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Contractual Freedom and Corporate Governance in Britain in the Late Nineteenth and Early Twentieth Centuries

  • Timothy W. Guinnane, Ron Harris and Naomi R. Lamoreaux

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.

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1 For an early statement of this view, see Milton Friedman, “The Social Responsibility of Business Is to Increase Its Profits,” New York Times Magazine, 13 Sept. 1970, 379, 425–27. For a recent restatement by a chief proponent, see Jensen, Michael C., “Value Maximization, Stakeholder Theory, and the Corporate Objective Function,” Business Ethics Quarterly 12 (Apr. 2002): 235–56. On the idea's growing dominance, see Hansmann, Henry and Kraakman, Reinier, “The End of History for Corporate Law,” Georgetown Law Journal 89 (Jan. 2001): 439–68.

2 See, for example, Morck, Randall K., ed., A History of Corporate Governance around the World: Family Business Groups to Professional Managers (Chicago, 2005). See also La Porta, Rafael, Lopez-de-Silanes, Florencio, Shleifer, Andrei, and Vishny, Robert W. (hereafter LLSV), “Legal Determinants of External Finance,” Journal of Finance 52 (Jul. 1997): 1131–50; and LLSV, Law and Finance,” Journal of Political Economy 106 (Dec. 1998): 1113–55. LLSV's work sparked an enormous debate that has been surveyed in La Porta, , Lopez-de-Silanes, , and Shleifer, (LLS), “The Economic Consequences of Legal Origins,” Journal of Economic Literature 46 (June 2008): 285332 ; and Roe, Mark J. and Siegel, Jordan I., “Finance and Politics: A Review Essay based on Kenneth Dam's Analysis of Legal Traditions in The Law-Growth Nexus ,” Journal of Economic Literature 47 (Sept. 2009): 781800 .

3 On the superiority of the common law, see LLS, “Economic Consequences of Legal Origins.” LLS draw on an older legal tradition, especially von Hayek, Friedrich A., The Constitution of Liberty (Chicago, 1960); Posner, Richard A., Economic Analysis of Law (Boston, 1977); Paul H. Rubin, “Why Is the Common Law Efficient?” Journal of Legal Studies 6 (Jan. 1977): 51–63; and Priest, George L., “The Common Law Process and the Selection of Efficient Rules,” Journal of Legal Studies 6 (Jan. 1977): 6582 . See also Beck, Thorsten, Demirgüç-Kunt, Asli, and Levine, Ross, “Law, Endowments, and Finance,” Journal of Financial Economics 70 (Nov. 2003): 137–81; and Levine, Ross, “Law, Endowments and Property Rights,” Journal of Economic Perspectives 19 (Summer 2005): 6188 .

4 In their high degree of contractual flexibility, the British general incorporation statutes were actually more like the continental statutes than those enacted by the various U.S. states, which were usually quite prescriptive. See Guinnane, Timothy W., Harris, Ron, Lamoreaux, Naomi R., and Rosenthal, Jean-Laurent (hereafter GHLR), “Putting the Corporation in Its Place,” Enterprise and Society 8 (Sept. 2007): 687729 ; GHLR, Pouvoir et propriété dans l'entreprise: pour une histoire internationale des sociétiés á responsabilité limitée,” Annales: Histoires, Sciences Sociales 63 (Jan./Feb. 2008): 73110 ; Lamoreaux, Corporate Governance and the Expansion of the Democratic Franchise: Beyond Cross-Country Regressions,” Scandinavian Economic History Review 64, no. 2 (2016): 103–21; and Harris and Lamoreaux, “Opening the Black Box of the Common-Law Legal Regime: Contrasts in the Development of Corporate Law in Britain and the United States” (unpublished paper, 2017).

