by Joan Rosés (LES) and Nikolaus Wolf (Humboldt University)
via EHS The Long Run
Original post Here
by Jennifer Aston (Oxford University) and Paulo di Martino (University of Birmingham) The full paper was published on the Economic History Review, accessible here Do women and men trade in different ways? If so, why? And are men more or less successful than women? These are very important questions not just, or not only, for the academic […]
Transnational Indian Business in the Twentieth Century
By: Chinmay Tumbe (Indian Institute of Management Ahmedabad, India)
Abstract: This article argues that migration and investment from India moved in tandem to chart the evolution of transnational Indian business in the twentieth century, first toward Southeast Asia and Africa and later toward the United States, Europe, and West Asia. With a focus on the banking and diamond sectors, the overseas investment project of the Aditya Birla Group, and the transnational linkages of India’s one hundred richest business leaders, the article locates important events, policies, and actors before economic liberalization in 1991 that laid the foundation for subsequent globalization of Indian firms.
Business History Review (Forthcoming – Published online: 12 December 2017)
Review by Niall G MacKenzie (Strathclyde Business School)
Chinmay Tumbe’s article in Business History Review, ‘Transnational Indian Business
in the Twentieth Century’ is, as the title suggests, an exploration of Indian business history at home and abroad throughout the twentieth century. The article is well-written with a number of themes present throughout which go beyond simple transnational analyses, encompassing elements of kith (networks) and kin (family) in the development of Indian business over the period set against changing migration patterns within and outwith, the Indian sub-continent. A further clear theme throughout the paper is the changing role and concomitant impact of the institutional frameworks in which Indian business acted under, both in domestic and international terms. It is on these areas that this review takes its focus.
The paper compares and contrasts twentieth century Indian migration trajectories and their impact on Indian international business connections, with a particular focus on the activities of the banking and diamond industries, as well as highlighting a number of famous Indian firms and entrepreneurs including the Godrej, Birla, and Tata families, Lakshmi Mittal, and the top 100 richest Indians using a mixture of archive data, corporate histories, biographies, and secondary materials such as magazines and newspapers. In this sense, the paper is a non-traditional business history piece that combines a variety of methodological approaches to paint a picture of Indian transnational business history over the twentieth century that distinguishes itself with its attention to rigour, a clear story arc, and the creation of a historical framework for future studies. As one may expect from Business History Review, the writing is tight, the subject matter broad but detailed in its analysis, and a number of valuable insights into how Indian business developed over the period emerge as a result.
Tumbe’s work covers both Indian domestic business activities and overseas investment activities by Indian companies over the twentieth century, offering readers an interesting and illuminating analysis of these subjects which reflect a growing interest in Indian business within business history more generally, including a special issue in Business History edited by Carlo Morelli and Swapnesh Masrani on Indian Business in the Global World, publication of the Oxford History of Indian Business by Dwijendra Tripathi (2014), the developing economies initiative at Harvard Business School which focuses on (amongst other developing countries) Indian business, a 2015 conference on Indian and South East Asian business history hosted by Harvard Business School bringing together scholars from all over the world, and a number of articles published in each of the major business, economic, and accounting history journals. In this sense Tumbe’s paper is a continuation of the growing interest in Indian business history around the world and recognition that much of the history of the country has been written from the perspective of the west, and in particular Anglo-Indian viewpoints.
Work written from the perspective of indigenous Indian scholars therefore has the potential to provide counterpoints, deeper insights, and more interesting considerations of phenomena and change that are oftentimes taken for granted by Western scholars. Indeed, much theory that has been produced in business and management has been done so within Western developed countries and typically by Western scholars. This is a point that has been raised in the Family Business Review journal by its outgoing editor Pramodita Sharma (with family business stalwarts Jim Chrisman and Kelin Gersick), who in a 2012 editorial called for more testing of existing theory, and creation of new theories by looking at ‘different institutional contexts’ as ways of doing this. This is a call that applies beyond family business however and into business and management more generally – cognizance of context and its multiple forms and applications to existing and new knowledge is something that historians are perhaps naturally familiar with and indeed drawn to, but which has value beyond history also.
