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Nothing that the Securities and Exchange Commission ("SEC") has done in recent years has been as controversial or significant as its efforts to reform the proxy rules to permit greater communication among shareholders. Nothing that it has undertaken recently has also been left as incompletely or equivocally realized as these same efforts. That the SEC's efforts at facilitating shareholder communication have been controversial and significant is by now a commonplace observation. That they are incomplete and equivocal requires more explanation. Although the discovery that an agency is behaving inconsistently is hardly a revelation, more than politics appears to be at work here. Fundamentally, the SEC has been attempting to broker marginal reform at a time when two fundamentally conflicting perspectives on institutional investors are competing for dominance. One side sees the consolidation of share ownership in the hands of institutional investors as a benign and progressive development; the other, as potentially ominous and disruptive. In this battle of paradigms, the SEC appears to be zealously and outspokenly-on both sides.

The battle lines have been clearly drawn. On one side, a new generation of academics and reformers views the growth in institutional share ownership as promising a major revolution in business organization, one that signals the eventual end of the separation of ownership and control within public corporations. Indeed, in their view, the separation of ownership and control was never inevitable, but rather was politically imposed. In contrast to Professors Berle and Means, who argued that modem technology vastly increased the capital needs of the twentieth century corporation, thus forcing corporations to seek equity capital from a broader class of shareholders than could effectively maintain control over their managers, these new critics claim that ownership was separated from control as the result of political decisions, chiefly involving managerial manipulation of the regulatory system to protect corporate managers by constraining financial intermediaries. But for government interference, they contend, financial intermediaries-banks, mutual funds, insurance companies, and pension funds-would have assumed the same monitoring role in the United States as they allegedly have in Japan and Germany. For this new generation, the traditional problems of corporate law would shrink in significance (some even call them trivial) if institutional shareholders were permitted to monitor and replace corporate managers with less governmental interference.


Business Organizations Law | Law | Secured Transactions