5 See especially Graeme G. Acheson, Gareth Campbell, and John D. Turner, “Common Law and the Origin of Shareholder Protection,” QUCEH Working Paper 2016-04 (Aug. 2016), but also Rutterford, Janette, “The Shareholder Voice: British and American Accents, 1890–1965,” Enterprise & Society 13 (Mar. 2012): 120–53; and Dunlavy, Colleen, “Corporate Governance in Late 19th-Century Europe and the U.S.: The Case of Shareholder Voting Rights,” in Comparative Corporate Governance: The State of the Art and Emerging Research, ed. Hopt, Klaus J. et al. (Oxford, 1998), 539 . James Foreman-Peck and Leslie Hannah have argued for the high quality of British corporate governance, but they focus on companies chartered by special Parliamentary acts in accordance with the Companies Clauses Consolidation Act of 1845. These companies, which include most of the largest enterprises traded on the London Stock Exchange during our period, did not have the contractual flexibility of companies formed under general law but had to adopt a set of governance rules mandated by the 1845 act. See Foreman-Peck, and Hannah, , “Some Consequences of the Early Twentieth-Century British Divorce of Ownership from Control,” Business History 55, no. 4 (2013): 543–64; and UK Corporate Law and Corporate Governance before 1914: A Re-interpretation,” in Complexity and Crisis in the Financial System: Critical Perspectives on the Evolution of American and British Banking, ed. Hollow, Matthew, Akinbami, Folarin, and Michie, Ranald (Cheltenham, U.K., 2016), 183213 . Our findings support the general view of British corporate governance offered by Cheffins, Brian R., Corporate Ownership and Control: British Business Transformed (Oxford, 2008).

6 See Kennedy, William P., Industrial Structure, Capital Markets, and the Origins of British Economic Decline (Cambridge, U.K., 1987), esp. chap. 5; and Taylor, James, Boardroom Scandal: The Criminalization of Company Fraud in Nineteenth-Century Britain (Oxford, 2013).

7 Harris, Ron, “Political Economy, Interest Groups, Legal Institutions, and the Repeal of the Bubble Act in 1825,” Economic History Review 50 (Nov. 1997): 675–96. See also Harris, Ron, Industrializing English Law: Entrepreneurship and Business Organization, 1720–1844 (Cambridge, U.K., 2000). For the numbers of companies, see Freeman, Mark, Pearson, Robin, and Taylor, James, Shareholder Democracies? Corporate Governance in Britain and Ireland before 1850 (Chicago, 2012), 15 . The authors scoured repositories in Britain and Ireland and found records for over 1,400 joint-stock companies founded between 1720 and 1844. They selected for further study 514 companies that they considered representative. Of the 73 formed before 1800, only 17 (23 percent) were unincorporated. The number of new unincorporated companies accelerated in the new century, fell off as the legal environment became more uncertain, and then accelerated again. Businesspeople organized 45 joint-stock companies from 1800 to 1809, 20 of which (44 percent) were unincorporated; 41 from 1810 to 1819, 8 (20 percent) unincorporated; 39 from 1820 to 1824, 19 (49 percent) unincorporated; 70 from 1825 to 1829, 33 (47 percent) unincorporated; 189 from 1830 to 1839, 103 (54 percent) unincorporated; and 57 from 1840 to 1844, 24 (42 percent) unincorporated.

8 Butler, Henry N., “General Incorporation in Nineteenth Century England: Interaction of Common Law and Legislative Processes,” International Review of Law and Economics 6 (Dec. 1986): 169–88. For an overview of the disadvantages of the joint-stock form, see Harris, Industrializing English Law, chap. 6. John Morley has a more positive view of the form but agrees that the legal environment of the early nineteenth century erected obstacles to its use. See Morley, , “The Common Law Corporation: The Power of the Trust in Anglo-American Business History,” Columbia Law Review 116 (Dec. 2016): 2145–97. For the argument that unlimited forms were more advantageous for debt finance, see Bubb, Ryan, “Choosing the Partnership: English Business Organization Law during the Industrial Revolution,” Seattle University Law Review 38 (Winter 2015): 337–64.

9 Shannon, H. A., “The Coming of General Limited Liability,” Economic History 2 (Jan. 1931): 267–91; Todd, Geoffrey, “Some Aspects of Joint Stock Companies, 1844–1900,” Economic History Review 4 (Oct. 1932): 4671 ; Hunt, Bishop Carleton, The Development of the Business Corporation in England, 1800–1867 (Cambridge, Mass., 1936), 5760, 82–84; Harris, Industrializing English Law, 270–77.

10 The Joint Stock Companies Act, 1844, 7 & 8 Vict. c. 110. The act did not apply to “Banking Companies, Schools, and Scientific and Literary Institutions, and also Friendly Societies, Loan Societies, and Benefit Building Societies” (sec. 2). Railroad and insurance companies faced additional layers of regulation.

11 Rix, M. S., “Company Law: 1844 and To-Day,” Economic Journal 55 (Jun.–Sept. 1945): 242–60; Hunt, Development of the Business Corporation, 90–101; Harris, Industrializing English Law, 282–84; Freeman, Pearson, and Taylor, Shareholder Democracies, 34–38.

