Published by EH.Net (December 2012)

Mark Freeman, Robin Pearson and James Taylor, Shareholder Democracies? Corporate Governance in Britain and Ireland before 1850.  Chicago: University of Chicago Press, 2012.  xiv + 339 pp.  $65 (hardcover), ISBN: 978-0-226-26187-4.

Reviewed for EH.Net by Eric Hilt, Department of Economics, Wellesley College

Throughout the eighteenth and early nineteenth centuries, the British legal and political systems posed problems for entrepreneurs seeking to establish large firms.  Acts of incorporation were difficult to obtain, so multi-owner firms were often organized in the legal forms of trusts or partnerships, which were not always well suited to the needs of those enterprises.  In addition, the Bubble Act (1720-1825) prohibited unincorporated firms with transferable shares, and companies that operated in defiance of that statute sometimes faced important legal risks.  Ultimately in 1844 the Companies Act created a registration procedure which facilitated open access to incorporation, although initially without limited liability.  But it is a remarkable fact that the years that saw the industrial revolution flourish in Britain were a time when British company law was relatively unfriendly to the needs of many entrepreneurs.

Does this mean that British law and politics didn’t matter?  Analyzing the impact of these forces requires an understanding of how firms were actually organized, and how the legal framework within which they operated shaped their development and governance.  This is especially challenging because unincorporated firms were not registered by the state, which means that there were generally few official records of their existence.  Compiling data on these enterprises therefore requires painstaking searches through archives for whatever shreds of evidence of their organization and operations that may survive.

This is exactly what Mark Freeman, Robin Pearson and James Taylor have done for their book Shareholder Democracies? Corporate Governance in Britain and Ireland before 1850. The authors, historians from the universities of Glasgow, Hull, and Lancaster, undertook a systematic search of public and private archives in England, Scotland, Ireland and Wales for “company constitutions” – the founding documents of firms – from the years 1720 to 1844.  From the records they found, the authors constructed a sample of 514 companies, about 45 percent of which were unincorporated.  The authors argue that the sample is probably equivalent to about one-third of all such firms in existence during the period.  The sample contains companies in a wide range of industries, from banks to railroads to (this being Britain) “colonial” enterprises.

The data at the heart of the book provide the first systematic characterization of the organization of British companies from the era between the Bubble Act and the Companies Act. Although little data on company performance survives, and therefore the authors cannot ask whether firms organized in particular ways grew faster or survived longer, there is incredibly rich detail on the organization and governance of the firms.  For example, the authors are able to document a relative increase in the proportion of unincorporated firms over time.  And they are able to observe whether or not the firms attempted to contractually limit the liability of their shareholders, and to characterize the rights of shareholders with respect to votes in company elections, access to company accounts, and the decision to dissolve the company. From their detailed tabulations, we get a sense of how the governance of British companies actually functioned, and how it evolved over time.

The main questions explored by the authors concern changes in British politics and their relationship to the organization of the sample firms.  One of the most striking findings of the book is that over time, the governance of British companies became less “democratic” and subject to direct oversight by shareholders.  Initially, many decisions were to be made by general meetings of shareholders, which resembled town meetings or even parliaments in their own way.  But over time, fewer matters were decided by general meetings of shareholders, director elections became staggered so that only a fraction of the board was elected each year, and provisions intended to protect the rights of small shareholders by giving them disproportionate voting power were used less frequently.  The authors argue that this process of evolution was closely related to similar changes occurring at the same time in British politics, particularly at the local level, and note that joint-stock companies were frequently compared to “close boroughs.” An alternative explanation for the observed patterns might be changes in the scale of businesses, which may have increased the gains from delegating management to full-time professionals.  Nonetheless, the authors persuasively make the case that there was a broad and general change in what might be termed “organizational culture” in Britain over their sample period.  Thus, politics, the law, and business organizations all evolved together.

Readers familiar with the American experience with business corporations will notice some interesting contrasts with the British history described in the book. For example, like their British counterparts, American corporations gradually abandoned the use of voting schemes designed to protect small shareholders.  But this was at least partly related to efforts to broaden access to the corporate form in the U.S.  In the American context, those voting measures were often imposed with the intention of restricting the political influence of powerful corporations, by empowering small investors to restrain insiders who could use the resources of the firms for corrupt purposes.  Broadening access to the corporate form, which diluted the political power of existing enterprises, helped address the problem more effectively.

It should be noted that some elements of the book’s sample design, while perhaps necessary for practical reasons, limit the scope and representativeness of the data in important ways.  For example, there is a danger that the records of larger firms, or firms organized in a particular ways, were more likely to survive to the present, and the authors do not seem to have addressed this issue systematically.  If business directories, tax assessments, or other such records could be used to construct lists of all existing companies within a particular jurisdiction at a given time, they could have been used to assess the representativeness of at least some parts of the sample, or perhaps even to improve the sample design.  In addition, although the book does frequently discuss the history of the East India Company in its analysis, the exclusion of firms created prior to 1720 prevents the authors from investigating the early origins of the governance systems they observe, or the relationship between politics and business organizations over different periods.

Nonetheless this book makes a valuable contribution to the study of the history of the company in Britain.  It should be of interest to economic and business historians interested in corporate governance, or organizations more generally.

Eric Hilt is Associate Professor of Economics at Wellesley College, and Research Associate of the NBER. His publications include “When Did Ownership Separate From Control? Corporate Governance in the Early Nineteenth Century,” Journal of Economic History, 2008; “Democratic Dividends: Stockholding, Wealth and Politics in New York, 1791-1826,” Journal of Economic History, 2012; and “Shareholder Voting Rights in Early American Corporations,” Business History, forthcoming.

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2012). All EH.Net reviews are archived at