Arguably the most interesting aspect of the paper (to this author at least) was the focus on the role that Indian family businesses played within the constantly evolving Indian and global institutional contexts over time, engaging domestic and international business networks and deploying their capital in different ways to address their aims and aspirations. The case of AV Birla going to study at MIT is one such example – scions of large family businesses nowadays are regularly packed off to global top institutions to gain a world class education and expose them to more of the world in preparation for taking the helm of the family business. However, according to Tumbe, in the mid-1960s India was a relatively insular looking country and business environment which suggests Birla’s decision to study at MIT was one that was more than just expanding personal horizons but was in fact, at the time, a relatively novel way of preparing Birla and the helping firm’s international expansion aspirations. Birla was then an early example of what is now a relatively standard practice in terms of preparing for the future leaders within the family business, but also of preparing the business itself by accessing and leveraging the networks that come with enrolment in top global education institutions for higher education.
One of the principal questions posted in the paper was “How and why did Indian business operations extend beyond the boundaries of the subcontinent, and was migration a relevant factor in this process?” The short answer that Tumbe’s paper provides, is that migration was a relevant factor in the process (as one might reasonably expect), but also that Indian business operations did exist beyond the boundaries of the subcontinent and the reasons for doing so were varied. In some cases, Indian businesses were accessing existing networks of Indian diaspora for soft landings abroad, in others they were seeking to expand operations due to the constrictions that were imposed on them by an FDI-hostile Indian government that resulted in domestic industrial stagnation and a strong push factor to invest abroad, requiring Indian businesses to look outwards for international expansion and growth opportunities. Kith and kin were therefore important features of such expansion with the desire to mitigate the agential risk that naturally comes with the creation of distance between operations and control as far as possible. Consistent within this is the recognition that friends and family are important in business expansion and development; Tumbe provides a demonstrable example of this in his analysis of Birla’s expansion into Antwerp and the role Vijay Mehta, a cousin of AV Birla’s best friend based in Antwerp and Bangkok, played in Birla’s first overseas investment.
Tumbe’s article is ultimately a broad sweep analysis of Indian transnational business activities and development over the twentieth century that illustrates the changing nature of business in India, the shifting institutional context, and the opportunities and constrictions that come with doing business in a developing country. Its relevance and interest to business and economic historians is clear in its historical analysis and content, but its wider applicability to understanding contemporary business and management phenomena such as resource orchestration, transnational business, and family business is also apparent. For those familiar with Indian business history it will likely confirm a number of existing thoughts and concepts, but for those who are not as familiar it provides an enjoyable and informative overview of how Indian business changed over the course of the twenties century with an array of source material that is handled well and written in an engaging fashion.
IBM Rebuilds Europe: The Curious Case of the Transnational Typewriter
By Petri Paju (Turku) and Thomas Haigh (Wisconsin, Milwaukee).
Abstract: In the decade after the Second World War IBM rebuilt its European operations as integrated, wholly owned subsidiaries of its World Trade Corporation, chartered in 1949. Long before the European common market eliminated trade barriers, IBM created its own internal networks of trade, allocating the production of different components and products between its new subsidiaries. Their exchange relationships were managed centrally to ensure that no European subsidiary was a consistent net importer. At the heart of this system were eight national electric typewriter plants, each assembling parts produced by other European countries. IBM promoted these transnational typewriters as symbols of a new and peaceful Europe and its leader, Thomas J. Watson, Sr., was an enthusiastic supporter of early European moves toward economic integration. We argue that IBM’s humble typewriter and its innovative system of distributed manufacturing laid the groundwork for its later domination of the European computer business and provided a model for the development of transnational European institutions.
Enterprise & Society 17(2, June 2016): 265-300
Free download (for limited time): https://www.cambridge.org/core/services/aop-file-manager/file/59e769bb60a7c0f73791cd84
Review by James W. Cortada (Charles Babbage Institute, Minnesota)
Prizes are awarded all the time for “best article” in a particular field, calling our attention to a well-executed, thoughtful one. But, occasionally, a prize winning article signals bigger shifts in a discipline than might otherwise be noticed. With this year’s award of the Business History Conference’s “Mira Wilkins Prize,” for the best article published in Enterprise & Society, we have such a signal.
Petri Paju and Thomas Haigh wrote “IBM Rebuilds Europe: The Curious Case of the Transnational Typewriter,” published in June 2016. They were recognized for “the best article on international business history,” the objective of this prize, but it is far more than good international business history.