12 Companies Clauses Consolidation Act, 1845, 8 & 9 Vict. c. 16; Foreman-Peck and Hannah, “UK Corporate Law,” 186–91.

13 Compare the Joint Stock Companies Act, 1844, 7 & 8 Vict. c. 110, with the Joint Stock Companies Act, 1856, 19 & 20 Vict. c. 47 This change to default rules seems to have been the handiwork of Robert Lowe, the Board of Trade's new vice president. Ideologically committed to the idea that business arrangements should be left to the free workings of the market, Lowe favored allowing incorporators to choose their own governance rules: “Having given them a pattern, the State leaves them to manage their own affairs, and has no desire to force constitutions upon these little republics.” Lowe, Speech of the Rt. Hon. Robert Lowe, Vice-President of the Board of Trade, on the Amendment of the Law of Partnerships and Joint-Stock Companies, 1 Feb. 1856, 39. See also Searle, G. R., Entrepreneurial Politics in Mid-Victorian Britain (Oxford, 1993), 192–93.

14 For the current model, see Table A in “Model Articles of Association for Limited Companies,” Gov.UK, last updated 3 Mar. 2015, accessed 1 Apr. 2016,

15 The Companies Act, 1862, 25 & 26 Vict. c. 89.

16 See Lowe, Speech of the Rt. Hon. Robert Lowe. See also Companies Clauses Consolidation Act, 1845.

17 Freeman, Pearson, and Taylor constructed “a corporate governance index” that ranged in value from 0 to 18, with higher values representing increased shareholder power. The average score of companies in their database dropped from about 14 in the late eighteenth century to about 7.5 in the 1840s, signaling an erosion of shareholders’ position within companies. We calculate that the 1862 Table A would have scored 13 on this scale, so if it had been widely adopted, the table would have reversed this trend to a considerable extent. Freeman, Pearson, and Taylor report the average values of their corporate governance index in percentage terms in Shareholder Democracies, 243. For details on how they calculate the index, see 297n2.

18 Walker, J. D. and Watson, , Investor's and Shareholder's Guide, 2nd ed. (Edinburgh, 1894), 142 .

19 We chose these dates to correspond to samples we were collecting of company registrations in France and Germany for our larger project. See GHLR, “Putting the Corporation in Its Place.”

20 As we discuss in the appendix, these sample sizes are adequate for the types of analyses we do in this article. The smallness of the samples does prevent us from examining differences across industries, or other similar breakdowns, but companies varied so little in the kinds of revisions they made to Table A that we did not think it was worthwhile to expand the sample.

21 The number for all registrations is from the General Annual Report by the Board of Trade under the Companies (Winding-up) Act 1890 (1892). See the appendix for more information on how our samples compare to the general population of registrations.

22 Because our Burdett's sample includes only registered commercial and industrial companies formed from 1888 to 1892, it misses most of the large companies traded on the LSE, which were older, organized in transportation and other sectors, and/or chartered by statute. See Foreman-Peck, James and Hannah, Leslie, “Extreme Divorce: The Managerial Revolution in UK Companies before 1914,” Economic History Review 65 (Nov. 2012): 1217–38.

23 The historical literature on this point includes Hilt, Eric, “When Did Ownership Separate from Control? Corporate Governance in the Early Nineteenth Century,” Journal of Economic History 68 (Sept. 2008): 645–85; Musacchio, Aldo, “Law versus Contracts: Shareholder Protections and Ownership Concentration in Brazil, 1890–1950,” Business History Review 82 (Autumn 2008): 445–73; Bodenhorn, Howard, “Voting Rights, Shareholdings, and Leverage at Nineteenth-Century U.S. Banks,” Journal of Law and Economics 57 (May 2014): 431–58; and Gonzalo Islas Rojas, “Essays on Corporate Ownership and Governance” (PhD diss., University of California, Los Angeles, 2007).

