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The Center for Audit Quality Gallery on Corporate Governance

Evolving Corporations and Governance

The New Deal Approach

“While I think a securities act is very essential, it is, in a total program of social control over high finance, quite secondary. That is why I am particularly intrigued with your proposal for federal incorporation, as I think that only by some such beginning can genuine progress toward protection of investors get under way.”

December 2, 1933 Reply to Jerome Frank from William O. Douglas on federal incorporation proposal

It took the Great Depression of the 1930s to put reform of corporate governance on the federal legislative agenda. The New Deal approach to the problem set the trend that continued for the rest of the century, favoring incremental over sweeping change, and focusing on disclosure rather than direct supervision.

In 1932, the conflict between shareholders and management received its most enduring depiction in The Modern Corporation and Private Property. Authors Adolf Berle, Jr. and Gardiner Means argued that millions of shareholders had surrendered their property to entrenched, unelected managers who were lightly supervised and had little personally at stake. The system, which Berle and Means noted “bids fair to be as all-embracing as was the feudal system in its time,” had created enormous concentrations of wealth and power that they believed could conceivably rival that of the nation state.⁵

Berle and Means insisted that the corporate system had endured only by grace of relatively honest, competent managers, and, were they ever truly to abuse their power, shareholders would be unable to do anything about it. With the American and world economy in turmoil, Berle and Means feared that management would not remain honest. With shareholders unable to exert corrective control, the nation state would have to step in.

The Modern Corporation and Private Property appeared at the onset of a great wave of liberal legislation, but in the end, federal reform initiatives did not supersede state law. The Securities Act of 1933 called for some limited disclosure of articles of incorporation, as well as officer and director compensation and shareholdings. Emphasis on disclosure carried over into the Securities Exchange Act of 1934, which boosted the amount of disclosure required of registered companies.

The Securities Exchange Act notably extended federal involvement in proxy regulation. In hearings prior to the passage of the Act, one economist noted that stockholders could not “get together or get up courage enough to assert their rights unless they have some opportunity of knowing who their fellows in interest are.”⁶

The 1934 Act gave the Securities and Exchange Commission broad powers, which it used to write rules requiring submission of proxy materials for review, prohibiting false or misleading statements, and providing guidance to shareholders seeking to have proposals included in the proxy statement. The SEC revisited proxy rules in 1937, 1942 and 1957, but with minimal results. Nevertheless, these steps pioneered a new frontier for the federal government - extending shareholder democracy.

One reason why the 1933 and 1934 Acts lacked more powerful governance provisions was the expectation that the Acts would soon be supplemented by a federal incorporation law. The idea of a law regulating large corporations involved in interstate commerce had been discussed since 1885 and had gathered sporadic support. As the 1934 Act worked its way through Congress, President Roosevelt called on experts to consider federal incorporation. During testimony, several witnesses clearly expected a federal incorporation act to deal with issues such as accounting standards and the role of directors.

In 1936, U.S. Senators Joseph O’Mahoney (D-WY) and William Borah (R-ID) put legislation before Congress. A fierce critic of what he perceived as overly-lax incorporation laws, O’Mahoney included in his bill standards for boards of directors, shareholder voting for directors, increased accountability of management to shareholders, and a guarantee of voting rights for corporate stock. The O’Mahoney-Borah bill went through several iterations, but, weighed down by unpopular antitrust provisions, it was never enacted.

New Deal reform for corporate governance stalled as the United States prepared to enter World War II. Proponents of corporate governance had achieved greater corporate disclosure, as well as moderate reform of the proxy system. The failure of the federal incorporation bill, however, meant that any comprehensive federal reform of corporate structures would have to wait. As the focus shifted to the struggle for world, rather than corporate, democracy, momentum passed to the exchanges.

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Footnotes:

(5) Adolf A. Berle, Jr. and Gardiner Means, The Modern Corporation & Private Property (New Brunswick, N.J.: Transaction Publishers, 2009).

(6) Senate Committee on Banking and Currency, Stock Exchange Practices: Hearings before The Senate Committee on Banking and Currency, 73rd Congress, 1st Session, February 26-March 16, 1934.