The article chronicles how IBM created an internal network across eight national electric typewriter plants in post-World War II Europe to manufacture parts and to assembly these products. While electric typewriters were in great demand and IBM made what many considered to be the best one, the company created an internal network for their manufacture and distribution that transcended international borders in the decade after the war, presaging what would happen for some European products after the establishment of the European Union. But that was never solely the point—to create a European-wide market by governments—rather, it was to drive down production costs, increase demand for and the ability to deliver enough machines, while promoting IBM management’s belief that “World Peace through World Trade” could be a global objective for nations and companies. The authors trace how parts were made in one country, shipped to another, put together then sold, called the “Interchange Plan.” This experience taught IBM management how to create a more formal pan-European wide, later worldwide organization in 1949 that could manufacture, sell, and support its products called IBM World Trade. Within a half generation, World Trade did as much business as the American side of IBM.
Lessons learned in forming a pan-European typewriter business made it possible for IBM to develop a pan-European computer business that quickly dominated the mainframe business in Western Europe and in other parts of the world. Just as important, when IBM moved into the computer business, it already had factories, sales offices, and experienced employees in those countries that would become its best customers. These include Great Britain, France, West Germany, the Nordics, Italy, Spain, and a sprinkling presence in every country that eventually became part of the EU. The authors explain how the company created and learned from its “Interchange Plan,” operationally and strategically. They explored the accounting level to explain how money and budgets were exchanged across borders when governments had yet to sort out those issues, let alone even allow such exchanges.
The benefits to IBM were both obvious and extraordinary. Obvious ones included reduced operating costs for the manufacture and increased sale of typewriters. Less obvious, but ultimately more important, “this system would also foster interdependence among the various national [IBM] firms,” while spreading capabilities across multiple countries so that if one nation were to nationalize or block local IBM production, as occurred during World War II, another plant could pick up the slack. The company used its system in its public relations campaign to promote international trade through American managerial leadership and “to meet the challenges of communism” in the Cold War. Other American corporations—all of them with close ties to IBM’s management—took note of what IBM was learning and applied those lessons as well. IBM’s country organizations could also claim to be local, since each employed nationals, Fins in Finland, French in France, and so forth.
The lesson urged by these two young historians is an appropriate one at the moment: “think more carefully about the assumption that postwar globalization of European trade can be reduced to ‘Americanization’,” because IBM’s experience reflected a “hybridization of U.S. technology and management in postwar Europe.” Apply their suggestion worldwide. IBM was also prepared to experiment and operate in ways that valued expansion into new markets even at the costs of profits. That is one reason why it came to dominate the mainframe market so fast and for so many decades. The wisdom of today’s corporate fixation on shareholder value is challenged by this study of how IBM ran its typewriter business.
Perhaps the greater lesson, the more significant observation for why this prize this year is so important, lies elsewhere. For the past two decades, a month has barely gone by without an historian or economist publishing on the interactions of computing technology and business management. E&S is not alone in doing so; Technology & Culture has published some two-dozen similar articles in the new century, and Information & Culture is rapidly becoming another journal with a mix of business/information technology conversations. Petri Paju and Thomas Haigh are more than two gifted prolific article writers, they are teaching a new generation of scholars how to understand the role of information technologies and of management, business operations, and corporate strategy in a world filled with computers. Simply put, this article is seminal, worthy of being studied across multiple disciplines. The Mira Wilkes Prize Committee is to be congratulated for not letting this paper slip through the cracks.
Contractual Freedom and Corporate Governance in Britain in the Late Nineteenth and Early Twentieth Centuries
Abstract: British general incorporation law granted companies an extraordinary degree of contractual freedom. It provided companies with a default set of articles of association, but incorporators were free to reject any or all of the provisions and write their own rules instead. We study the uses to which incorporators put this flexibility by examining the articles of association filed by three random samples of companies from the late nineteenth and early twentieth centuries, as well as by a sample of companies whose securities traded publicly. Contrary to the literature, we find that most companies, regardless of size or whether their securities traded on the market, wrote articles that shifted power from shareholders to directors. We find, moreover, that there was little pressure from the government, shareholders, or the market to adopt more shareholder-friendly governance rules.
Business History Review, Volume 91 (2 – Summer 2017): 227-277.
Review by John Turner (Centre for Economic History, Queen’s University Belfast)
Tim Guinnane, Ron Harris and Naomi Lamoreaux are three scholars that every young (and old) economic historian should seek to emulate. This paper showcases once again their prodigious talent – there is careful analysis of the institutional and legal setting, a lot of archival evidence, rigorous economic analysis, and an attempt to understand how contemporaries viewed the issue at hand.