24 On the contracting needs of small enterprises, see GHLR, “Pouvoir et propriété dans l'entreprise.”

25 Examples of the former include Dunlavy, Colleen A., “From Citizens to Plutocrats: Nineteenth-Century Shareholder Voting Rights and Theories of the Corporation,” in Constructing Corporate America: History, Politics, Culture, ed. Lipartito, Kenneth and Sicilia, David B. (New York, 2004), 6693 ; Dunlavy, “Corporate Governance”; Campbell, Gareth and Turner, John D., “Substitutes for Legal Protection: Corporate Governance and Dividends in Victorian Britain,” Economic History Review 64 (May 2011): 571–97; Acheson, Graeme G., Campbell, Gareth, Turner, John D., and Vanteeva, Nadia, “Corporate Ownership and Control in Victorian Britain,” Economic History Review 68 (Aug. 2015): 911–36; Hannah, Leslie, “Pioneering Modern Corporate Governance: A View from London in 1900,” Enterprise and Society 8 (Sept. 2007): 642–86; and Foreman-Peck and Hannah, “Some Consequences.” Examples of the latter include Acheson, Campbell, and Turner, “Common Law”; LLSV, “Law and Finance”; and Freeman, Pearson, and Taylor, Shareholder Democracies.

26 Percentages for the 1892 registration sample reported in this section of the paper include only the forty-two companies for which we have articles.

27 Contrast, for example, LLSV, “Law and Finance,” with Dunlavy, “From Citizens to Plutocrats,” and Dunlavy, “Corporate Governance.” For a contemporary view, see Chadwyck-Healey, Charles E. H., A Treatise on the Law and Practice Relating to the Articles of Association of Joint Stock Companies: With Precedents and Notes (London, 1875), 260 .

28 Table A did not make this practice explicit, but the articles of virtually all the companies in both of our 1892 samples did. The typical wording specified, “Every question submitted to a meeting shall be decided, in the first instance, by a show of hands. . . . At any general meeting, unless a poll is demanded by at least [five] members . . . a declaration by the chairman that a resolution has been carried . . . shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against such resolution.” This version is from the model articles of association in Sir Francis Beaufort Palmer, Company Precedents for Use in Relation to Companies Subject to the Companies Acts 1862 to 1890, 5th ed. (London, 1891), 285.

29 Some companies also required a minimum proportion of total share capital.

30 Writers of contemporary business manuals cited case law saying that the language in Table A meant that the poll might be “lawfully taken then and there,” not that it had to be. However, they recommended adding wording to the articles that specifically gave the chairman discretion over the time and place of the poll. They justified this ability to delay by referencing a principle in the case law that a poll was “an appeal to the whole constituency.” Its purpose was “to give others besides those who are present when the poll is demanded power to come in and exercise their right of voting.” See Palmer, Company Precedents, 286. See also Chadwyck-Healey, C. E. H., Wheeler, Percy F., and Burney, Charles, A Treatise on the Law and Practice Relating to Joint Stock Companies under the Acts of 1862–1900: With Forms and Precedents, 3rd ed. (London, 1894), 271–72.

31 Some companies specified that the poll had to occur within some specified interval (a week, two weeks, or a month), but most left the length of the interval to the chairman.

32 For examples, see the section on “Contemporary Views of Companies; Governance Practices.” LLSV, in “Law and Finance,” consider proxy voting to be a marker of good corporate governance and thus include it in their index, but contemporary newspaper accounts suggest that it generally enhanced directors’ control.

33 Palmer claimed that the “promoters generally nominate the first directors, and it is considered only fair that they should have a reasonable time to try their policy.” Palmer, Company Precedents, 298. Another treatise writer, F. Gore-Browne, similarly explained that Table A's clauses “are intended to give the members control over the nomination of directors; but in practice where directors have been named in the prospectus the members will prefer to secure the retention in office of the persons on the faith of whose names they have applied for shares, and accordingly the direction that the whole board shall retire is omitted, and a date about two years distant is named for the commencement of the rotation.” Gore-Browne, Concise Precedents under the Companies Acts, 2nd ed. (London, 1900), 151.

34 We did not include cases where the articles named a managing director for life (or for a long term) in the count of companies that formally entrenched directors because any company could use the managing-director provisions to accomplish the same end without revealing it in the articles.

35 To be more precise, the Companies’ Act stated that articles could be amended by special resolution, and that was the procedure that Table A set for removal of directors. Some companies made removal somewhat easier by allowing it to be done by extraordinary resolution (the same three-quarters vote but without the second confirming shareholders’ meeting). We do not report on these choices in the tables because by statute the articles could be amended by special resolution, so even companies that did not adopt the default article faced the same constraint.

36 The only articles we defined as making it more difficult to call an extraordinary meeting were those that required a proportion of either members or share capital greater than one-fifth.

37 These votes were so perfunctory that many companies set even lower quorums for voting for dividends than they did for other business at general meetings.

38 A small number sent the balance sheet out closer to the meetings, and a few gave shareholders the opportunity to come to the office to inspect the statement, but most of the rest required shareholders to attend the meeting to get financial information.

