Document Type

Article

Publication Date

Winter 1993

Keywords

Passive ownership of property, Classical ownership, Pension law, Corporate pension system, Employee Retirement Income Security Act, ERISA, ESOPs, Employee Stock Ownership Plans

Disciplines

Property Law and Real Estate | Public Law and Legal Theory | Retirement Security Law

Abstract

This article discusses how modem fiduciary law has extended equity's tradition of constructing ownership as passive through the corporate pension system. It examines how the corporate pension system as a mode of owning pooled capital is a new stage of passive ownership. This stage creates a different aspect of the familiar problem of separating control from beneficial ownership. Berle and Means argued that the problem that the separation of control from ownership created was economic. The interests of managers and shareholders in the modern corporation diverge, and, they argued, this divergence diminishes the overall efficiency of the modern economy, dominated as it is by large corporations.

This article argues that passive ownership, as constructed under current pension law, creates a problem that is more political and moral than economic. In addition to constructing beneficial ownership as passive, pension law exhibits a strong paternalistic attitude toward plan participants, much more so than corporation law exhibits toward shareholders. This combination of passivity and paternalism denies pension participants the political and moral virtues that historically have been associated with the two great models of ownership that have competed since the nineteenth century: liberalism and socialism.

More specifically, the principal thesis of this article is that the passive and paternalistic mode of ownership that the pension system has created diminishes the degree of personal responsibility that classical liberal ownership required all individual owners to take. At the same time, despite its group-like character, the corporate pension system, unlike classical socialism, contains no features that allow, let alone guarantee, democratic participation by the group. Indeed, its defining characteristics are calculated to inhibit direct participation by pension owners in important decisions regarding the use of pension capital.

Publication Citation

Published in: Law and Contemporary Problems, vol. 56, no. 1 (Winter 1993).

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