In this paper, Guinnane, Harris and Lamoreaux (GHL) examine the corporate governance of UK companies in the late nineteenth and early twentieth centuries. The UK liberalised its incorporation laws in the 1850s and introduced its first Companies Act in 1862. From a modern-day perspective, this Act enshrined very little in the way of protection for shareholders. However, the Appendix to the 1862 Companies Act contained a default set of articles of association, which was the company’s constitution. This Appendix, known as Table A, provided a high level of protection for shareholders by modern-day standards (Acheson et al., 2016). However, the majority of companies did not adopt Table A; instead they devised their own articles of association.
The aim of GHL’s paper is to analyse articles of associations in 1892, 1912 and 1927 to see the extent to which they shifted power from shareholders to directors. To do this, GHL collected three random samples of circa 50 articles of association for 1892, 1912 and 1927. Because most (if not all) of these companies did not have their securities traded on stock markets, they also collected sample of 49 commercial and industrial companies from Burdett’s Official Intelligence for 1892 that had been formed after 1888. However, only 23 of these companies had their shares listed on one of the UK’s stock exchanges.
GHL then take their samples of articles to see the extent to which they deviated from the clauses in Table A. Their main finding is that companies tended to adopt governance structures in their articles which empowered directors and practically disenfranchised shareholders. This was the case no matter if the company was small or large or public or private. They also find that this entrenchment and disenfranchisement becomes more prominent over time. However, GHL unearth a puzzle – they find shareholders and the market appeared to have been perfectly okay with poor corporate governance practices.
How do we resolve this puzzle? One possibility is that shareholders (and the market) at this time only really cared about dividends. High dividend pay-out ratios in this era kept managers on a short leash and reduced the agency costs associated with free cash flow (Campbell and Turner, 2011). Interestingly, GHL suggest that this may have made it more difficult for firms to finance productivity-enhancing investments. In addition, they suggest that the high-dividend-entrenchment trade-off may have locked in managerial practices which inhibited the ability of British firms to respond to future competitive pressures and may ultimately have ushered in Britain’s industrial decline.
Another solution to the puzzle, and one that GHL do not fully explore, is that the ownership structure of the company shaped its articles of association. The presence of a dominant owner or founding family ownership would potentially lessen the agency problem faced by small shareholders. In addition, founders may not wish to give too much power away to shareholders in return for their capital. On the other hand, firms which need to raise capital from lots of small investors on public markets may adopt more shareholder-friendly articles. The vast majority of companies in GHL’s sample do not fall into this category, which might go some way to explaining their findings.
A final potential solution is that the vast majority of firms which GHL examine may have raised capital in a totally different way than public companies, and this shaped their articles of association. These firms probably relied on family, religious and social networks for capital, and the shareholders trusted the directors because they personally knew them or were connected to them through a network. Indeed, we know precious little about how and where the multitude of private companies in the UK obtained their capital. Like all great papers, GHL have opened up a new avenue for future scholars. The interesting thing for me is what happens when private firms went public and raised capital. Did they keep their articles which entrenched directors and disenfranchised shareholders?
Unlike the focus of GHL on mainly private companies, a current Queen’s University Centre for Economic History working paper examines the protection offered to shareholders by circa 500 public companies in the four decades after the 1862 Companies Act (Acheson et al., 2016). Unlike GHL, it takes a leximetric approach to analysing articles of association. Acheson et al. (2016) have two main findings. First, the shareholder protection offered by firms in the nineteenth century was high compared to modern-day standards. Second, firms which had more diffuse ownership offered shareholders higher protection.
How do we reconcile GHL and Acheson et al. (2016)? The first thing to note is that most of Acheson et al’s sample is before 1892. The second thing to note is that in a companion paper, Acheson et al. (2015) identify a major shift in corporate governance and ownership which started in the 1890s – companies formed in that decade had greater capital and voting concentration than those formed in earlier decades. In addition, unlike companies formed prior to the 1890s, the insiders in these companies were able to maintain their voting rights and entrench themselves. This corporate governance turn in the 1890s is where future scholars should focus their attention.
Acheson, Graeme G., Gareth Campbell, John D. Turner and Nadia Vanteeva. 2015. “Corporate Ownership and Control in Victorian Britain.” Economic History Review 68: 911-36.
Acheson, Graeme G., Gareth Campbell, John D. Turner. 2016. “Common Law and the Origin of Shareholder Protection.” QUCEH Working Paper no. 2016-04.
