Quarterly Weekly Report, 25 July 1987, 1663.

¹¹⁹ Derthick, Martha and Quirk, Paul J., The Politics of Deregulation (Washington, D.C., 1985Google Scholar), document how a deregulatory consensus among economists helped spur regulatory reform in the transportation and communications industries. Caves, Richard, “Mergers, Takeovers, and Economic Efficiency: Foresight vs. Hindsight,” Institutional Journal of Industrial Organization 7 (1989): 151–74CrossRefGoogle Scholar, shows that a consensus on regulatory reform on corporate takeover laws never materialized among economists.

¹²⁰ House Committee on Energy, Corporate Takeovers: Public Policy, 89–112.

¹²¹ Once the market recovered, takeovers bounced back, only to be halted once again by the October 1989 decline. See Sarah Bartlett, “Much Fuss, Over What?” The New York Times, 17 Oct. 1989, Al; Anise C. Wallace, “A Tumultuous Year for ‘Junk Bonds,’” ibid., 2 Jan. 1990, D1; and Judith H. Dobrzynski, “Leveraged Buyouts Fall to Earth,” Business Week, 12 Feb. 1990, 62–65.

¹²² House Committee on Energy and Commerce, Corporate Takeovers (part 1): Hearings before the Subcommittee on Telecommunications, Consumer Protection, and Finance, 99th Cong., 1st sess., 27 Feb., 12 March, 23 April, 22 May 1985, 8–9.

¹²³ Ibid., 538–39, 571.

¹²⁴ Ibid., 571. Total pension fund assets tripled during the 1980s, growing from $.8 trillion in 1979 to an estimated $2.6 trillion by 1989. Larry Light, “The Power of the Pension Funds: Everyone Is Battling over Their $2.6 Trillion Stash,” Business Week, 6 Nov. 1989, 154.

¹²⁵ House Committee on Energy, Corporate Takeovers (part 1), 684. Monks, 683, told the subcommittee that “[t]he law… now covers more than 800,000 private pen sion funds, whose assets total one trillion dollars. It is estimated that these assets control approximately one-third of the equity in publicly traded U.S. corporations, and half of the debt.” For a historical sketch of institutional investor regulation, see Clark, Robert Charles, “The Four Stages of Capitalism: Reflections on Investment Management Treatises,” Harvard Law Review 94 (1981): 561–82CrossRefGoogle Scholar. Also see Krikorian, Betty Linn, Fiduciary Standards in Pension and Trust Fund Management (Stoneham, Mass., 1989), 11–14Google Scholar.

¹²⁶ Monks, House Committee on Energy, Corporate Takeovers (part 1), 688, stressed that the law does not require a pension fund manager to sell his shares during a tender offer or to sell to the highest bidder. The fiduciary standard allows pension fund managers to compare long-term prospects under current management against the short-term gains from selling. But this standard, as Monks noted elsewhere (Krikorian, Fiduciary Standards, xiii), is a simple wealth-maximizing one that does not allow pension fund managers to act as a responsible control group, concerned about a raid's effect on the firm's various stakeholders. Competition among institutional investors also works against fund managers' acting as responsible owners. Since managers are rewarded by how well their funds perform during a given period, they have no incentive to “act responsibly.” House Committee on Energy, Corporate Takeovers (part 1), 684, and Krikorian, Fiduciary Standards, 59.

The Senate Committee on Banking, Housing and Urban Affairs had enough concern about the biases against fund managers looking out for the firm's long-term health that the committee originally proposed a provision that asked pension fund managers to consider the long-term benefits of stock ownership as well as the short-term gains from selling during tender offers. Starobin, “Takeover,” 1663. For a general overview of how federal regulations affected oversight of managers by pension managers and other institutional investors, see Roe, Mark J., “Public and Legal Restraints on Ownership and Control of Public Companies,” Journal of Financial Economics 27 (1990): 7–41CrossRefGoogle Scholar.

