Beyond the Berle and Means Paradigm: Private Equity and the New Capitalist Order

Stephen Diamond, Santa Clara University School of Law


The rise of private equity funds represents a new stage in capitalism. These funds combine financial resources and capital markets expertise with detailed operational knowledge of the operations of takeover targets to maximize the creation and expropriation of value on behalf of investors. Their significant size and aggressive buyout record suggests that we may be witnessing the confirmation of Michael Jensen's 1989 prediction, made in the midst of the first wave of leveraged buyouts, of the “eclipse of the public corporation.” Critics of private equity share a view of the corporation rooted in a decades old characterization by Berle and Means of the nature of the modern corporation. Rethinking the framework of Berle and Means is an important first step in responding appropriately to the rise of private equity funds.