Campbell, Gareth and John D. Turner. 2011. “Substitutes for Legal Protection: Corporate Governance and Dividends in Victorian Britain.” Economic History Review 64: 571-97.
Abstract: We examine the golden age of U.S. innovation by undertaking a major data collection exercise linking historical U.S. patents to state and county-level aggregates and matching inventors to Federal Censuses between 1880 and 1940. We identify a causal relationship between patented inventions and long-run economic growth and outline a basic framework for analyzing key macro and micro-level determinants. We find a positive relationship between innovation and drivers of regional performance including population density, financial development and geographic connectedness. We also explore the impact of social structure measured by slavery and religion. We then profile the characteristics of inventors and their life cycle finding that inventors were highly educated, positively selected through exit early in their careers, made time allocation decisions such as delayed marriage, and tended to migrate to places that were conducive to innovation. Father’s income was positively correlated with becoming an inventor, though not when controlling for the child’s education. We show there were strong financial returns to technological development. Finally, we document an inverted-U shaped relationship between inequality and innovation but also show that innovative places tended to be more socially mobile. Our new data help to address important questions related to innovation and long-run growth dynamics.
Circulated by NEP-HIS on: 2017-01-29
Review by Tom Spain (Bangor University)
In this paper Akcigit, Grisby, and Nicholas highlight the advancement of transportation technology in the United States between 1880 and 1940, while better transport responded to the need to link the more developed and innovative regions of the country. Akcigit, Grisby and Nicholas find that the American transport links were much stronger and of better quality between more developed regions in terms of finance and innovation, which, in turn, Hart and Milstein (2003) point to as key aspects for a successful capitalist society.
Research by Akcigit, Grisby and Nicholas is in line with others such as Harris (2015), who highlights that there is a direct link between advancements in technology and the growth of globalisation. The findings by Akcigit, Grisby and Nicholas, therefore, can be seen as the starting point for the globalisation of the American model of capitalism.
Akcigit, Grisby and Nicholas state that during the 1880s emerged a belief that “geographic connectivity” should increase for there to be a rise in innovation: this increase would open up new markets for businesses to sell to. Here Akcigit, Grisby and Nicholas rehearse a well-recognised argument that improvements in geographic connectivity lead to an increase in globalisation, and, therefore, advancements in transport technology are also an important factor for globalisation (Rodriguez 1999).
Another aspect discussed by Akcigit, Grisby and Nicholas is the link between the amount of investment of American states on transport infrastructure and the amount of innovation emerging from said states. Here it is shown that the more a state invested on transport infrastructure the more innovations came from that state. For instance, the authors mention that in the golden era of innovation the Midwest played a big part in US innovation via manufacturing. However, due to the constant value-seeking attitude towards capitalistic globalisation the contemporary Midwest is not as prosperous as it once was (Castle 1995). However, the question as to whether these states developed in terms of overall population is unanswered. As Banister and Berechman (2001) argue, the geographic connectivity aspects of globalisation may see areas lose resources, skills and, in turn, become poorer.
In terms of what could be improved in the paper by Akcigit, Grisby and Nicholas, the first thing to note is that it only highlights the level of innovation in terms of the amount of granted patents. This is unlike works conducted by the likes of Feldman and Florida (1994) who not only seek to see the level of innovation in each state but also what particular sector the innovations were in. The paper by Feldman and Florida (1994) also provides more detail of how many of the innovations were successful in terms of whether they were the technological underpinnings for future developments in a specific sector.
Akcigit, Grisby and Nicholas suggest that all of the American states where transport and innovation increased also saw a reduction in inequality. In fact, in many cases inequality amongst the most innovative of states rose. This concurs with other research which suggests that inequality is a by-product of globalisation (Piketty and Saez, 2003).
A possible venue of research along the lines suggested by the paper is the importance of the advancement in transport technology and the role that it played in being able to create geographic connectivity. This link can be seen in the work of Usselman (2002).
Banister, D. and Berechman, Y., (2001). “Transport Investment and the Promotion of Economic Growth.” Journal of Transport Geography 9(3), pp.209-218.
Castle, E.N., (1995). The Changing American Countryside: Rural People and Places. Lawrence, KS: University Press of Kansas.
Feldman, M.P. and Florida, R., (1994). “The Geographic Sources of Innovation: Technological Infrastructure and Product Innovation in the United States.” Annals of the Association of American Geographers 84(2), pp.210-229.