Related Museum Resources

Papers

October 18, 1928: Letter to Professor Adolf Berle from Professor E. Merrick Dodd requesting a presentation on corporation finance
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
October 25, 1928: Reply letter to Professor E. Merrick Dodd from Professor Adolf Berle on proposed presentation on corporation finance
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
July 18, 1930: Letter to Adolf Berle from William O. Douglas requesting corporation finance materials
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
July 21, 1930: Reply to William O. Douglas from Adolf Berle
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
March 23, 1931: William O. Douglas review of "Cases and Materials in the Law of Corporation Finance"
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
April 1, 1931: Letter to Gardiner Means from William Ripley on corporate charters
transcript pdf (Gardiner Means Papers, courtesy of Franklin Delano Roosevelt Presidential Library)
April 6, 1931: Offer of assistance to William Ripley from Gardiner Means
transcript pdf (Gardiner Means Papers, courtesy of Franklin Delano Roosevelt Presidential Library)
June 13, 1931: Letter to William Ripley from Gardiner Means on utility company charters
transcript pdf (Gardiner Means Papers, courtesy of Franklin Delano Roosevelt Presidential Library)
1931: Draft on corporation laws - Adolf Berle
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
1932: Draft on administration of corporations - Adolf Berle
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
February 24, 1933: Letter to Richard Whitney, New York Stock Exchange from auditing firms
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
March 1933: Memorandum regarding Securities Bill HR 4314 - George O. May, Price, Waterhouse & Co.
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
March 25, 1933: Request from A.A. Berle, Jr. to Justice Louis Brandeis for copy of opinion
transcript pdf (Louis D. Brandeis Papers, Brandeis School of Law, University of Louisville)
April 3, 1933: Letter to Adolf Berle from George Mathews, Wisconsin Securities Division with memorandum on Securities Act bill
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
April 7, 1933: Letter to Barry Smith from Adolf Berle on Securities Act bill and corporation study
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
April 11, 1933: Letter to William O. Douglas from Eustace Seligman with criticisms of Securities Act
transcript pdf (Felix Frankfurter Papers, courtesy Library of Congress)
April 20, 1933: Comments on the Proposed Federal Securities Act - Dean Langmuir
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
April 25, 1933: Letter to Adolf Berle from Dean Langmuir on proposed Federal Securities Act
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
April 27, 1933: Letter to U.S. Representative Sam Rayburn from Adolf Berle with recommendations for securities bill
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
April 27, 1933: Reply letter to Dean Langmuir from Adolf Berle
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
May 1, 1933: Letter to Frank Altschul, Committee on Stock List from Dean Langmuir recommending disclosure of compensation to corporation officers
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
May 1933: Response by William O. Douglas to Eustace Seligman's criticisms of Securities Act
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
May 3, 1933: Letter to Adolf Berle from Dean Langmuir on proposal of disclosure of compensation to corporation officers
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
May 3, 1933: Letter to Adolf Berle from U.S. Representative Sam Rayburn in response to proposals for securities bill
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
May 4, 1933: Chamber of Commerce of the State of New York: Modification of Federal Securities Bill Recommended
image pdf (Courtesy of the National Archives and Records Administration)
May 4, 1933: Letter to Dean Langmuir from Adolf Berle in support of disclosure of officer compensation
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
May 8, 1933: Memorandum to Adolf Berle from H.M. Buggles with proposed revisions to Rayburn bill
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
November 21, 1933: Letter to Adolf Berle from John Dickinson on status of securities bill
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
November 27, 1933: Letter to William O. Douglas from Jerome Frank on draft federal incorporation law
image pdf (William O. Douglas Papers, courtesy Library of Congress)
