Sarbanes-Oxley and the New Corporate Governance in the United States

Berle and Means introduced the "managerial thesis" nearly eighty years ago in their classic text, The Modern Corporation and Private Property. They argued that control of the corporation in the United States had already shifted from large shareholder groups (founding families and financial capitalists) to professional, non-shareholding managers. We propose to re-evaluate the managerial thesis by arguing that economic forces and regulatory initiatives have shifted corporate control from focal firm managerial teams to independent outside directors. Today, director control remains intact, despite financial market concentration, institutional investor savvy, and regulatory reforms. However, director demographics have changed fundamentally. Independent, non-management directors, recruited disproportionately from the ranks of active and retired CEOs, have displaced inside-directors as the dominant group.