39 In many cases, shareholders could also resolve in a general meeting to grant access, but then all the voting hurdles described above came into play. As Palmer noted, “few companies allow members free access to the books.” Palmer, Company Precedents, 314.

40 Table A exempted directors from this rule if they were simply members of the companies involved.

41 See, for example, Djankov, Simeon, La Porta, Rafael, Lopez-de-Silanes, Florencio, and Shleifer, Andrei, “The Law and Economics of Self-Dealing,” Journal of Financial Economics 88 (June 2008): 430–65.

42 Cheffins, Corporate Ownership and Control, 75–76.

43 To obtain a special settlement, a company had to submit a prospectus and provide details about its share capital. Apparently, such applications were rarely refused. Cheffins quotes court testimony from an exchange member in 1910 claiming that “99 percent of the dealings in the shares of new companies were for special settlement.” Ibid., 196, 229. See also Michie, Ranald C., The London Stock Exchange: A History (Oxford, 1999), 8688 .

44 Jordan, William and Gore-Browne, F., Handy Book on the Formation, Management and Winding Up of Joint-Stock Companies, 18th ed. (London, 1895), 289–94. Although the listing committee did not balk at articles empowering managing directors, there is anecdotal evidence that it sometimes frowned at explicit entrenchment. See, for example, “Maple and Company,” Financial Times (hereafter FT), 24 Feb. 1897, 3; “The Guv'Nor,” FT, 9 Dec. 1899, 5; and “Maple and Company,” FT, 20 Nov. 1900, 3. However, our Burdett's sample includes several companies with entrenched directors that were listed on the LSE.

45 Cheffins, Corporate Ownership and Control, 75–76, 196–97. Based on an analysis of listing applications made by American brewery companies seeking access to London capital markets in the late nineteenth century, Mary O'Sullivan argues that the approval progress was more rigorous than Cheffins and other scholars have claimed. But her account focuses on the requirement that two-thirds of the nominal capital be allotted to the public and on other arrangements concerning the provision of capital, not on the corporate-governance rules with which we are concerned, and she admits that the LSE did not require financial disclosures to shareholders. See O'Sullivan, , “Yankee Doodle Went to London: Anglo-American Breweries and the London Securities Market, 1888–92,” Economic History Review 68 (Nov. 2015): 1365–87.

46 We have data on paid-in capital for twenty-seven of the companies in the 1892 registration sample. For these companies, the average ratio of paid-in to nominal capital was 33 percent. As shareholders typically paid for their shares in installments over time, we checked the 1897 reports of companies in the sample and found the value of paid-in capital for seventeen (including fourteen for which we had this information for 1892). The average ratio of paid-in to nominal capital for these seventeen companies was 84 percent, suggesting that nominal values did indeed capture the organizers’ ambitions. See also Harris, Ron, “The Private Origins of the Private Company: Britain 1862–1907,” Oxford Journal of Legal Studies 33 (Summer 2013): 339–78.

47 Companies with a nominal capital of £2,000 or less paid a flat fee of £2. The fee increased by £1 for every £1,000 up to £5,000 and then by five shillings for every £1,000 in capital up to $100,000, and then by one shilling for every additional £1,000. See Table B of the First Schedule of the 1862 Act.

48 The Mann-Whitney test is a nonparametric alternative to the more familiar t-test. Two other approaches yielded essentially the same results: chi-square tests of the difference in medians; and binary probit models for each clause, using nominal capitalization as the independent variable.

49 The one exception—the provision about calling an extraordinary general meeting—is not statistically significant.

50 In addition to the procedures for calling an extraordinary meeting, the exceptions (which are not statistically significant) are the voting rule and the quorum required for general meetings. The only firms for which the graduated scales specified in Table A had any meaning were those with a large number of shareholders, so it makes sense that the relatively few firms coded 0 for these clauses would be larger enterprises.

51 The only other outcome measure we have is whether the company survived for five years. We ran the same tests and found no correlation between any of the Table A clauses of interest and a company's survival.

