Securities and Exchange Commission Historical Society

The Center for Audit Quality Gallery on Corporate Governance

Dr. Kenneth Durr and Robert K.D. Colby, History Associates, Inc., Curator
Opened December 1, 2014


“There are only two ways yet known of protecting investors. One is flatly to prohibit certain kinds of corporate activity, trusting that you will catch in your net of prohibitions the dodges through which investors’ savings are usually lost or dissipated. That is not a good way; because the business processes of today are complex; conditions change overnight; honest corporate managements not only want but thrive under a wide freedom of action. The other method is to give your corporation pretty wide latitude in what it does, within reasonable limits; and then make your directors and officers personally liable for any abuse of the machinery. In substance, you say to people, ‘Take all the power you want; but you, individually, are responsible for the use of power.’”

1931 Adolf Berle - Draft on Corporation Laws

In 1904, the Bureau of Corporations, newly established within the Department of Commerce, considered the problem of growing corporate enterprises, regulated by states but seemingly unaccountable to a multitude of shareholders, which had become “almost equal in power to the state itself.” Something had to be done, said the Bureau, “to protect the public from the abuse of great economic power coupled with little personal responsibility.”1

This assessment would echo through a century of debate and decision-making about corporate governance: those rules and practices—usually involving managerial accountability, board structure, and shareholder rights—established to regulate corporate behavior. During the 1800s, legal authority over incorporation rested almost entirely with the states, which could prioritize attracting investment over protecting investors. Shareholders routinely suspected managers of running corporations in their own interest while company officers consistently rejected injurious outside interference.

During the next 100 years, these tides ebbed and flowed. Shareholder activism and regulatory efforts diminished in times of prosperity; managers made concessions in response to corporate scandals, resulting in the accrual of rules and regulations meant to benefit shareholders. Federal intervention raised levels of disclosure; the professionalization of shareholder activism and the rise of institutional investors amplified shareholder voices; auditors and corporate secretaries promoted the cause of corporate governance along with their own professions. Over time, boards and managers adopted more stringent governance practices and adapted to greater shareholder involvement.

This Gallery traces the development of corporate governance regulation of publicly-traded companies in the United States at the federal level. It chronicles the fitful search for a golden mean between power and responsibility, and the quest for a balance of rules that would allow managers the flexibility and authority required to run a successful firm while ensuring that corporate owners had a say in how their businesses were run.



(1) Report of the Commissioner of Corporations, December 1904 (Washington: Government Printing Office, 1937).

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