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Active Controllers or Wealthy Rentiers? Large Shareholders in Victorian Public Companies

  • Graeme G. Acheson, Gareth Campbell and John D. Turner

Abstract

This article addresses the issue of whether large shareholders in Victorian public companies were active in the control of companies or were simply wealthy rentiers. Using ownership records for 890 firm-years, we examine the control rights, socio-occupational background, and wealth of large shareholders. We find that many large shareholders had limited voting rights and neither they nor family members were directors. This implies that the majority of public companies in the second half of the nineteenth century cannot be characterized as family companies and that large shareholders are better viewed as wealthy gentlemen capitalists rather than entrepreneurs.

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1 For an excellent summary and critique of this view, see Hannah, Leslie, “The Divorce of Ownership from Control from 1900: Recalibrating Imagined Global Historical Trends,Business History 49, no. 4 (2007): 404–38.

2 The literature on when ownership separated from control in the U.K. posits a wide variety of possibilities; see P. S. Florence, Ownership, Control and Success of Large Corporations: An Analysis of English Industrial Structure and Policy, 1936–1951 (London, 1961); Nyman, Steve and Silberston, Aubrey, “The Ownership and Control of Industry,Oxford Economic Papers 30, no. 1 (1978): 74101; Scott, John, “Corporate Control and Corporate Rule: Britain in an International Perspective,British Journal of Sociology 41, no. 3 (1990): 351–73; Leech, Dennis and Leahy, John, “Ownership Structure, Control Type Classifications and the Performance of Large British Companies,Economic Journal 101, no. 409 (1991): 1418–37; Brian R. Cheffins, Corporate Ownership and Control: British Business Transformed (Oxford, 2008); Coffee, John C., “The Rise of Dispersed Ownership: The Roles of Law and the State in the Separation of Ownership and Control,Yale Law Journal 111, no. 1 (2001): 182; Roe, Mark J., “Political Preconditions to Separating Ownership from Corporate Control,Stanford Law Review 53, no. 3 (2000): 539606; Franks, Julian, Mayer, Colin, and Rossi, Stefano, “Ownership: Evolution and Regulation,Review of Financial Studies 22, no. 10 (2009): 4009–56; Hannah, “Divorce of Ownership”; and Foreman-Peck, James and Hannah, Leslie, “Extreme Divorce: The Managerial Revolution in U.K. Companies before 1914,Economic History Review 65, no. 4 (2012): 1217–38. In particular, Hannah, “Divorce of Ownership,” and Foreman-Peck and Hannah, “Extreme Divorce,” argue that ownership had separated from control by 1900. There is also debate with respect to the United States; see Adolf Berle and Gardiner Means, The Modern Corporation and Private Property (New York, 1932); Cheffins, Brian R. and Bank, Steve, “Is Berle and Means Really a Myth?Business History Review 83 (Autumn 2009): 443–74; Holderness, Clifford G., “The Myth of Diffuse Ownership in the United States,Review of Financial Studies 22, no. 4 (2009): 13771408; and Lipartito, Kenneth and Morii, Yumiko, “Rethinking the Separation of Ownership from Management in American History,Seattle University Law Review 33, no. 4 (2010): 1025–63. Eric Hilt finds diffuse ownership in New York in the early part of the nineteenth century; see Hilt, , “When Did Ownership Separate from Control? Corporate Governance in the Early Nineteenth Century,Journal of Economic History 68, no. 3 (2008): 645–85.

3 On the liberalization of incorporation law in the U.K. and the emergence of large companies, see Philip L. Cottrell, Industrial Finance, 1830–1914 (London, 1980); James B. Jefferys, Business Organisation in Great Britain, 1856–1914 (New York, 1977); Payne, Peter L., “The Emergence of the Large-Scale Company in Great Britain, 1870–1914,Economic History Review 20, no. 3 (1967): 519–42; and James Taylor, Creating Capitalism: Joint-Stock Enterprise in British Politics and Culture, 1800–1870 (London, 2006), 135–75.