52 As an additional check, we examined all amendments to the articles made by companies in the Burdett's sample before 1896 to see if, in order to secure a listing or otherwise improve the tradability of their shares, they revised their rules to make them more shareholder friendly. Twenty-one of the companies made changes to their articles during this period, but most of the revisions did not involve the corporate governance provisions on which we have focused. Four companies made it easier to call an extraordinary general meeting, three slightly tightened restrictions on directors’ conflict of interest (but the changes at best brought them into line with the modifications to Table A that most firms made), and one made its voting rule more equal. But other changes were less shareholder friendly. One firm changed its voting rule to disenfranchise holders of fewer than five shares, two delayed the first election of directors, two weakened financial disclosures to shareholders, two reduced shareholders’ powers over managing directors, and two increased directors’ entrenchment.

53 Walker and Watson, Investor's and Shareholder's Guide, 101.

54 Ibid., 143, 101, 148.

55 The Statist, by contrast, mainly reproduced without comment the prepared summaries of annual meetings that companies submitted to the press. One should not, of course, automatically assume that the accounts of bad corporate behavior in the Economist and the Financial Times were all true. There was plenty of inaccurate or even fraudulent reporting in the press, and potential investors had as good reason to suspect the veracity of the papers’ exposés as they did their puff pieces touting new investment opportunities. See Porter, Dilwyn, “‘A Trusted Guide of the Investing Public’: Harry Marks and the Financial News, 1884–1916,” Business History 28, no. 1 (1986): 117 ; Bignon, Vincent and Flandreau, Marc, “The Economics of Badmouthing: Libel Law and the Underworld of the Financial Press in France before World War I,” Journal of Economic History 71 (Sept. 2011): 616–53; Taylor, James, “Privacy, Publicity, and Reputation: How the Press Regulated the Market in Nineteenth-Century England,” Business History Review 87 (Winter 2013): 679701 ; and Kynaston, David, The Financial Times: A Centenary History (London, 1988), chap. 1.

56 “Exit South American and Mexican,” FT, 15 July 1893, 2.

57 “Lancashire and Yorkshire Water Gas Company,” FT, 17 Dec. 1892, 2.

58 “Maxim-Nordenfelt Guns and Ammunition,” FT, 4 Feb 1893, 5.

59 “Industrial and General Trust,” FT, 28 Apr. 1894, 3.

60 “De Beers Finance,” Economist, 8 Sept. 1894, 1103.

61 “The Nobel-Dynamite Trust Company, Limited,” Economist, 19 Aug. 1899, 1195; “United Horse Shoe and Nail Company,” FT, 22 Aug. 1893, 3; and “The Voigt Brewery,” FT, 4 July 1893, 2.

62 “Shenango Railway & Mercer Coal,” FT, 15 Feb. 1893, 3.

63 Many of the exceptions involved initial promotions. See “Round Oak Iron and Steel Works,” FT, 25 Apr. 1891, 3, and 28 Apr. 1891, 2; “Precocious Premiums,” FT, 27 Apr. 1889, 3; and “Ingall, Parsons, Clive and Company, Limited,” FT, 5 Sept. 1890, 1. Beyond news accounts of specific companies, what shareholders cared about can be inferred from the details the press routinely reported about new company registrations. These notices included the names and initial ownership interests of the directors, but the only other information they regularly took from the articles of association concerned the remuneration of the directors and the number of shares they had to own to qualify for office. If the articles entrenched particular directors, the accounts would usually note that fact, but otherwise they reported no details of corporate governance, not even the voting powers of the various classes of shares.

64 See Cheffins, Brian R., “Dividends as a Substitute for Corporate Law: The Separation of Ownership and Control in the United Kingdom,” Washington and Lee Law Review 63 (Fall 2006): 1273–338. For quantitative evidence, see Campbell and Turner, “Substitutes for Legal Protection.”

65 See, for example, “B. Birnbaum and Son,” FT, 10 Mar. 1891, 4; “Leech, Neal and Company, Limited,” FT, 22 Feb. 1890, 6; “Leeds Forge Company, Limited,” FT, 6 Mar. 1890, 3; and “Stroud Brewery Company, Limited,” FT, 18 June 1890, 5, and 1 July 1891, 3. Thanks might be voted to the directors even though the year's results were disappointing. See, for example, “River Plate Fresh Meat,” FT, 21 Oct. 1892, 3; “New Wire Wove Roofing,” FT, 9 July 1892, 3; and “H. Spicer and Co., Limited,” FT, 4 Sept. 1890, 5. On the role of annual meetings more generally, see Rutterford, “Shareholder Voice.”

66 “Mason and Mason,” FT, 7 Aug. 1891, 4–5. See also “Mason and Mason,” FT, 26 Aug. 1892, 3. Sometimes shareholders awarded directors bonuses for particularly good performance. See, for example, “George Angus and Company,” FT, 12 Jan. 1891, 5.

