In pursuit of the interest of any speci®c group

In this respect, he had argued that the
widespread distribution of corporate stock together with the expense of
enforcing any rights, or obtaining the information necessary to indicate that a
violation of rights had occurred, would prove too dicult an obstacle for the
average stockholder to overcome. Dodd’s position (1932) was more extreme. His
argument was based on the principle of “managerialism” which holds that where
control is dispersed over a large number of share-holders, management is not
responsible for the pursuit of the interest of any speci®c group but has the
responsibility to perceive and attain social objectives (Chen, 1975). His
concerns were that some way would have to be found to ensure that management
would act in a manner that safeguarded the interests of both shareholders and
the public. He had, therefore, expressed the viewpoint that such
responsibilities should be imposed on corporate management by law because the
rights of shareholders had been eroded and “. . . any substantial assumption
of social responsibility by incorporated business through voluntary action on
the part of managers can not be reasonably expected” (Dodd, 1932, p. 1161).

He, therefore, proposed that “managerialism” be accepted as a principle of
corporate law because, if this were the position, both the law and public
opinion would in¯uence the conduct of those who direct corporate a?airs. As in
the case of so many debates, the viewpoints of Berle and Dodd were quite
compatible 146 J.C.C. Macintosh/Accounting, Organizations and Society 24 (1999)
139±153 (Rostow, 1973). They were both concerned about the lack of corporate
accountability and that this had to be imposed on corporations by law. They had
agreed there was a need to control the actions of corporate management and that
they should be required to account for the proper discharge of their duties.

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The only major di?erence between them was whether these managers should merely
act in a ®duciary manner towards shareholders or accept a greater trusteeship
role. If, as Dodd (1932) contended, the law had started to recognize the
changing role of the corporation then the wider responsibilities of corporate
management should be required by law. However, this was rejected by Berle
because he feared that any extension of their responsibilities would merely
lead to greater power being vested in corporate management. The only way to
ensure that this would not occur was, therefore, to require the “publicizing”
of their activities through the full disclosure of information. Despite the
importance of these issues, they had little impact on those in the government
until early in 1933 when Ferdinand Pecora, Counsel for the Senate Committee on
Banking and Currency, took over the Senate Investigation into banking, security
dealings, and the operation of the NYSE. What emerged from these investigations
was a sordid story of how bankers and stock market dealers had avoided taxes
through the creation of technical losses on their personal dealings in
securities, the sale of bad investments to an unsuspecting public, the
manipulation of stock prices, and insider trading. Share prices had been
manipulated on a daily basis through the skillful marketing of “pools” of
shares by organized groups of stock market dealers (Mayer, 1955). What gave
rise to the greatest concern was the uncovering of the “preferred list” of
prominent persons, including a Judge of the Supreme Court and the Secretary of
the Treasury, to whom J. P. Morgan & Co. had sold shares at ®gures far
below market prices so that substantial pro®ts could be made on resale of the
securitiesÐapparently, for favours to be rendered in the future (The New York
Times, 2 February 1933, 3 February 1933). This information caused widespread
public concern. It was recognized that these practices could not continue.

Considerable pressure was being brought to bear on the government to restore
the con®dence of the American investing public and to ensure that there would
not be another stock market crash. It is, therefore, understandable why
President Franklin D. Roosevelt called upon a number of lawyers to draft
federal legislation to prevent any recurrence of these events. The work of this
group commenced in March 1933. It was overseen by Raymond Moley, who together
with Berle and Rexford Guy Tugwell, comprised Roosevelt’s “brain trust”
(Parrish, 1982). The ®rst draft of what was eventually passed as the Securities
Act was prepared by relatively junior bureaucrats and a former chairman of the
FTC. According to Kolko (1973), it was such a mess that President Roosevelt
asked Felix Frankfurter of the Harvard Law School to supervise an entirely new
draft. Eventually, after the considerable changes made by Frankfurter, many of
which were suggested by Berle (Berle, undated), a mutually acceptable bill was
drafted that was described by the ocial historian of the Investment Bankers
Association as a “conservative response to a widespread demand for reform”
(Kolko, 1976, p. 139).12 The work of this team led, ®rst, to the Securities Act
of 1933 which required the full disclosure of information by the sellers of new
securities and imposed severe penalties on those responsible for the omission
or misstatement of any material fact in prospectuses. It also authorized the
FTC, which administered the 1933 Act at that time, to prescribe the form and
contents of the ®nancial statements for those corporations whose securities
were traded on U.S. securities markets. This was followed by the Glass±Steagall
Banking Act of 1933 which required the banks to separate their commercial and
investment banking activities from one another and introduced the federal
guarantee of bank deposits. And, third, the passing of 

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