4 Acheson, Graeme G., Campbell, Gareth, Turner, John D., and Vanteeva, Nadia, “Corporate Ownership and Control in Victorian Britain,Economic History Review 68, no. 3 (2015): 911–36.

5 The 1855 Limited Liability Act (18 & 19 Vict., c. 113) was repealed, but reenacted in 1856 (19 & 20 Vict., c. 47). The 1856 Act granted free incorporation with limited liability. A consolidation of existing company legislation occurred with the passage of the 1862 Companies Act (25 & 26 Vict., c. 89).

6 Ranald C. Michie, The London Stock Exchange (Oxford, 1999), 88–89; Grossman, Richard S., “New Indices of British Equity Prices, 1870–1913,Journal of Economic History 62, no. 1 (2002): 121–46; Rutterford, Janette, Green, David R., Maltby, Josephine, and Owens, Alastair, “Who Comprised the Nation of Shareholders? Gender and Investment in Great Britain, c. 1870–1935,Economic History Review 64, no. 1 (2011): 157–87. On this role of large shareholders, see Shleifer, Andrei and Vishny, Robert W., “Large Shareholders and Corporate Control,Journal of Political Economy 94, no. 3 (1986): 461–88; Shleifer, Andrei and Vishny, Robert W., “A Survey of Corporate Governance,Journal of Finance 52, no. 2 (1997): 737–83; La Porta, Rafael, Lopez-de-Silanes, Florencio, and Shleifer, Andrei, “Corporate Ownership around the World,Journal of Finance 54, no. 2 (1999): 471517; and Becker, Bo, Cronqvist, Henrik, and Fahlenbrach, Rüdiger, “Estimating the Effects of Large Shareholders Using a Geographic Instrument,Journal of Financial and Quantitative Analysis 46, no. 4 (2011): 907–42.

7 Colin Mayer, Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in It (Oxford, 2013).

8 Hilt, “When Did Ownership Separate”; Aldo Musacchio, Experiments in Financial Democracy: Corporate Governance and Financial Development in Brazil, 1882–1950 (Cambridge, U.K., 2009), 105–26.

9 Alfred D. Chandler Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass., 1990), 240.

10 Elbaum, Bernard and Lazonick, William, “The Decline of the British Economy: An Institutional Perspective,Journal of Economic History 44, no. 2 (1984): 567–83. For an opposing view, see McCloskey, D. N., “Did Victorian Britain Fail?Economic History Review 23, no. 3 (1970): 446–59, and McCloskey, D. N. and Sandberg, L., “From Damnation to Redemption: Judgments on the Late Victorian Entrepreneur,Explorations in Economic History 9, no. 1 (1971): 89108.

11 Ranald C. Michie, Guilty Money: The City of London in Victorian and Edwardian Culture, 1815–1914 (London, 2009); Anderson, B. L. and Cottrell, Philip L., “Another Victorian Capital Market: A Study of Banking and Bank Investors on Merseyside,Economic History Review 28, no. 4 (1975): 600615; Newton, Lucy A. and Cottrell, Philip L., “Female Investors in the First English and Welsh Commercial Joint-Stock Banks,Accounting, Business and Financial History 16, no. 2 (2006): 315–40; Turner, John D., “Wider Share Ownership? Investors in English Bank Shares in the Nineteenth Century,Economic History Review 62, no. 1 (2009): 167–92; Acheson, Graeme G. and Turner, John D., “Investor Behavior in a Nascent Capital Market: Scottish Bank Shareholders in the Nineteenth Century,Economic History Review 64, no. 1 (2011): 188213; John F. Wilson, Lighting the Town: A Study of Management in the North West Gas Industry, 1805–1880 (London, 1991); S. A. Broadbridge, “The Sources of Railway Share Capital,” in Railways in the Victorian Economy, 184–211; Campbell, Gareth and Turner, John D., “Dispelling the Myth of the Naive Investor during the Railway ‘Mania’ Boom in Britain, 1845–46,Business History Review 86 (Spring 2012): 341; Pollins, Harold, “The Finances of the Liverpool and Manchester Railway,Economic History Review 5, no. 1 (1952): 9097; M. C. Reed, “Railways and the Growth of the Capital Market,” in Railways in the Victorian Economy, 162–83. M. C. Reed, Investment in Railways in Britain, 1820–1844: A Study in the Development of the Capital Market (Oxford, 1975); Rutterford, Janette and Maltby, Josephine, “The Nesting Instinct: Women and Investment Risk in a Historical Context,Accounting History 12, no. 3 (2007): 305–27; Rutterford, Janette and Maltby, Josephine, “The Widow, the Clergyman, and the Reckless: Women Investors in England, 1830–1914,Feminist Economics 12, nos. 1–2 (2006): 111–38; Rutterford et al., “Who Comprised the Nation.”