67 See, for example, coverage of shareholders’ complaints about J. Nunneley & Co., Ltd., in FT, 11 Nov., 18 Nov., 28 Nov., and 9 Dec. 1889 and 19 Dec. and 21 Dec. 1891. In the end, the company dissolved. See also “Muntz's Metal Company,” FT, 10 Mar. 1891, 4.

68 See, for example, the account of an extraordinary meeting of “The Linotype Company, Limited,” FT, 28 Aug. 1890, 5.

69 See, for example, “Millom & Askam Hematite Iron,” FT, 30 Dec. 1899, 2; “The Welsh Whisky Distillery Company,” FT, 3 Dec. 1890, 5; and “Plate River Fresh Meat,” FT, 18 Oct. 1893, 3.

70 “Charles Baker and Co.,” FT, 3 Apr. 1895, 2.

71 “Charles Baker and Company,” FT, 1 Apr. 1896, 2.

72 “National Explosives Company,” FT, 26 Nov. 1892, 4.

73 “National Explosives,” FT, 19 Mar. 1898, 2–3.

74 “Joseph Robinson and Company,” FT, 8 Mar. 1890, 4.

75 “The Fowler-Waring Cables Company,” FT, 6 Dec. 1890, 2; and “Fowler-Waring Cables,” FT, 16 Dec. 1891, 6. The company seems never to have prospered, and it was reorganized in 1896. See “Fowler-Waring Cables Company, Ltd,” FT, 12 Feb. 1896, 2.

76 Report of the Departmental Committee to Inquire What Amendments Are Necessary in the Acts Relating to Joint Stock Companies Incorporated with Limited Liability under Companies Acts, 1862–1890, series C. 7779 (London, 1895) vii, para. 12 (hereafter, Davey Committee Report).

77 Ibid., xviii.

78 Companies Act of 1900, 63 & 64 Vict. c. 48.

79 U.K. Board of Trade, Annual Report (1923).

80 The committee was initially chaired by R. T. Reid, 1st Earl of Loreburn, but when Loreburn became Lord Chancellor in December 1905, C. M. Warmington became chair. We use the name Warmington Committee throughout to avoid confusion. Report of the Company Law Amendment Committee, Cd. 3052 (1906), 104.

81 Companies Act, 1907, 7 Edw. 7 c. 50. See GHLR, “Putting the Corporation in Its Place,” 605–6.

82 U.K. Board of Trade, General Annual Report (1908–21) and Report (1922–30).

83 Of course, the average size of public companies was much larger, so Figure 1 would look different if the numbers were weighted by capitalization. In 1915, the average nominal capital of public companies was £85,900, as opposed to £9,300 for private companies; in 1922, £112,300 for public and £10,300 for private; and in 1929, £250,500 for public and £9,100 for private. “Company Registrations,” FT, 28 Jan. 1916, 4, and 11 Jan. 1923, 4; and “Company Registrations in 1929,” Economist, 8 Feb. 1930, 316.

84 This particular wording comes from clause 2 of the Articles of Association of the Rapide Detachable Wheel Syndicate, Limited, filed in 1912.

85 Companies Act 1862, 25 & 26 Vict. c. 89, sec. 71.

86 See Appendix 18 to the Report of the Company Law Amendment Committee, 103. The committee solicited the views of chambers of commerce across the country. Most responded that Table A was out of date and should be revised, with some suggesting specific changes. The Nottingham chamber proposed making key provisions of the table unalterable. See ibid., 66–69. See also Sir Francis Gore-Brown's preface to Hemmant, David Ground, Table A (Revised, 1906) with Introduction, Notes, and Comments (London, 1906).

87 Palmer's Company Precedents and Company Law: A Practical Handbook for Lawyers & Business Men and Gore-Browne's Concise Precedents under the Companies Act and Handbook on the Formation, Management and Winding Up of Joint Stock Companies went through multiple editions in the late nineteenth and early twentieth centuries.

88 Table A (Revised 1906), Companies Acts, 1862–1900, BT 58/17/COS/1705, National Archives, Kew, U.K.

90 Companies (Consolidation) Act, 1908, 8 Edw. 7 Ch. 69, First Schedule, Table A. We use the 1908 version in the analysis that follows.

91 We are not including people named as permanent managing directors in this calculation, because the managing-director clause allowed any firm to give such a director a lifetime appointment without having to specify it in the articles.