December 2, 1933: Reply to Jerome Frank from William O. Douglas on federal incorporation proposal
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
December 8, 1933: Letter to Felix Frankfurter from William O. Douglas on Securities Act
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
December 19, 1933: Letter to Jerome Frank from William O. Douglas on Bankruptcy Act
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
December 27, 1933: The Distribution of Control and Responsibility in a Modern Economy - Gardiner Means
transcript pdf (Gardiner Means Papers, courtesy of Franklin Delano Roosevelt Presidential Library)
December 30, 1933: Letter to William O. Douglas from Adolf Berle on federal incorporation law
image pdf (William O. Douglas Papers, courtesy Library of Congress)
January 1934: Federal Incorporation Part I - Text
transcript pdf (Gardiner Means Papers, courtesy of Franklin Delano Roosevelt Presidential Library)
January 3, 1934: Letter to Adolf Berle from William O. Douglas on federal incorporation
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
January 10, 1934: Suggested Provisions for a Federal Corporations Law: Provisions Relating to the Corporate Charter
transcript pdf (Gardiner Means Papers, courtesy of Franklin Delano Roosevelt Presidential Library)
January 16, 1934: Reply to William O. Douglas from Felix Frankfurter on Securities Act
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
February 1, 1934: Outline of Main Provisions to Be Included in a Federal Corporations Law
transcript pdf (Gardiner Means Papers, courtesy of Franklin Delano Roosevelt Presidential Library)
February 1934: William O. Douglas - Protective Committees in Railroad Reorganizations
document pdf (with permission of the Harvard Law Review)
February 5, 1934: Critique to William O. Douglas from Felix Frankfurter on Securities Act
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
February 24, 1934: Letter to Adolf Berle from James Landis, Federal Trade Commission on stock exchange regulation
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
February 25, 1934: Letter to Adolf Berle from James Landis on Rayburn bill
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
February 28, 1934: Letter to James Landis from Adolf Berle on Rayburn bill
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
March 7, 1934: Letter to U.S. Representative Alfred Beiter from Ganson Depew, Buffalo Chamber of Commerce in opposition to bill providing for registration of national securities
transcript pdf (Courtesy of the National Archives and Records Administration)
March 28, 1934: Letter to U.S. Representative Stephen Rudd from J. Howard Pew, Sun Oil Company in opposition to National Securities Exchange bill
image pdf (Courtesy of the National Archives and Records Administration)
March 29, 1934: Letter to U.S. Representative Stephen Rudd from H.W. Prentis, Jr., Armstrong Cork Company in opposition to National Securities Exchange bill
image pdf (Courtesy of the National Archives and Records Administration)
March 29, 1934: Letter to U.S. Representative Stephen Rudd from John Watson, International Agricultural Corporation in opposition to National Securities Exchange bill
image pdf (Courtesy of the National Archives and Records Administration)
March 31, 1934: Telegram from R.K. Haughton, U.S. Pipe & Foundry Company to Senator Hugo Black in protest of National Securities Exchange Act
image pdf (Hugo Black Papers, courtesy Library of Congress)
March 31, 1934: Telegram to U.S. Representative George Lindsay from Dellwood Elevator Co. in opposition to National Securities Exchange bill
image pdf (Courtesy of the National Archives and Records Administration)
April 2, 1934: Letter to U.S. Representative Philip Goodwin from Ernest Acker, Central Hudson Gas & Electric Corporation in opposition to National Securities Exchange bill
image pdf (Courtesy of the National Archives and Records Administration)
April 3, 1934: Letter to all members of Congress from Louis Montfort, Crown Manufacturers Association of America in opposition to Fletcher-Rayburn bill
image pdf (Courtesy of the National Archives and Records Administration)
April 5, 1934: Letter from Joe Nettles, Congoleum-Nairn, Inc. to Senator Hugo Black requesting amendment to National Securities Exchange Act
image pdf (Hugo Black Papers, courtesy Library of Congress)
April 30, 1934: Memorandum concerning Federal Trade Commission as agency to administer National Securities Act of 1934
transcript pdf (Courtesy of National Archives and Records Administration)
May 9, 1934: Letter to U.S. Representative Francis Maloney from William O. Douglas in support of Securities Act
