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.
| Original language | English |
|---|---|
| Pages (from-to) | 227-277 |
| Number of pages | 51 |
| Journal | Business History Review |
| Volume | 91 |
| Issue number | 2 |
| DOIs | |
| State | Published - 2017 |
| Externally published | Yes |
Bibliographical note
Funding Information:Guinnane Timothy W. TIMOTHY W. GUINNANE is the Philip Golden Bartlett Professor of Economic History in the department of economics at Yale University. His research interests include the demographic and financial history of western Europe. His current projects include theoretical and empirical investigations of the choice of enterprise form in the late nineteenth and early twentieth centuries. Harris Ron RON HARRIS is a professor of legal history, faculty of law, Tel-Aviv University. His main research fields are the history of the corporation and of other forms of business organization, the history of bankruptcy and consumer credit, and Israeli legal history. He is currently working on three main projects: the legal-economic organization of early modern Eurasian trade; organizational choices and contractual flexibility in Britain (as part of a comparative project on France, Germany, Britain, and the United States); and on the transplantation of company law in the British Empire. Lamoreaux Naomi R. NAOMI R. LAMOREAUX is the Stanley B. Resor Professor of Economics and History at Yale, Chair of the Yale history department, and a research associate at the National Bureau of Economic Research. Her most recent publication is Corporations and American Democracy (2017), coedited with William Novak, which contains an essay she coauthored with Ruth Bloch on “Corporations and the Fourteenth Amendment.” She is engaged in ongoing research projects on the market for patents in U.S. history, business organizational forms, the organizational roots of the right to privacy, and the importance of state constitutional changes for American economic and political development. 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. 02 08 2017 Summer 2017 91 2 227 277 Copyright © The President and Fellows of Harvard College 2017 2017 The President and Fellows of Harvard College 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. pdf S0007680517000733a.pdf
Publisher Copyright:
© 2017 The President and Fellows of Harvard College.