Harris, J., (2015). “Globalization, Technology and the Transnational Capitalist Class.” Foresight 17(2), pp.194 – 207.
Hart, S.L. and Milstein, M.B., (2003). “Creating Sustainable Value.” The Academy of Management Executive 17(2), pp.56-67.
Piketty, T. and Saez, E., (2003). “Income Inequality in the United States, 1913–1998.” The Quarterly Journal of Economics 118(1), pp.1-41.
Rodriguez, J.P. (1999). “Globalization and the Synchronization of Transport Terminals.” Journal of Transport Geography 7(4), pp.255-261.
Usselman, S.W. (2002). Regulating Railroad Innovation: Business, Technology, and Politics in America, 1840-1920. Cambridge: Cambridge University Press.
The Development of English Company Law before 1900
By: John D. Turner (Queen’s University Belfast)
Abstract: This article outlines the development of English company law in the four centuries before 1900. The main focus is on the evolution of the corporate form and the five key legal characteristics of the corporation – separate legal personality, limited liability, transferable joint stock, delegated management, and investor ownership. The article outlines how these features developed in guilds, regulated companies, and the great mercantilist and moneyed companies. I then move on to examine the State’s control of incorporation and the attempts by the founders and lawyers of unincorporated business enterprises to craft the legal characteristics of the corporation. Finally, the article analyses the forces behind the liberalisation of incorporation law in the middle of the nineteenth century.
Ditributed by NEP-HIS on: 2017-02-19
Review by Jeroen Veldman (Cass Business School, City University)
The article provides an overview of the development of English company law in the four centuries leading up the 20th century, showing how five key legal characteristics, i.e. separate legal personality, limited liability, transferable joint stock, delegated management, and investor ownership developed.
What may be most striking about Turner’s account is the way in which it shows the contingency of the development of these distinct concepts and the configurations in which they appear. As Woodward (1985a: 12), quoted by Turner, says it is “shocking how non-laissez-faire are the roots of the corporation – a quintessentially laissez-faire institution”. Turner shows how James I needed the money from corporate charters, as they provided an attractive source of revenue for the Crown that allowed to bypass Parliament. (Turner, 2017: 5), making the grant of such corporate charters the object of an ongoing war between Crown and Parliament in the 16th and 17th Century. Subsequently, he shows how the Bubble Act in the 18th Century was not so much a means to keep companies from forming, but rather a means “… to limit alternative investment opportunities so that capital would be diverted towards shares in the South Sea Company.” (Turner, 2017: 8).The contingent development of company law is also apparent in the use of corporations as an important instrument for colonial administrative organization overseas and the use of trading monopolies as a key instrument in foreign policy (Turner, 2017: 5). Furthermore, the establishment of specific Companies, such as the Bank of England in 1694 was pivotal for the lending of money to the State, and the raising and administration of the public debt (Turner, 2017: 9). The conceptual development of the modern corporation was thus connected to and contingent upon the simultaneous development of ideas about sovereignty, the state, and the representation of group rights and obligations (Kantorowicz, 1997; Maitland, 2003).
Turner then shows how the further development of the corporation in the 19th century is driven largely by the growing power of an emerging enriched middle class looking for outlets and protection for its investment. The development of the five key legal characteristics provided an architecture for the public corporation that functioned as an excellent vehicle to accommodate the wealth accruing to this new class, as it allowed to drop managerial obligations and to focus on a liquid share market instead (Ireland, 1996 and 1999; Veldman and Willmott, 2017).
Turner concludes by saying that “…the common law judiciary in the 18th and 19th centuries was extremely conservative and did not respond in a dynamic fashion to the new business environment which had arisen” (Turner, 2017: 22). His account therefore shows how, contrary what is commonly believed in the law and economics debate, common law did not develop as a highly dynamic and pragmatic practice-following type of law. What Turner convincingly shows, then, is that the development of English Company Law started to change from the 19th century, that this development led to development and acceptance of the five key legal characteristics and that the specific configuration of these elements that come together in the modern corporation. He also shows how the changes in English Company Law that allowed for these elements and their configuration were related to the institutionalization of particular political and economic interests.
In relation to the contingent development of the elements and configuration that make up the core characteristics of the modern corporation that Turner describes we may ask a number of questions of the specific model of the modern corporation that was developed during the 19th century and which still provides a template that is very much followed worldwide.
