Abstract
We review the scale and power of the corporation and compare it to national governments, showing that its impact on the natural environment and society is beyond the powers of regulation of any individual state. We explore the origins of the corporate form, from its early days as a vehicle for imperial expansion to its proliferation as the primary form of almost all economic activity. The scale and ubiquity of the corporation poses the question of how the company is governed: in short, its ownership and control. The rapid evolution of corporate governance as a focus of regulatory concern, and financial consequence, is explained as a response to harness this tremendous economic power to the wider objectives of the financial ecosystem.
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- 1.
Hansmann et al. (2006) argue that entity shielding is an innovation that can only arise from the law, whereas limited liability, a more celebrated form of asset partitioning, can be implemented through the operation of contracts. Mahoney (2000) argues that entity shielding can and indeed did arise from contracts: “For most of the seventeenth and eighteenth centuries, the separate personality of business organizations survived in practice despite judicial and legislative attempts to undermine it.”
- 2.
Reflecting on the success of the English experiment to expand cheap company registration and invite a wider participation by offering limited liability in the late nineteenth century, The Economist commented that “the economic historian of the future may assign to the nameless inventor of the principle of limited liability, as applied to trading corporations, a place of honour with Watt and Stephenson, and other pioneers of the industrial revolution. The genius of these men produced the means by which man’s command of natural resources was multiplied many times over; the limited liability company the means by which huge aggregations of capital required to give effect to their discoveries were collected, organised and efficiently administered.” The Economist, December 18, 1926—quoted in Hunt (1936).
- 3.
See Bowen (2000) for a short history of the Company, written to commemorate the 400th anniversary of its founding.
- 4.
Lal (2018) notes that it took Roe a long time to understand that he had to negotiate with Nur Jahan as the effective ruler and not Jahangir. There is no record among the extensive documents of the Mughal court that Jahangir ever met Roe, or that he granted any trading privileges to him or the EIC.
- 5.
The outcome of 1757 battle of Plassey was sealed by bribery and duplicity rather than military prowess. It has been described as ‘a transaction’ rather than a battle.
- 6.
Pyramidal groups are an affiliated group of companies, controlled by an apex shareholder through direct and indirect control holdings. Very often, pyramidal groups allow one company or family to control an empire of companies with a relatively small portion of the invested capital of the companies within the group. See section I.C of La Porta et al. (1999) for examples of pyramidal groups.
- 7.
Some markets have layers of both civil and common law frameworks, explained by the history of waves of colonization bringing different legal systems to bear (Indonesia and the Philippines being examples of countries where such complexities apply).
- 8.
Between 1976 and 2016, the number of listed companies per capita in the U.S. dropped from 23 to 11. See Doidge, Kahle, Karolyi, and Stulz (2018) for a detailed analysis of this phenomenon.
- 9.
The share of equity capital raised through initial public offerings of $100 million or less in advanced economies fell steadily from 21% in 1994–2000 to 11% in 2014 (Organisation for Economic Cooperation and Development, 2015).
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Bose, S., Dong, G., Simpson, A. (2019). Governing the Corporation. In: The Financial Ecosystem. Palgrave Studies in Impact Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-05624-7_3
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