92 Public companies were on average somewhat larger than private companies, but the size distributions overlapped, and in neither year were large firms significantly more likely to be public. As noted above, companies that chose to be private did not give up their right to raise capital externally. Indeed, 66 percent of the private companies in 1912 and 57 percent in 1927 included in their articles a clause allowing them to pay a commission to individuals who found buyers for their shares.

93 Public companies were less likely to entrench, but the difference was significant only for 1927. In 1912, but not 1927, they were significantly less likely (though only at the 10 percent level) to water down the conflict of interest provision. Even in 1912, however, 88 percent of public firms made this modification. Otherwise, there were no significant differences between the public and private companies in the samples, except that the three public firms in 1927 all sent shareholders balance sheets at least seven days in advance of the general meeting and two of them allowed shareholders to elect a full board at the first general meeting. Because there were so few public companies, we do not report these results in a table.

94 Most of the largest companies on the LSE, as Foreman-Peck and Hannah have shown in “UK Corporate Law,” were statutory companies whose governance rules were imposed by the Companies Clauses Consolidation Act. One testable prediction would be that dividend rates for these companies would be much lower than those of successful registered companies. If so, the evidence in this article would be consistent with the proposition that firms chose governance attributes endogenously. See Adams, Renée B., Hermalin, Benjamin E., and Weisbach, Michael S., “The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey,” Journal of Economic Literature 48 (Mar. 2010): 58107 .

95 See Kennedy, William P., “Institutional Response to Economic Growth: Capital Markets in Britain to 1914,” in Management Strategy and Business Development: An Historical and Comparative Study, ed. Hannah, Leslie (London, 1976), 151–83; and Kennedy, Industrial Structure, esp. chap. 5.

96 Edelstein, Michael, “Realized Rates of Return on U.K. Home and Overseas Portfolio Investment in the Age of High Imperialism,” Explorations in Economic History 13 (July 1976): 283329 ; and Edelstein, Michael, Overseas Investment in the Age of High Imperialism: The United Kingdom, 1850–1914 (New York, 1982).

97 Chabot, Benjamin R. and Kurz, Christopher J., “That's Where the Money Was: Foreign Bias and English Investment Abroad, 1866–1907,” Economic Journal 120 (Sept. 2010): 1056–79.

98 On the dangers of too much shareholder control, see Lazonick, William, “The US Stock Market and the Governance of Innovative Enterprise,” Industrial and Corporate Change 16 (Dec. 2007): 9831035 .

99 See Nelson, Richard R. and Winter, Sidney G., An Evolutionary Theory of Economic Change (Cambridge, Mass., 1982).

100 BT 31, Board of Trade: Companies Registration Office: Files of Dissolved Companies, National Archives, Kew, United Kingdom.

101 Some of these differences may have resulted from exogenous economic conditions (the 1927 firms, for example, suffered the Great Depression), changes in the kinds of companies that were incorporated, changes in voluntary liquidation procedures that made it easier to dissolve, or other changes that made it more costly not to dissolve inactive companies.

We have benefitted from the helpful comments and information we received from Brian Cheffins, Paul Davies, Joshua Getzler, Richard Grossman, Leslie Hannah, Mark Roe, Jean-Laurent Rosenthal, Francesca Trivellato, two anonymous referees, and participants in the Yale Economic History Lunch, the NBER Summer Institute (Development of the American Economy Group), the CIG-Project EVOBUSORG Conference on the History of Business Organization and Law at Dokuz Eylül University, the Toronto, Siena & Tel Aviv Law & Economics Workshop, the Small, Medium-Sized and Large Company in Law and Economic Practice Conference in Brussels, the conference “Corporate Law in Historical Perspective” at the London School of Economics, the conference on “The History of Law and Business Organization” at the Harvard Business School, and seminars and lectures at Assumption University of Thailand, Queen's University (Belfast), Queen's University (Kingston); the Ratio Institute (Stockholm), Stanford University, the University of Auckland Law School, the University of Michigan Law School, the University of Minnesota Law School, UC Berkeley, UC Davis, and the Wharton School. We would also like to express our appreciation to our able research assistants Catherine Arnold, Anna Demaree, Mor Greif, Rachel Jones, Stephanie Kan, Adèle Rossouw, Kelli Reagan, Anne Ruderman, Lauren Talmor, Antonia Woodford, and Roy Zur. This project was supported by grants from the National Science Foundation, the Israel Science Foundation, and the Yale Economic Growth Center.

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Business History Review
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