The first question is whether we can imagine a coherent alternative, in which the elements and their configuration had developed differently. Can we imagine limited liability, perpetuity, transferable joint stock with fully paid up shares and a secondary share market, the removal of ultra vires, separate legal personality, the development of delegated and professional management, rentier investment by shareholders with a shielded position largely external to the architecture of the modern corporation and, later, the development of holding companies and transnational operations as the outcome of the institutionalization of legal privileges for specific groups? And can we still imagine the institutionalization of these privileges as contingent and conditional?
The second question is whether we can rethink the presumed optimality of the current configuration of the corporation. It may be argued that the arrangements developed for the modern public corporations were developed in a specific political and economic context that provided a strong background for the development of ideas about minority shareholder protection at the time (Freeman et al., 2011; Johnson, 2010), for instance. The question is, how the specifics of that configuration relates to more recent changes in the corporate governance environment, such as the phenomenal rise of institutional and activist investors, increases in foreign ownership and high frequency trading, and the development of transnational group structures.
More specifically, we may consider that the development of the elements and configurations of the core characteristics of the modern corporation have had large effects on subsequent macro-economic developments (Chandler, 2003; Hannah, 2010), and continue to impact on the distribution of social wealth (Ireland, 2005). Turner observes that “The evolution of corporate law after 1900 … was chiefly concerned with resolving the agency problems which arose out of conflicts created by the coming together of these characteristics, i.e., shareholders vs. managers, shareholders vs. shareholders, and shareholders vs. other constituents (e.g., creditors and employees).” (Turner, 2017: 3). Considering that the present configuration that defines the modern corporation is based on the interests of an emerging class of rentier investors in the mid-19th century we may need to consider whether those agency problems have been sufficiently resolved and whether the specific configuration that developed during the 19th century still delivers an optimal configuration for all parties involved in corporate governance arrangements and outcomes (Veldman et al., 2016).
In the light of the description of the contingent nature of the development of company law and corporate governance theory, it is interesting to note that Turner chooses to describe the development of ‘the corporate form’ and its five key characteristics as an almost teleological process in which “the evolution of company law in England up to 1900 was all about the struggle to enable business enterprises to have all five of the core structural characteristics outlined above” and that this evolution was hampered by “the efforts of the legal system and the political elite to stifle the development of particular characteristics during most of this era.” (Turner, 2017: 3). Such a teleological approach to the development of company law has been criticized more broadly as naturalizing the development of existing corporate governance configurations into a necessary or optimal end point, and ignoring the development of company law as the institutionalization of particular interests (Ireland, 2005; Johnson, 2010).
Turner’s account provides all the necessary ingredients to engage with the development of the five key legal characteristics and their configurations as the result of the capacity for countervailing powers to engage in the corporate governance debate. In this light, the continuous absence of particular characteristics and configurations in the debate pre-19th century can be viewed, not as the ‘stifling’ of a necessary or optimal ‘evolution’, but rather as the result of a different configuration of interests. Such a view of the development of the elements and configuration that make up the modern corporation as a contingent and interest-inflected development makes an interesting contribution to the current debate on corporate governance, and allows to relate the debate on the historical institutionalization of these choices to current debates on the broad opportunities and risks that are associated with choices about the institutionalization of privileges, rights and obligations for specific groups in a theory of corporate governance (Veldman and Willmott, 2016).
Chandler, A. D. (2002). The Visible Hand: The Managerial Revolution in American Business. Cambridge, USA: Harvard University Press.
Freeman, M., Pearson, R., & Taylor, J. (2011). Shareholder democracies?: Corporate Governance in Britain and Ireland before 1850. Chicago: University of Chicago Press.
Hannah, L. (2010). The Rise of the Corporate Economy. Oxon, UK: Routledge.
Ireland, P. (1996). Capitalism without the Capitalist: the Joint Stock Company Share and the Emergence of the Modern Doctrine of Separate Corporate Personality. The Journal of Legal History, 17(1), 41–73.
Ireland, P. (2005). Shareholder Primacy and the Distribution of Wealth. Modern Law Review, 68(1), 49–81. http://doi.org/10.1111/j.1468-2230.2005.00528.x
Ireland, P. (1999). Company Law and the Myth of Shareholder Ownership. Modern Law Review, 62(1), 32–57. http://doi.org/10.1111/1468-2230.00190
Johnson, P. (2010). Making the Market: Victorian Origins of Corporate Capitalism. Cambridge: Cambridge University Press.
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