transcript pdf (William O. Douglas Papers, courtesy Library of Congress)
June 1934: William O. Douglas - Directors Who Do Not Direct
document pdf (with permission of the Harvard Law Review)
July 19, 1934: Letter to President Franklin D. Roosevelt from Attorney General Homer Cummings on status of Federal incorporation report
image pdf (Courtesy of the Franklin Delano Roosevelt Presidential Library)
August 15, 1934: Letter from President Franklin D. Roosevelt to Adolf A. Berle, Jr.
transcript pdf (with permission of the Franklin Delano Roosevelt Library and Museum)
February 4, 1935: Letter to B.C. Maletzky from John Burns, SEC General Counsel on solicitation of proxies
transcript pdf (Courtesy of National Archives and Records Administration)
February 11, 1935: Letter to Adolf Berle from John Burns, SEC General Counsel with draft of rules for regulating proxies
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
February 14, 1935: Letter to John Burns from Adolf Berle with comments on proxy rules
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
January 21, 1936: SEC Release: Opinion of John Burns, General Counsel relating to solicitation of proxies
transcript pdf (Courtesy of National Archives and Records Administration)
March 12, 1936: Letter from William O. Douglas to Abe Fortas on PUHCA
transcript pdf (Courtesy of the Library of Congress)
October 27, 1936: William O. Douglas, The Forces of Disorder, Address at the University of Chicago
document pdf (with permission of the Y ale University Press)
November 13, 1936: Letter to President Franklin D. Roosevelt from Charles March, Federal Trade Commission on study of Federal incorporation
image pdf (Courtesy of the Franklin Delano Roosevelt Presidential Library)
December 8, 1936: Senator O'Mahoney Discusses "Federal Incorporation Bill" over Columbia Network
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
December 10, 1936: Recommendations to U.S. Senator William Borah from William Chantland for proposed licensing bill
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
December 18, 1936: Memo to SEC Commissioner William O. Douglas from Willis Ballinger on talk with Senator O'Mahoney
transcript pdf (Courtesy of National Archives and Records Administration)
January 2, 1937: Letter to President Franklin D. Roosevelt from Senator Joseph C. O'Mahoney regarding interstate commerce bill
transcript pdf (Courtesy of the Franklin Delano Roosevelt Presidential Library)
January 12, 1937: S.721: Corporation Licensing Act of 1937
image pdf (William Edgar Borah Papers, courtesy Library of Congress)
January 19, 1937: Letter to Morris Bealle, Plain Talk from U.S. Senator William Borah seeking approval for licensing bill
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
January 25, 1937: Letter from William O. Douglas to Abe Fortas
document pdf (Courtesy of the Library of Congress)
January 25, 1937: Letter to U.S. Senator William Borah from Robert Reed on Williams bill on corporations
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
January 25, 1937: Note to U.S. Senator Joseph O'Mahoney from Lewis Gilbert agreeing to testify
image pdf (Courtesy of the National Archives and Records Administration)
January 29, 1937: Letter to Adolf Berle from William O. Douglas on consideration of appointment as SEC Chairman
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
January 29, 1937: Order to Lewis Gilbert to testify before Senate Judiciary Sub-Committee
image pdf (Courtesy of the National Archives and Records Administration)
January 1937: Telegram to Lewis Gilbert from Dix Price on delay in hearing
image pdf (Courtesy of the National Archives and Records Administration)
February 1, 1937: Letter to SEC Commissioner William O. Douglas from Adolf Berle on corporation finance case book
image pdf (William O. Douglas Papers, courtesy Library of Congress)
February 16, 1937: Letter to U.S. Senator Henry Ashurst from William Brust, Hammermill Paper Company in opposition to O'Mahoney Business Licensing bill
image pdf (Courtesy of the National Archives and Records Administration)
February 17, 1937: Letter to U.S. Senator Henry Ashurst from George Chandler, Ohio Chamber of Commerce in opposition to O'Mahoney Business Licensing bill
image pdf (Courtesy of the National Archives and Records Administration)
March 20, 1937: William O. Douglas, Lawyers and Conflicts of Interest, Talk before the Eastern Law Students Conference
document pdf (with permission of the Yale University Press)
May 10, 1937: SEC Report on the Study and Investigation of the Work, Activities, Personnel and Functions of Protective Committees and Reorganization Committees, US Government Printing Office (introduction and excerpts)
