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December 31, 2003
Book Review--The Company: A Short History of a Revolutionary Idea
    by Peter Kinder

This new book betrays the promises of its title except in its brevity, according to Peter Kinder, president of KLD Research and Analytics.

John Micklethwait and Adrian Wooldridge give their book, The Company: A Short History of a Revolutionary Idea, an intriguing title. The two senior Washington staffers for The Economist undoubtedly knew the title would evoke the CIA, which Grisham types often refer to as "the Company." However, The Company is not about the CIA, nor is it about the general run of "companies." It focuses on what the authors call the "joint stock company," an anachronistic term for what most English speakers would call the "corporation."

In fact, the only accurate term in the title is “short,” as the book is not so much a history as it is a survey of the type The Economist now runs, and what the authors identify is not so “revolutionary” an idea, as it turns out.

Presumably, The Company is a history because it purports to cover business organizations from 3000 BCE to the present. However, the authors’ demonstrate limited ability to convey history with precision.

“[Businesspeople] had long dreamed, as the chairman of Dow Chemical once put it, ‘of buying an island owned by no nation and of establishing the world headquarters of the Dow company on the truly neutral ground of such an island, beholden to no nation or society,’” write Messrs. Micklethwait and Wooldridge.

As to the quotation, one can identify “who” (sort of, since Dow had a number of Chairs in its 90 odd years) and “what,” but “where,” “when,” and “why” are missing, as is the footnote that should source this eye-popping statement.

The “revolutionary idea” of the title is what is called in the US “general incorporation,” the concept that anyone who wants to incorporate can, simply by registering with an administrative office and paying a fee.

Messrs. Micklethwait and Wooldridge credit the UK Companies Act of 1862 with introducing the idea. In fact, a number of American states--Ohio and Wisconsin among them--had adopted it a decade or more earlier.

General incorporation, the authors assert, unleashed the various “revolutions” in management that in turn led to the technological and organizational innovations--from the railroad to the virtual company--of the last century and a half.

Their theory is debatable. The protections of limited liability and the benefits of fungible stock seem an improbable prompt for what Alfred Chandler’s “visible hand” of management unleashed in the 19th century’s last three decades. Much innovation appears to have already been underway, especially in manufacturing and transportation.

The sorry state of business and economic history makes it unlikely we’ll have an answer anytime soon. Worse, we lack an authoritative general history of the corporate form that would help frame the issue.

This much, though, is clear: general incorporation was not a revolutionary idea. Far from it. It was just the mid-nineteenth century fix--and a desperate one--for the scandalous process of gaining corporate charters.

For 250 years, each corporate charter, and its renewal, had been the subject of negotiation lubricated liberally with lobbyists’ lucre. By the 1840s, newspapers in Ohio described the “auctions” of corporate powers conducted during state legislature sessions.

General incorporation, over time, gaveled down the auctions. But, it also ended the restrictions on corporate actions and the limits on a corporation’s life that had been the subject of intense negotiation between incorporators and elected officials.

Without intending it, the mid-nineteenth century reformers unleashed the immortal, omni-competent corporation. The Company treats this unintended, unanticipated, unanticipatable consequence as an unqualified good. Another debatable point.

Messrs. Micklethwait and Wooldridge fail to mention the area in which general incorporation unquestionably produced a “revolutionary” effect: wealth accumulation and concentration. What made general incorporation revolutionary was the understanding of how the limited liability company with its quasi-governmental privileges and immunities could store and shelter wealth.

The ascendancy of general incorporation coincided with America’s first plutocratic era, the well-named “Gilded Age,” which lasted from 1865 to 1900. Today at the apogee of the second US Gilded Age, “corporate governance” (a topic The Company addresses not at all) attracts reformers’ attention--primarily because it is manageable, understandable. The imbalance in power between our civil and corporate institutions and the growing inequities in wealth seem too complex, too controversial, too confrontational to deal with.

The fate of the “revolutionary idea”--general incorporation--lies for the moment with its beneficiaries. That moment is not likely to last much longer. If they do not advance substantive reforms, someone else will.

The one iron law of history may be that too much wealth concentrated in too few entities attracts too much attention.

Peter Kinder is the president of KLD Research & Analytics. The views expressed here are his and do not necessarily represent the views of his employer.


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