¹²⁷ Charles F. Rule, acting assistant attorney general, Antitrust Division, offered the subcommittee a study commissioned by the chief economist of the SEC on the effects of institutional ownership on long-term investment. House Committee on Energy, Corporate Takeovers (part 1), 368. The study challenged assertions that institutional investors consider only short-term gains to satisfy their fiduciary responsibilities and to bolster their quarterly earnings. Essentially, the study looked at the relationship between institutional investor holdings in a firm and the firm's investment in long-term projects. If money managers are myopic, the study suggested, a statistical relationship between high levels of institutional investor ownership and firm preferences for short-term capital projects should exist. Since this relationship was not found, the study concluded that institutional investors are not short-changing American industry. See Greg A. Jarrell, Kenneth Lehn, and Wayne Marr, “Institutional Ownership, Tender Offers, and Long-Term Investments,” ibid., 382–400. For a critical review of the study, see F. M. Scherer to Timothy Wirth, ibid., 403–6.

For an exposition of how modern finance was undermining management's ability to make long-term strategic decisions, see Hayes, Robert H. and Abemathy, William J., “Managing Our Way to Economic Decline,” Harvard Business Review 58 (1980): 67–77Google Scholar; Peter Drucker, “Crisis of Capitalism,” The Wall Street Journal, 30 Sept. 1986, 31; and Reich, Robert, The Next American Frontier (New York, 1983Google Scholar), chap. 8. Also see Light, “The Power of the Pension Funds,” 156–57; Donald Frey, “The U.S. Needs Patient Investors,” Fortune, 7 July 1986, 125–26, and “Is the Financial System Short-Sighted?” Business Week, 3 March 1986.

¹²⁸ House Committee on Energy, Corporate Takeovers: Public Policy, 11. Henry Marine offered a succinct statement on how things had changed since the debates over the Williams Act in his “Testimony,” in House Committee on Energy and Commerce, Impact of Mergers and Acquisitions: Hearing before the Subcommittee on Telecommunications and Finance, 100th Cong., 1st sess., 1 April 1987, 143–54.

¹²⁹ Harrison J. Goldin, “Testimony,” in House Committee on Energy, Corporate Takeovers (part 1), 51–52. For examples of shareholder activism, see Bruce Nussbaum and Judith H. Dobrzynski, “The Battle for Corporate Control,” Business Week, 18 May 1987, 102–9; and Light, “The Power of the Pension Funds,” 156–57.

¹³⁰ Management, too, recognized this alteration but fervently objected to it. Essentially, management argued that such an outlook led shareholders to act irresponsibly by judging managerial decisions from a short-term perspective. See, for example, Sigler, “Testimony”; and John G. Smale, chairman and CEO of Procter & Gamble, “Th e Effect of Hostile Takeovers on the Role of Business in American Society,” speech to shareholders, 13 Oct. 1987; and Smale, “What About Shareholders' Responsibility?” mimeo. See also Pickens, T. Boone, “Professions of a Short-Termer,” Harvard Business Review 64 (1986): 75–79Google Scholar, and Warren A. Law's rebuttal, “A Corporation Is More Than Its Stock,” ibid., 80–83.

¹³¹ House Committee on Energy, Corporate Takeovers: Public Policy, 48–52. Also see Wayne Glenn, representative for the AFL-CIO, “Testimony,” House Committee on Energy, Corporate Takeovers (part 2), 295–98.

¹³² House Committee on Energy, Corporate Takeovers: Public Policy, 4. For a discussion of the alleged benefits of such a provision, see Stephen J. Olsen, vice-president and associate general counsel, Control Data Corporation, “Testimony,” House Committee on Energy, Corporate Takeovers (part 2), 258–94, esp. 290–94.

¹³³ In fact, the Williams Act provided only a sunshine provision to protect shareholders against injurious managerial tender-offer defenses. Davidson, Megamergers, 50. Anti-managerial measures included 1) a requirement that shareholders approve certain corporate defensive measures against takeovers, in accordance with SEC rules; 2) a one share, one vote standard for firms traded on national markets; 3) a requirement mandating management to list on corporate proxy statements a shareholders' slate of nominees for the board of directors, if the shareholder has more than 3 percent of the shares or a holding of $500,000. Paul Starobin, “Dingell, Markey Propose Takeover Measure,” Congressional Quarterly Weekly Report, 2 May 1987, 835–36.