12 For a case study of one large investor in the Victorian era, see Michie, Ranald C., “Income, Expenditure, and Investment of a Victorian Millionaire: Lord Overstone, 1823–83,Historical Research 58, no. 137 (1985): 5977.

13 This view was put forward in the Macmillan Report (Report of Committee on Finance and Industry, House of Commons, 1931). See, also, Michael Edelstein, Overseas Investment in the Age of High Imperialism: The United Kingdom, 1850–1914 (New York, 1982); Pollard, Sidney, “Capital Exports, 1870–1914: Harmful or Beneficial?Economic History Review 38, no. 4 (1985): 489514; William P. Kennedy, Industrial Structure, Capital Markets, and the Origins of British Economic Decline (Cambridge, U.K., 1987); Kevin H. O'Rourke and Jeffery G. Williamson, Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy (Cambridge, U.K., 1999), chap. 12; Goetzmann, William N. and Ukhov, Andrey D., “British Investment Overseas, 1870–1913: A Modern Portfolio Theory Approach,Review of Finance 10, no. 2 (2006): 261300; Chabot, Benjamin R. and Kurz, Christopher J., “That's Where the Money Was: Foreign Bias and English Investment Abroad, 1866–1907,Economic Journal 120, no. 547 (2010): 1056–79; Grossman, Richard S., “Bloody Foreigners! Overseas Equity on the London Stock Exchange, 1869–1928,Economic History Review 68, no. 2 (2015): 471521.

14 19 & 20 Vict., c. 47; 25 & 26 Vict. c. 89.

15 The Course of the Exchange reported prices of securities traded on the London market whereas the Investor's Monthly Manual also reported prices of securities traded the provincial markets.

16 In total, these two price lists provided a sample of 2,765 public companies; after searching the BT2 and BT31 catalogs, we uncovered ownership records for around nine hundred of these. However, many company files contained no ownership returns and those that did had been extensively weeded to reduce their bulk. Thus, our strategy was to collect all surviving ownership returns for 1865, 1870, 1883, 1890, and 1900, or one year either side of these sample years if the return existed. If they were available, 1880 or 1881 were collected in those cases where a company had no returns for 1882–1884. In addition, we collected all returns from the 1850s. If a company had ownership returns that fell outside the selected sample years, we collected a return for each decade between 1860 and 1900, where available. We photographed 999 ownership returns (Form E), which were then inputted manually and verified by data-entry services. In total, after removing firm-years with missing and unintelligible data, we had ownership returns for 890 firm-years.

17 Grossman, “New Indices.”

18 Acheson, Graeme G., Hickson, Charles R., Turner, John D., and Ye, Qing, “Rule Britannia! British Stock Market Returns, 1825–1870,Journal of Economic History 69, no. 4 (2009): 1107–37; Grossman, “New Indices,” 130.

19 Notably, about 29 percent of companies had their shares traded on more than one stock market.

20 On the development of these provincial stock exchanges, see William A. Thomas, The Provincial Stock Exchanges (London, 1973).

21 Cheffins, Brian R., Chambers, David, and Koustas, Dmitri K., “Ownership Dispersion and the London Stock Exchange's ‘Two-Thirds Rule’: An Empirical Test,Business History 55, no. 4 (2013): 670–93; Faccio, Mara and Lang, Larry H. P., “The Ultimate Ownership of Western European Corporations,Journal of Financial Economics 65, no. 3 (2002): 365–95; La Porta, Lopez-de-Silanes, and Shleifer, “Corporate Ownership.”

