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."
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.
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.
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
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
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
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
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