document pdf (Courtesy of the National Archives)
May 25, 1937: Letter to Harold Neff, SEC from George Brownell with proxy forms
image pdf (Courtesy of National Archives)
June 1937: William O. Douglas, The Need For Reform in Corporate Reorganizations, Address to the National Association of Credit Men
document pdf (with permission of the Yale University Press)
June 8, 1937: William O. Douglas, Protective Committees, Statement before Interstate and Foreign Commerce Committee of the U.S. House of Representatives
document pdf (with permission of the Yale University Press)
June 18, 1937: Report to Investment Bankers Conference, Inc. on proxy regulations draft
transcript pdf (Courtesy of National Archives and Records Administration)
June 19, 1937: Letter to Adolf Berle from Gardiner Means, National Resources Committee seeking assistance on corporate concentration data
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
July 20, 1937: Letter to Investment Bankers Conference, Inc. on proxy solicitation regulations
image pdf (Courtesy of National Archives)
July 26, 1937: Letter to Investment Bankers Conference, Inc. with analysis of proposed SEC proxy rules
image pdf (Courtesy of National Archives)
September 23, 1937: Congratulations letter to William O. Douglas on appointment as SEC Chairman from Adolf Berle
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
December 10, 1937: Letter to U.S. Senator Joseph O'Mahoney from Martin Riger, SEC with materials for federal incorporation bill
transcript pdf (Courtesy of National Archives and Records Administration)
December 15, 1937: Letter to President Franklin D. Roosevelt from Attorney General Homer Cummings on study of O'Mahoney bill
image pdf (Courtesy of the Franklin Delano Roosevelt Presidential Library)
1937: Memo on and Analysis of O'Mahoney-Borah Bill S.3072
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
January 4, 1938: Letter to F. Ernest Johnston from U.S. Senator William Borah seeking support for O'Mahoney-Borah Bill
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
January 5, 1938: Reply to Amos Smith from U.S. Senator William Borah on O'Mahoney-Borah Bill
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
January 6, 1938: Letter to S.H. Boddinghouse from U.S. Senator William Borah with O'Mahoney-Borah Bill
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
January 27, 1938: Letter to Richard Harte from U.S. Senator William Borah explaining O'Mahoney-Borah Bill
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
January 31, 1938: Draft Declaration of Policy: Corporations
transcript pdf (Courtesy of National Archives and Records Administration)
January 31, 1938: Letter to U.S. Senator William E. Borah from W.F. Harrah, National-Standard Company in opposition to O'Mahoney-Borah bill
image pdf (William Edgar Borah Papers, courtesy Library of Congress)
February 18, 1938: Memo from William O. Douglas to President Roosevelt re Federal Licensing Act for Corporations
transcript pdf (Courtesy of the Library of Congress)
March 2, 1938: Draft Proposed Federal Corporation Registration Act
transcript pdf (Courtesy of National Archives and Records Administration)
March 10, 1938: Letter to U.S. Senator William Borah from The Merchants' Association of New York, with copy of letter to U.S. Senator Joseph O'Mahoney
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
April 25, 1938: Letter to U.S. Senator William Borah from Frank Fetter with comments on O'Mahoney-Borah Bill
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
April 29, 1938: Message of President Franklin D. Roosevelt to Congress on economic policy
transcript pdf (Courtesy of the National Archives and Records Administration)
September 21, 1938: Address of SEC Chairman William O. Douglas to dinner of Society for the Advancement of Management
transcript pdf (AICPA Collection, University of Mississippi)
February 8, 1939: Letter to SEC Commissioner Jerome Frank from Adolf Berle on Public Utility Holding Company Act of 1935
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
February 10, 1939: Letter to U.S. Senators Borah and O'Mahoney from Continental Investment Corporation on O'Mahoney-Borah Bill
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)
February 10, 1939: Reply letter to Adolf Berle from Jerome Frank
transcript pdf (Adolf A. Berle, Jr. Papers, courtesy Franklin Delano Roosevelt Presidential Library)
March 17, 1939: Letter to U.S. Senator William Borah from Thurman Arnold, Assistant Attorney General, with suggested revisions
transcript pdf (William Edgar Borah Papers, courtesy Library of Congress)

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