22 Debentures were corporate bonds, and it was only in the latter part of the 1880s that they became common among nonrailway companies (Coyle, Christopher and Turner, John D., “Law, Politics, and Financial Development: The Great Reversal of the U.K. Corporate Debt Market,Journal of Economic History 73, no. 3 [2013]: 809–45).

23 La Porta, Lopez-de-Silanes, and Shleifer, “Corporate Ownership.”

24 For example, the voting scheme of the iron, coal, and steel producer Bolchow, Vaughan and Company granted one vote for every share held up to two hundred and one vote for every five shares held beyond two hundred (see company's articles of association). The voting scheme of Muntz's Metal Company was as follows: one vote for every ten shares up to a maximum of ten votes (see company's articles of association). The voting scheme of the Wakefield and Barnsley Union Bank was as follows: 5 to 20 shares = one vote; 21 to 50 shares = two votes; 51 to 100 shares = three votes; 101 to 200 shares = six votes; 201 to 300 shares = eight votes; above 301 shares = ten votes (Stock Exchange Official Intelligence [London, 1890]).

25 Jefferys, Business Organisation, 268. In addition to this capital-raising motivation, partnerships were also converted to help founding entrepreneurs fully or partially cash out and to diversify the ownership; see John Armstrong, “The Rise and Fall of the Company Promoter and the Financing of British Industry,” in Capitalism in a Mature Economy: Financial Institutions, Capital Exports, and British Industry, 1870–1939, ed. Jean Jacques Van Helten and Youssef Cassis (Aldershot, U.K., 1990), 118. These motives were certainly at play in some brewing conversions; see Terry R. Gourvish and Richard G. Wilson, The British Brewing Industry, 1830–1980 (Cambridge, U.K., 1994), 257, and Watson, Katherine, “Banks and Industrial Finance: The Experience of Brewers, 1880–1913,Economic History Review 49, no. 1 (1996): 5881.

26 Cottrell, Industrial Finance, 168; Gourvish and Wilson, British Brewing Industry, 257; Payne, “Large-Scale Company,” 531; Watson, “Banks and Industrial Finance.”

27 For the incorporation of iron, coal, and steel companies, see Jefferys, Business Organisation, 74; Lucy Newton, “The Finance of Manufacturing Industry in the Sheffield Area c. 1850–1885,” (PhD diss., University of Leicester, 1993), 291–341; Katherine Watson, “The New Issue Market as a Source of Finance for the U.K. Brewing and Iron and Steel Industries, 1870–1913,” in The Evolution of Financial Institutions and Markets in Twentieth-Century Europe, ed. Youssef Cassis, Gerald D. Feldman, and Ulf Olsson (Aldershot, U.K., 1995), 211–50.

28 Jefferys, Business Organisation, 84–90; Douglas A. Farnie, The English Cotton Industry and the World Market, 1815–1896 (Oxford, 1979), 209–27.

29 Acheson, Graeme G., Hickson, Charles R., and Turner, John D., “Does Limited Liability Matter? Evidence from Nineteenth-Century British Banking,Review of Law and Economics 6, no. 2 (2011): 247–73; Hannah, “Divorce of Ownership.”

30 John D. Turner, Banking in Crisis: The Rise and Fall of British Banking Stability, 1800 to the Present (Cambridge, U.K., 2014), 118. Another possible reason is that the existence of a large shareholder might discourage others from investing since such owners could use their dominance to expropriate minority shareholders in a sector characterized by high levels of information asymmetry (Acheson, Hickson, and Turner, “Does Limited Liability Matter?” 259). Other types of companies may have had these types of restrictions on votes of large shareholders because of (a) the need to develop stakeholder trust (particularly in the case of public utilities), (b) tradition, or (c) political influence. However, such restrictions became less common as the nineteenth century progressed. See Mark Freeman, Robin Pearson, and James Taylor, Shareholder Democracies? Corporate Governance in Britain and Ireland before 1850 (Chicago, 2012), 143–76.