¹³⁴ House Committee on Energy, Corporate Takeovers: Public Policy, 30–48, offers a summary of the economic literature on the topic. Also see Caves, “Mergers”; Jensen, Michael C. and Ruback, Richard S., “The Market for Corporate Control: The Scientific Evidence,” Journal of Financial Economics 11 (1983): 5–50CrossRefGoogle Scholar; Jarrell, Gregg A., Brickley, James A., and Netter, Jeffrey M., “The Market for Corporate Control: The Empirical Evidence since 1980,” Journal of Economic Perspectives 2 (1988): 49–68CrossRefGoogle Scholar; and F. M. Scherer, “Corporate Takeovers: The Efficiency Arguments,” ibid., 69–62.

¹³⁵ For example, compare Jensen, “Analysis,” 333–37, and Caves, “Mergers,” 167–72.

¹³⁶ Michael C. Jensen, “Testimony,” House Committee on Energy, Corporate Takeovers (part 2), 242–55. This literature's importance is testified to by David Stockman's (director of the Office of Management and Budget) and James A. Baker III's (secretary of the treasury) written response to inquiries by Timothy Wirth, the subcommittee's chair, about the evidence supporting the administration's positive regard for corporate takeovers. According to these officials, the Reagan administration relied heavily on agency theory studies of corporate takeovers. See House Committee on Energy, Corporate Takeovers (part 1), 283–95, esp. 283–84.

¹³⁷ House Committee on Energy, Corporate Takeovers: Public Policy, 32–33.

¹³⁸ Douglas H. Ginsburg and John F. Robinson, “The Case Against Federal Intervention in the Market for Corporate Control,” The Brookings Review, Winter/Spring 1986, as cited in the House Committee on Energy, Corporate Takeovers: Public Policy, 47–48.

¹³⁹ The Supreme Court reaffirmed in its 1977 Santa Fe Industries, Inc. v. Green decision the reigning division of power between the state and federal governments over corporate governance. The Court rejected efforts to broaden the antifraud provisions of federal securities laws to include shareholder complaints against managerial misconduct. In reasserting that the federal government's authority could not exceed market standards, the Court refused to federalize state corporation law that specifies the content of management's trusteeship. Thompson, Robert B., “Tender Offer Regulation and the Federalization of State Corporate Law,” in Public Policy toward Corporate Take-overs, ed. Weidenbaum, Murray L. and Chilton, Kenneth W. (New Rrunswick, N.J., 1988), 78, 99–100Google Scholar.

¹⁴⁰ At the time of the Williams Act, only one state had laws regulating tender offers. After the Williams Act was passed, the states quickly passed a series of tender-offer regulations that favored management. For an overview of these laws, see U.S. Congress, Senate Committee on Banking, Housing and Urban Affairs, Securities and Exchange Commission Report on Tender Offer Laws, 96th Cong., 2d sess., 1980, Committee Print, 12–13, 75–78.

¹⁴¹ House Committee on Energy, Corporate Takeovers: Public Policy, 90–91, and Thompson, “Tender Offer,” 81–83, 85–89.

¹⁴² Elder Witt, “State Anti-Takeover Laws Upheld: Court Upholds Death Penalty Against Last Major Challenge,” Congressional Quarterly Weekly Report, 25 April 1987, 781.

¹⁴³ See Thompson, “Tender Offer,” 92–104. The Courts decision in Indiana v. Dynamic Corp. clearly curbed an expansive interpretation. See Coates, John C. IV, “State Takeover Statutes and Corporate Theory: The Revival of an Old Debate,” New York University Law Review 64 (1989): 806–76Google Scholar, esp. 860–64.

¹⁴⁴ Pennsylvania's anti-takeover law affords an illustration. Leslie Wayne, “Litmus Companies in Pennsylvania Anti-Takeover Law,” The New York Times, 20 July 1990, Al. For a general discussion, see Coates, “State Takeover Statutes,” 850–52.

¹⁴⁵ House Committee on Energy, Corporate Takeovers: Public Policy, 118.

¹⁴⁶ On foreign direct investment, see Graham, Edward M. and Krugman, Paul R., Foreign Direct Investment in the United States (Washington, D.C., 1989Google Scholar). For a discussion of Japanese managerial ideology, see Aoki, Masahiko, “Toward an Economic Model of the Japanese Firm,” Journal of Economic Literature 28 (1990): 1–27Google Scholar.