31 A caveat needs to be placed on this method because commonly occurring surnames could result in an overidentification of family firms, whereas not taking into account family links via marriage could result in underidentification.

32 Cheffins, Corporate Ownership, 181–82.

33 Acheson et al., “Corporate Ownership.”

34 Jefferys, Business Organisation, 268.

35 Campbell, Gareth and Turner, John D., “Substitutes for Legal Protection: Corporate Governance and Dividends in Victorian Britain,Economic History Review 64, no. 2 (2011): 571–97.

36 One caveat is that some wealthy individuals may have had both a London and a county address, and we cannot be sure which is reported in the shareholder returns. However, given that many of our companies were traded on provincial stock exchanges, this may be less of a problem because individuals with both a London and county address were much less likely to invest in such companies.

37 For example, one individual who was a large shareholder in four different companies was Charles Morrison, who, although described as a gentleman in four of our shareholder returns, was in reality a behind-the-scenes individual financier with a massive fortune, which made him one of the wealthiest men in Britain at the time of his death in 1909. See W. D. Rubinstein, “Morrison, Charles (1817–1909),” Oxford Dictionary of National Biography (Oxford, 2004); and Jones, Charles A., “Great Capitalists and the Direction of British Overseas Investment in the Late Nineteenth Century: The Case of Argentina,Business History 22, no. 2 (1980): 152–69.

38 However, even this has to be treated with caution since some businessmen may have acquired land to enhance their social status. On land ownership by businessmen, see Nicholas, Tom, “Businessmen and Land Ownership in the Late Nineteenth Century,Economic History Review 52, no. 1 (1999): 2744.

39 We define nobility as peers and children of peers (i.e., those having the title Honourable in front of their names).

40 Hugh Brigstocke, “Lindsay, Alexander William Crawford, Twenty-Fifth Earl of Crawford and Eighth Earl of Balcarres (1812–1880),” Oxford Dictionary of National Biography (Oxford, 2004).

41 Green, David R. and Owens, Alasdair, “Gentlewomanly Capitalism? Spinsters, Widows, and Wealth Holding in England and Wales,Economic History Review 56, no. 3 (2003): 510–36; Newton and Cottrell, “Female Investors”; Rutterford and Maltby, “The Nesting Instinct” and “Women Investors in England”; Rutterford et al., “Who Comprised the Nation.”

42 Twenty were widowed, seven were married, and seven were spinsters. Married women could not own property in their own name prior to the Married Women's Property Act of 1882 (45 & 46 Vict., c. 75).

43 On this, see Rutterford and Maltby, “The Nesting Instinct” and “Women Investors in England,” and Rutterford et al., “Who Comprised the Nation.”

44 On this debate, see Michael H. Best and Jane Humphries, “The City and Industrial Decline,” in The Decline of the British Economy, ed. Bernard Elbaum and William Lazonick (Oxford, 1986), 223–39; Capie, Forrest and Mills, Terence C., “British Bank Conservatism in the Late Nineteenth Century,Explorations in Economic History 32, no. 3 (1995): 409–20; Grossman, Richard S., “Rearranging Deck Chairs on the Titanic: English Banking Concentration and Efficiency, 1870–1914,European Review of Economic History 3, no. 3 (1999): 323–49; Capie, Forrest and Collins, Michael, “Industrial Lending by English Commercial Banks, 1860s–1914: Why Did Banks Refuse Loans?Business History 38, no. 1 (1996): 2644; Forrest Capie and Michael Collins, Have the Banks Failed British Industry? (London, 1992); Fohlin, Caroline, “The Balancing Act of German Universal Banks and English Deposit Banks, 1880–1913,Business History 43, no. 1 (2001): 124; Michael Collins and Mae Baker, Commercial Banks and Industrial Finance in England and Wales, 1860–1913 (Oxford, 2003).

45 On the role of politicians as directors in late Victorian companies, see Braggion, Fabio and Moore, Lyndon, “The Economic Benefits of Political Connections in Late Victorian Britain,Journal of Economic History 73, no. 1 (2013): 142–76.

46 Kimberley Morse John, “Quilter, Sir William Cuthbert, First Baronet (1841–1911),” Oxford Dictionary of National Biography (Oxford, 2004).

47 On the relationship between banks and industry in this era, see Newton, Lucy A., “The Birth of Joint-Stock Banking: England and New England Compared,Business History Review 84 (Spring 2010): 2752, and Newton, Lucy A., “Regional Bank-Industry Relations during the Mid-Nineteenth Century: Links between Bankers and Manufacturing in Sheffield, c. 1850 to c. 1885,Business History 38, no. 3 (1996): 6483.

48 See Geoffrey Tweedale, “Bessemer, Sir Henry (1813–1898),” Oxford Dictionary of National Biography (Oxford, 2004).

49 His shareholding in this company is consistent with the belief that he had substantial assets abroad. See David Brooke, “Brassey, Thomas (1805–1870),” Oxford Dictionary of National Biography (Oxford, 2004).

50 Acheson, Graeme G. and Turner, John D., “The Secondary Market for Bank Shares in Nineteenth-Century Britain,Financial History Review 15, no. 2 (2008): 123–51.

51 Investment trusts, starting with Foreign and Colonial in 1868, invested mainly in foreign and colonial debentures rather than equity.

52 Broadbridge, “Sources of Railway Share Capital,” 186; Campbell and Turner, “Dispelling the Myth,” 15–16; Reed, Investment in Railways, 193–95.

53 This is consistent with Cain, P. J. and Hopkins, A. G., “Gentlemanly Capitalism and British Expansion Overseas II: New Imperialism, 1850–1945,Economic History Review 40, no. 1 (1987): 126.

54 For a detailed account of the early Scottish limited companies, see Peter L. Payne, The Early Scottish Limited Companies, 1856–1895 (Edinburgh, 1980).

55 On freestanding companies, see Wilkins, Mira, “The Free-Standing Company, 1870–1914: An Important Type of British Foreign Direct Investment,Economic History Review 41, no. 2 (1988): 259–82.

56 They do so for at least three reasons. First, prior to death, decedents may have made inter vivos gifts to their families or may have attempted to reduce their wealth to avoid death duties. Second, probate is not required in cases where property is jointly held, as the property passes automatically to the surviving joint owner, usually a spouse. Third, prior to 1898, the wealth reported in probate records includes only unsettled personalty (i.e., property other than land). From 1898 it included unsettled realty (e.g., land) and from 1926 it included settled realty.

57 Notably, according to the Register of Defunct Companies, seventeen of the fifty were large shareholders in companies that were liquidated before they had died.

58 O'Donoghue, Jim, Goulding, Louise, and Allen, Grahame, “Composite Price Index, 1750–2003,Economic Trends 604 (2004): 3846.

59 Lindert, Peter H., “Unequal English Wealth since 1670,Journal of Political Economy 94, no. 6 (1986): 1127–62.

60 Rubinstein, W. D., “The Victorian Middle Classes: Wealth, Occupation, and Geography,Economic History Review 30, no. 4 (1977): 602–23.

61 Nicholas, Tom, “Wealth Making in Nineteenth- and Early Twentieth-Century Britain: Industry versus Commerce and Finance,Business History 41, no. 1 (1999): 1636.

62 Nicholas, “Wealth Making”; Rubinstein, “The Victorian Middle Classes.”

63 Rubinstein, “The Victorian Middle Classes.”

Thanks to the Leverhulme Trust (Grant no. F/00203/Z) for financial support. Thanks also to Nadia Vanteeva for her input into this project. Turner also wishes to thank Geoff Jones, Walter Friedman, and Harvard Business School for their hospitality at the outset of this project. Thanks to the archivists at the National Archives at Kew, the National Archives of Scotland, and the Guildhall Library for all their assistance.

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Active Controllers or Wealthy Rentiers? Large Shareholders in Victorian Public Companies

  • Graeme G. Acheson, Gareth Campbell and John D. Turner

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